CBA pushes back rate cut expectations
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More news: Commonwealth Bank economists have pushed back their rate cut expectations to December 2024, from their early expectations of November.
The bank is one of the few expecting rates to ease this year, with markets fully priced in for February. CBA's analysts expect a 25 basis point cut before the end of the year with more to come next year. But they've pushed back their forecast due to the hotter than expected August labour force data.
CBA said the risk to its revised call is a later date, "namely February 2025".
Westpac shifted its earlier November call to February 2025 in August after Reserve Bank governor Michele Bullock all but ruled out a near-term easing. NAB shifted its expectation to May 2025, from November 2024, back in June. ANZ was the first of the big four to shift expectations to February 2025 earlier this year.
What they said: "Not all the ducks have lined up for a November rate cut," CBA economists said in a note after the employment data was published.
The December Board meeting will be held after the Q3 24 national accounts have been released, which means the Board will have full visibility on how the Australian economy performed over the September quarter," they said.
"We expect the RBA will commence an easing cycle before it declares we have hit full employment given policy is currently restrictive — waiting until the destination is reached before normalising the cash rate means unemployment will rise by more than is both necessary and desired.
"We continue to look for 125 basis points of RBA easing by end‑2025 that would take the cash rate to 3.10%."
Reporter's view: Economists split on unemployment rate implications
Reporter’s view: While the overall flat unemployment figure was not particularly surprising, mixed views are emerging about the implications of the data for Australia’s future rate cut timing.
No one is expecting a rate cut from the Reserve Bank next week from the current 4.35%. The resilient labour market will not tempt the central bank to waver from its current plans to stay still until underlying inflation is clearly heading towards the target band of 2% to 3%. But it is possible that the labour force data might change forecasts over the next few months.
Goldman Sachs analysts said in a note that when you look through volatility in the data, the unemployment rate is “gradually trending higher” and a series of lead indicators suggest this will continue. They expect to see joblessness hit 4.5% by the end of 2024, which is quite a bit above the RBA’s 4.3% expectation. Moody’s Analytics thinks 4.4% by December.
On the other side of the fence is the ANZ economics team, which currently expects the easing cycle to kick off with a rate cut in February 2025. But, they are now saying the "risks look to have tilted to a later rather than an earlier start, particularly given the current momentum in the labour market".
GSFM investment strategist Stephen Miller said in a media statement that the RBA "might need to exercise a little more patience" when it comes to cuts. Miller has February 2025 pencilled in, but now thinks this could be as late as May for an easing.
KPMG chief economist Brendan Rynne also thinks early next year remains the most likely scenario for a rate cut. He said the labour market would continue to soften over the rest of this year, as the figure typically lags economic growth.
Unemployment rate remained steady in August
The news: The unemployment rate remained steady at 4.2% in August in seasonally adjusted terms, broadly in line with expectations, according to new data from the Australian Bureau of Statistics.
The numbers: The participation rate remained unchanged over the month at 67.1%, while employment increased to 14,458,600.
The numbers underlying the headlining figure were mixed. The underemployment rate increased from 6.3% to 6.5%. And full time employment dropped by 3,100 roles to 9,979,199 people. Part-time positions were up by 50,600 jobs to 4,479,500.
The number of unemployed has fallen to 627,000, but it has risen 45,000 since the end of last year.
The context: Markets were not expecting a drastic change in the unemployment rate, with the majority of economists thinking it would remain unchanged or show a slight lift over the month.
These new labour force figures are the last piece of critical data before the Reserve Bank board meets next week to decide on interest rates. Following the US Federal Reserve's 50 basis point cut on Thursday morning, local time, there is increased focus on how the RBA will interpret the latest data.
The resilience of the labour market will continue to be a challenge for the RBA, which is expecting the unemployment rate to hit 4.3% by December before lifting to 4.4% next year.
What they said: "The growth in employment increased the employment-to-population ratio by 0.1 percentage point to 64.3%, which is just below the November 2023 historical high of 64.4%," ABS head of labour statistics Kate Lamb said.
"This rise in the employment-to-population ratio was underpinned by an increase in the employment-to-population ratio for men, which rose by 0.2% to 68.1%, while the measure stayed at the near historical high of 60.6% for women.
"The high employment-to-population ratio and participation rate shows that there are still large numbers of people entering the labour force and finding work, as employers continue to look to fill a more than usual number of job vacancies."
The source: Australian Bureau of Statistics
