Resilient labour market ‘strengthens case’ for rate hikes
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More news: Economists are both impressed by the resilience of Australia’s labour market and wary that ongoing tightness strengthens the case for further rate hikes.
State Street Investment Management APAC economist Krishna Bhimavarapu said the latest labour market data is “impressive for its resilience [but] unsettling because it strengthens the case for further rate hikes”.
“Meaningful concerns over demand destruction would require the unemployment rate moving closer to 5%, so the RBA has bandwidth for more hikes. We continue seeing scope for at least two more this year,” Bhimavarapu said.
Oxford Economics Australia lead economist Ben Udy said that, because the labour force survey is conducted in the first half of the month, the latest data “likely precedes any economic impact from the conflict in Iran and higher fuel prices”.
The data indicates that “the labour market remains tight”, Udy added. Oxford Economics maintained its expectations for a 25 basis point rate hike in May.
VanEck Associates head of investments and capital markets Russel Chesler said the latest data extends a “remarkably resilient period of the Australian labour market”.
While he noted the “market is currently pricing in two to three additional rate hikes this year, which would take the RBA cash rate to 4.6%–4.9%“, Chesler thinks this “may be overly aggressive”.
“The March CPI release, due at the end of April ahead of the May RBA meeting, will be a key determinant of the policy outlook. If recent trends in the US are any indication, inflation could rise from 3.7% into the mid-4% range,” he said.
Treasurer Jim Chalmers said it is “encouraging to see the unemployment remain at 4.3% despite all of the uncertainty in the global economy right now”.
“All of the global economic uncertainty we are seeing in the world right now is informing our thinking ahead of next month’s Budget, but these figures show we have strong economic foundations to confront the challenges ahead,” Chalmers said.
Unemployment rate remains at 4.3% in March
The news: The unemployment rate held steady at 4.3% in March, as the number of those in employment rose by 18,000 over the month.
This is in line with the 4.3% rate posted in February and the consensus market expectation.
The numbers: Unemployment in trend terms lifted to 4.3%, up from 4.2% in February.
Full-time employment lifted by 52,500 over the month, offset by a 34,000 decline in the number of those in part-time employment.
The participation rate decreased by 0.1 percentage points over the month to 66.8%, although this a 0.1 percentage point increase year-on-year.
Underemployment remained at 5.9% in March. Youth unemployment increased to 10.1%. Hours worked lifted by 0.5%.
The context: The Reserve Bank of Australia, which lifted interest rates in February and March, has been flagging that the labour market is tighter than preferred and continues to closely monitor whether this puts upward pressure on inflation.
Job vacancies in the three months to February lifted 2.7%, suggesting a loosening of the private sector job market.
In late March, the federal government called on the Fair Work Commission to deliver an above-inflation pay rise to those on the minimum wage and award-reliant workers, to assist with cost-of-living pressures.
The next RBA monetary policy decision is scheduled for May.
The sources: ABS media release, ABS data
