A surge in jobs in December has economists split over whether the Reserve Bank is likely to cut rates in February, with some predicting a cut may not come until the second quarter of the year.
A surge in jobs in December has economists split over whether the Reserve Bank is likely to cut rates in February, with some predicting a cut may not come until the second quarter of the year.
Figures released by the Australian Bureau of Statistics today revealed 56,000 more people were employed in December, while the number of unemployed people rose by 10,000.
Seasonally adjusted unemployment rose by 0.1 per cent to 4 per cent.
A record proportion of the Australian population is working, with the employment to population ratio rising 0.1 per cent to 64.5 per cent – 2.3 per cent higher than pre-pandemic levels.
“The number of employed people grew by 0.4 per cent in December 2024, slightly higher than the average monthly rise of 0.3 per cent during 2024,” ABS Head of Labor statistics Bjorn Jarvis said.
“The employment-to-population ratio rose 0.1 percentage point to a new record of 64.5 per cent.”
Commonwealth Bank head of Australian economics Gareth Aird said the December figures were an unusual configuration of numbers.
“The outcomes of strong employment growth and a lift in the participation rate were at odds with our pick and the consensus of economists,” he said.
“Headcount had declined in both December 2023 and December 2022 and participation had fallen on both occasions.
“We and many economists took that to mean the odds today sat with weak employment growth and lower participation. Instead, the ABS ‘labour force lottery’ produced the opposite set of numbers.”
Despite the strong growth numbers, the composition of those numbers took some steam off the figures.
Part-time employment rose by 80,000, offset by a fall in full-time employment of 23,700.
Mr Aird said the broad message from labour market data through 2024 was that the economy was generating enough jobs to keep the unemployment rate flat, despite very weak GDP growth.
“Indeed, the labour market data has been a head scratcher for economists and the RBA over the past year,” he said.
“The strength in hiring continues to defy the signal coming from GDP growth and other higher frequency activity indicators.”
He said a rate cut in February was still more likely than not.
“Money markets have currently priced a ~70 per cent chance of a 25-basis point rate cut,” he said.
“We stick with our call for a 25bp rate cut at the upcoming February Board meeting.
“Australia should be able to run an unemployment of rate of ~4 per cent and see inflation within the target band sustainable, but we don’t know if the RBA shares our view.”
HSBC chief economist Paul Bloxham said the figures were a reminder for the RBA that they were still in the 'narrow pathway' of continued disinflation, and strayed from predicting a February rate cut.
"That said, the continued strength of job creation and the apparent signs of the jobs market tightening, rather than loosening, suggest the 'last mile' of getting core inflation to fall from 3.5 per cent back to 2.5 per cent sustainable, may be hard to traverse," he said.
"As recently as November 2024, the RBA published in its statement of monetary policy that it's own estimate of 'full employment' was 4.5 per cent.
"Even if, as some observers are suggesting, full employment may turn out to be lower than that, the current unemployment rate is a long way below that estimate. Our central case is that the RBA will not cut until Q2, and we see a tangible risk it may take longer than that. We see a 25 per cent chance the RBA does not cut its cash rate at all in 2025."
The next CPI update will be released on January 29, ahead of the Reserve Bank’s rates decision on February 18.
