Australian unemployment falls to 8-year lows

Don Arnold/WireImageHiring keeps on keeping on.
  • Australia’s unemployment rate fell to 4.9% in February, the lowest level in eight years.
  • The decline reflected that the size of Australia’s labour market declined during the month, rather than strong hiring. Total employment rose by 4,600, below the 15,000 increase expected.
  • Unemployment spiked in New South Wales and Victoria, although it fell heavily in all other states.
  • The RBA has said that a sustained increase in unemployment is one scenario that could warrant further rate cuts. This report does not provide a smoking gun for the RBA to resume monetary policy easing.

Australia’s unemployment rate fell unexpectedly in February, dropping to fresh multi-year lows.

According to the Australian Bureau of Statistics (ABS), the unemployment rate dipped to 4.9% in seasonally adjusted terms, beating expectations for a steady reading of 5%.

It now sits at the lowest level since June 2011.

If markets were looking for a smoking gun that could trigger a near-term rate cut from the Reserve Bank of Australia (RBA), this report failed to deliver it.

Previously, the RBA has stated that a sustained increase in the unemployment rate was one scenario that could warrant further rate cuts.

The lower unemployment rate came despite a steep slowdown in employment which rose by 4,600 after seasonal adjustments, undershooting forecasts for a larger increase of 15,000.

January’s increase in employment — originally reported at 39,100 — was revised down marginally to show a gain of 38,300.

Full-time employment fell by 7,300, masked by a 11,900 increase in part-time workers. Total hours worked in the economy rose by 3.1 million hours to 1.77 billion hours, reflecting that more Australians are in employment.

Unlike the monthly split in hiring, total full-time employment over the past year rose by 210,000, outpacing a 74,000 increase in part-time workers over the same period.

In total, 284,000 Australians found employment over the past 12 months.

By state, Queensland, Victoria and South Australia saw employment lift by 6,400, 5,700 and 3,800 respectively, helping to offset a 5,800 decline in New South Wales over the same period.

The decline in employment in Australia’s largest state saw its unemployment rate jump to 4.3%, up substantially from 3.9% in January. Victoria’s unemployment rate also rose from 4.6% to 4.8% during the month.

Helping to explain the national decline, unemployment fell sharply in all other states in seasonally adjusted terms.

ABS

The decline in the national unemployment rate reflected that Australia’s labour force participation rate fell to 65.6%, down 0.1 percentage points from a month earlier.

This rate measures the proportion of Australians of working age who either have a job or are actively seeking employment.

Markets had been expecting participation to remain steady at 65.7% in February.

In numeric terms, employment increased by 4,600 while the size of the labour force declined by 7,100, resulting in total unemployment falling by 11,700 to 664,300 workers.

The employment to population ratio — capturing the proportion of Australia’s working-age population with a job — declined by 0.1 percentage points to 62.3%, although it still remains near the highest level in a decade.

Like the unemployment rate, Australia’s underutlisation rate also fell, dipping to 13% after seasonal adjustments, down 0.1 percentage point from a month earlier.

That decline came despite Australia’s underemployment rate remaining steady at 8.1% in seasonally adjusted terms. This measures the proportion of the labour market who have a job but who would like to work more hours.

Despite the modest improvement in the underutilisation rate — that which includes both unemployed and underemployed workers — it still sits at elevated levels, pointing to a continuation of sluggish growth in wages seen in recent years.

With financial markets expecting at least one 25 basis point rate cut from the RBA this year, with a second deemed to be an even-money bet, the February jobs report has seen the Australian dollar jump to as high as .7167 against the greenback.

Australian government bond yields — having fallen to fresh multi-year lows earlier in the session — have also risen slightly, indicating a reduced chance of a near-term rate cut from the RBA.

Those moves also reflect chatter before the jobs report that Australia’s unemployment rate may have increased to 5.1% in February.

As for whether the RBA will cut rates this year, opinion among economists is divided following the jobs report.

“The data buys time for the RBA, which is trying to reconcile the deterioration in growth in the second half of 2018 with a strong labour market,” said Kaixin Owyong, Economist at the National Australia Bank.

“While the Bank’s strategy is to hold the cash rate steady and wait for the tension in the domestic data to resolve itself, the NAB business survey shows a clear loss of momentum over recent months and we continue to expect the RBA will cut rates by 25 basis points in July and again in November.”

Marcel Thieliant, Economist at Capital Economics, is another who expects that slower economic growth will likely see the RBA cut rates this year.

“The fall in the unemployment rate to an eight-year low in February suggests the RBA will remain its optimistic stance for now, but we still think that the labour market will soon start to slacken again,” he said.

“Our view is that job growth is a lagging indicator and that GDP growth will remain below trend this year as the housing downturn weighs on activity, forcing the Reserve Bank of Australia to cut interest rates.”

However, not everyone agrees that a rate cut is a done deal given the continued resilience of the jobs market.

“Today’s data supports our view that the RBA will leave the cash rate at 1.5% for the foreseeable future,” said Kristina Clifton, Senior Economist at the Commonwealth Bank.

“The unemployment rate is still heading down… and leading indicators of employment growth continue to point to decent jobs growth ahead.”

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