Macquarie: Australia's jobs data is better than it looks, but pressure to cut rates is still on the RBA

Photo: Getty/Michael Nagle

The underlying details of the January jobs data will add to perceptions that the Reserve Bank of Australia (RBA) is under no immediate pressure to ease further. But there are no signs a near-term lift in wages growth and a stronger currency is unlikely to help strengthen the pace of hiring, according to Macquarie economist James McIntyre.

In short McIntyre is saying the data today wasn’t enough and risks remain tilted towards a rate cut. Macquarie sees two more rate cuts for the year taking the cash rate to 1%.

Australia’s January jobs report had good and bad news. According to the ABS, employment rose by 13,500 in seasonally adjusted terms, beating expectations for a gain of 10,000. December’s increase, previously reported as a gain of 13,500, was revised higher to a rise of 16,300. However, all of the jobs growth last month came from part-time employment.

“Significant slack remains, and in the absence of a significant acceleration in hiring it will remain a dampener on wage pressures for an extended period,” McIntyre said.

Macquarie says it would take about 2.5 years of 25,000 job additions a month to unwind the accumulation of slack.

The next key catalyst for the RBA is the capital expenditure expectation expectations survey on Feb 23, which will indicate if non-mining business investment has picked up, he said.

While the pick up in underlying labour demand is encouraging, “the pace of jobs growth continues to fall short of the level required to stabilise the unemployment rate,” McIntyre said.

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