The RBA is watching jobs data closely -- it won't like what was released today

  • Australia’s jobs market will likely determine whether or not the RBA will cut interest rates.
  • Internet job vacancies fell by 0.9% in February, leaving them down 2.5% over the year.
  • When job vacancies fall, unemployment tends to rise.
  • Australia’s February jobs report will be released on Thursday. Beyond that, ABS job vacancy data later this month also looms as a crucial release for interest rates .

When it comes to the outlook for Australia’s cash rate, it’s pretty clear that policymakers at the Reserve Bank of Australia (RBA) are watching Australian labour market data pretty closely.

Indeed, at its March policy meeting, board members agreed that developments in the labour market were “particularly important” when it comes to the future direction for official interest rates.

That followed an acknowledgement from RBA Governor Philip Lowe last month that a sustained increase in Australia’s unemployment rate was one scenario that could warrant a further reduction in the cash rate.

Given the latest trends in the Australian government’s Internet Vacancy Index (IVI), the odds of a RBA rate cut at some point this year are strengthening.

In February, job vacancies advertised on the internet slumped by 0.9% in trend terms, leaving total openings from a year earlier down 2.5%. Job ads have now fallen in nine of the past 12 months, including in January and February.

The IVI is based on a count of online job advertisements newly lodged on SEEK, CareerOne and Australian JobSearch during a particular month.

The government says it does not reflect the total number of job openings in Australia as it does not include jobs advertised through other online job boards, employer websites, word of mouth, in newspapers, and advertisements in shop windows.

It also does not specify whether vacancies are for full-time, part-time or casual workers.

As the chart below suggests, when vacancy levels fall, unemployment tends to rise, and vice versus.

Department of Jobs and Small Business

According to the IVI, openings fell in all occupational categories bar community and personal services last month, driven by some particularly nasty falls in some of the largest employing sectors in the country such as retail and construction.

Similar trends were also evident over the year with three occupational groups — sales, machinery operators/drivers and labourers — logging decline in vacancies of 10% or more.

Department of Jobs and Small Business

By state, openings fell in all locations except the ACT last month, including by 0.7% and 0.9% respectively in New South Wales and Victoria, both the most populous states in Australia and where home prices fell the fastest last year.

Outside of Tasmania where economic conditions have been significantly stronger than in other parts of the country, vacancies were either near-flat or down in all states over the year.

Department of Jobs and Small Business

If these trends are replicated in Australia’s official jobs data in the months ahead, it will increase the probability that the RBA will cut official interest rates.

That means Australia’s February jobs report released on Thursday — already regarded as being a key economic indicator for the RBA — has now taken on even greater significance.

Beyond that release, the ABS job vacancy survey for February, released on March 28, also looms as key release coming less than a week before the RBA holds its April monetary policy meeting.

The RBA has pointed to this release frequently in recent commentary to justify its view that hiring will remain strong in the period ahead, helping to keep gradual downward pressure on Australia’s unemployment rate.

If it too falters like the IVI, it carries the potential for the RBA to ease policy far sooner than many expect.

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