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Strong employment data may delay interest rate cuts


Australia’s unemployment rate defied expectations, dropping to 3.7% in February. This strong jobs data may prompt the RBA and Treasury to delay interest rate cuts anticipated for later this year.

Employment saw an increase of approximately 116,000 people, while the number of unemployed individuals dropped by 52,000. This marks a return to a rate similar to six months prior.

The rise in employment follows a weaker outcome in December and a modest increase in January. Overall, there were 70,000 more employed individuals in February compared to November, aligning with the underlying trend. February’s significant employment surge was attributed to a larger-than-usual pool of individuals who had secured jobs they were waiting to start or return to from December and January. This influx into employment exceeded the numbers from the same period last year. In contrast, the percentage of employed individuals leaving their jobs between January and February remained relatively stable. This discrepancy highlights a notable difference between those entering and exiting the job market.

Anneke Thompson, Chief Economist, CreditorWatch said: “The seasonally adjusted unemployment rate dropped by 0.4 per cent to 3.7 per cent, as many workers who were jobless in January but had employment to move in to have taken up those jobs. There was a very large increase – 116,500 people employed over February in seasonally adjusted terms. However, on a trend basis, employment increased by 26,600 people and the unemployment rate remained steady, at 3.8 per cent. The unemployment rate in trend terms has now been steady for six months straight.

“The unusually large drop in unemployment can be partially attributed to a higher-than-normal inflow of workers into employment in February this year. The ABS did point out that employment growth and population growth have been roughly the same since August 2023, which is why there has been little change in unemployment.

“This data will be taken with caution by both the RBA and Federal Treasury, as both entities have been generally expecting a slowing labour market over the next six months. However, any continued strength in the labour force will likely push back the expectation of an interest rate cut to later in 2024, or even early 2025.

“CreditorWatch’s Business Risk Index points to significantly slowing conditions in the small-to-medium enterprise sector, with the average value of invoices dropping on a trend basis over all of 2023 and in to early 2024. Trade payment defaults are at record highs, indicating that there are a higher-than-normal number of businesses with cash flow issues.”

With a notable uptick in employment, the seasonally adjusted employment-to-population ratio rose to 64.2 per cent, and the participation rate increased to 66.7 per cent. While higher than the previous two months, these figures remain below the peak levels observed in November. The seasonally adjusted monthly hours worked also experienced a notable increase of 2.8 per cent in February, marking a turnaround from the declining trend observed since July. However, February’s hours worked remained below levels seen in mid-2023.

In terms of underemployment and underutilisation, both rates experienced declines in February. The underemployment rate dropped to 6.6 per cent, while the underutilisation rate, combining unemployment and underemployment, fell to 10.3 per cent. Trend data for February showed stability in the unemployment rate at 3.8 per cent, with modest growth in employment and a slight decrease in hours worked. The participation rate and underemployment remained relatively unchanged. Despite the recent slowdown in growth rates, it’s crucial to contextualise this trend within the broader labor market dynamics observed during the previous years.

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