Jobs data could put brakes on momentum for rates rise
With key unemployment and inflation data on the horizon, the softening employment market should “send a warning signal” to the Federal Reserve against raising interest rates.
AMP chief economist Shane Oliver predicts labor force data released by the Australian Bureau of Statistics on Thursday will show the unemployment rate rose from 4.3 per cent to 4.5 per cent in December.
This was despite the fact that it was estimated that 30,000 new jobs would be added to the economy.
He said the recovery in the variable participation rate, which fell to 66.7 percent from 66.9 percent the previous month, would likely overshadow the positive impact on unemployment.
“If the unemployment rate picks up, employment growth will rebound a bit, but the trend is still towards softening, which should send a warning signal to the RBA that they need to be careful with rate hikes here,” Dr Oliver told AAP.
Following the revival in inflation in recent months, interest rate increase expectations have increased.
Money markets had fully priced in a 25 basis point increase by August, and traders hinted that a 25 percent increase was likely on February 3.
RBA Governor Michele Bullock said at the last board meeting in December that the labor market was believed to remain somewhat tight.
But HSBC chief economist Paul Bloxham said vacancy rates were trending downward and employment growth was moderating, indicating the job market was not strong.
He said that an interest rate increase in February would not be pleasant.
“The lack of supply-side reform has meant that productivity growth has stalled in recent years and strong growth in public spending has eclipsed private sector activity,” he said.
“This will also raise the question of whether the RBA has cut rates a little too much in 2025.”
The Paris-based Organization for Economic Co-operation and Development was more optimistic in its Australian economic survey released Thursday morning AEDT.
Economists at the OECD said the RBA had managed to achieve a “soft landing” in keeping unemployment low.
The report stated that interest rates “may be eased further in 2026” with the softening in the labor market and inflation expected to return to target in the coming quarters.
Finance Minister Jim Chalmers said the report underlined the economic recovery in Australia.
“The OECD has confirmed that the Albanian government has achieved a ‘soft landing’ for the Australian economy in the face of severe global volatility, preventing a recession and reducing inflation while keeping unemployment low,” he said.
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