Key takeaways:
- Labour market remains decidely tight. Employment rose by 18,000 in January despite post-COVID seasonal distortions that typically depress hiring early in the year. The unemployment rate edged down again to 4.1% (fourth straight decline), reinforcing the view that labour demand remains strong.
- Forward indicators point to stable, very low unemployment. Job ads data from ANZ-Indeed and SEEK show no meaningful deterioration, suggesting unemployment is unlikely to rise materially in the near term.
- Underemployment remains historically low. Although underemployment and youth unemployment ticked up in January, underemployment continues to track well below pre-COVID levels, underscoring persistent labour market tightness.
- Stronger case for further RBA tightening. The data strengthens expectations that the Reserve Bank of Australia will lift rates again, with May the base case but a back-to-back move possible if upcoming data remains firm. Falling unemployment in WA (3.4%), potentially linked to elevated precious and base metal prices, adds to upside demand pressure.
Bottom line:
Only a strong result was likely to be considered unambiguous given changes to seasonal hiring practices that have tended to depress hiring and slightly raise unemployment in recent Januarys. Given some of this effect was likely today, I consider this to be such a strong result, with the unemployment rate now trending lower.
This strengthens the case for a quick follow up interest rate rise. I have been expecting that to occur in May, but uniform stronger data between now and the RBA’s mid-March Board Meeting, could swing the case. Job advertising trends suggest no significant rise in unemployment is in prospect, while I continue to detect stronger activity from WA (where the unemployment rate this month dropped to 3.4%), likely related to current elevated precious and base metal prices, which few – including the RBA – seem to be talking about.
The detail:
- Employment rose 18,000 in January, very close to the market forecast of +20,000. I had expected a weaker outcome, as seasonal hiring practices seem to have changed since COVID with more employers and employees choosing to start work later in January or early in February. This means I can only interpret this as a strong result, given these changed seasonal practices still likely weighed somewhat on this month’s data.
- The unemployment rate dipped slightly further (at the second decimal place) in January but still rounded to 4.1%. That’s the fourth consecutive decline, which is a fantastic outcome for society, but likely too low to be consistent with inflation returning to target any time soon. The RBA has assessed downside risks to employment as having lessened and the labour market as a little tight, both conclusions which are unlikely to change on these figures.
- One of my favourite lead indicators of the unemployment rate is job advertisement trends. The previous slightly rising trend for the ANZ-Indeed series appears to have stalled/partially reversed, while the broader SEEK job ads series has risen slightly for three successive months. The trends are currently consistent with broadly very low and unchanged unemployment.
- The underemployment rate and youth unemployment rate are both very sensitive to underlying labour market conditions. While both rose this month, encouragingly, the underemployment rate remains extremely low and has been tracking sideways for the past 12 or so months and remains considerably lower than pre-COVID.
- State unemployment rates can be very volatile on a monthly basis, which can also affect the trend series such is the volatility of the monthly readings. However, the trend unemployment rate is stable or falling in all states and territories except TAS, which is very prone to this volatility. The trend unemployment rate has declined in WA (to 3.4% in January!), NSW and Victoria recently. I remain alert to the potential that the mining sector creates some additional demand pressure for the RBA, given currently elevated commodity prices for selected precious and base metals.
- For monetary policy, the RBA’s latest forecasts envisage a slow return of inflation to target even under the assumption that a fair bit of the recent rise in inflation is due to temporary factors. The forecasts incorporate a second interest rate increase this year. I think it a very, very low probability that the RBA has a “one and done” tightening cycle as some are still suggesting. The Governor seemed to signal a continuing cautious approach by the Board that had me favouring the next interest rate increase occurring in May. However, if the data is uniformly strong between now and the March Board meeting, a back-to-back rate increase could occur. Today’s unemployment outcome is a nod in that direction.
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Chief Economist
Employment
Interest Rates
labour force
RBA
small business
unemployment
Chief Economist
Ivan joined CreditorWatch as Chief Economist in October 2024. He is a highly experienced chief economist and keynote speaker on the economy and financial markets.
Most recently, Ivan was Chief Economist, Corporate & Institutional Banking for National Australia Bank, but has also been Chief Economist for Qantas and Chief Economist (Australia) for ANZ and Deutsche Bank. Ivan has also consulted to SEEK, IATA and Virgin Australia.
Ivan holds a Bachelor of Economics with Honours from the University of Tasmania and commenced his career at the Reserve Bank of Australia.
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