The unemployment rate remained stable in August, at 4.2 percent, but job growth remained above market expectations, at 47,000.
While the consensus was for an unemployment rate of 4.2 percent, employment is expected to peak at 25,000.
Commenting on the data, GSFM’s Stephen Miller suggested this is unlikely to lead to an immediate rate cut from the RBA, arguing there is no significant deterioration in the labor market to warrant a change short-term policy.
He believes any cut in RBA policy rates this year is a “distant prospect”, unless there is “some totally unanticipated” – and at this stage, “unlikely” – deceleration in inflation .
“The RBA’s inflation control task continues to be thwarted by counterproductive government policies, despite some tortured political commentary denying this circumstance,” he said.
Miller criticized Australia’s wage-setting and industrial relations regulations, as well as excessive and “poorly constructed” public spending, particularly at the state level, pointing out that it is likely to exacerbate inflation by increasing overall demand.
“With excess demand being the main driver of inflation, government contribution is problematic, at least for those items that do not have dampening, short-term effects on supply, as cuts arguably do income tax,” he said.
“What they do, however, is give the RBA some ability to be patient in considering any downward adjustment to the policy rate. An unfavorable interpretation is that fiscal laxity has exacerbated inflationary pressures and led to delays in interest rate relief.”
He said February 2025 remains “the most likely time for the first reduction in the policy rate”, but added it could happen as late as May.
Similarly, HSBC’s Paul Bloxham does not expect rate cuts until the second quarter of 2025 and forecasts only limited easing in 2025. Like Miller, he attributed the strong job creation to employment in the public sector and high participation in the labor market, with the labor market only gradually relaxing.
“Prepare for big divergences between the RBA’s interest rate path and that of many other central banks, including the Fed,” he warned.
“Still strong job creation and an economy operating near full capacity are contributing to Australia’s ongoing inflation problem, and average rate cuts are unlikely to be on the agenda for some time Again.”
Do jobs spell good news for the RBA?
Anneke Thompson, chief economist at CreditorWatch, described the jobs figures as “good news for the RBA”, indicating that the central bank is managing to avoid a rise in unemployment beyond its forecast – 4.3 per cent by December 2024 and 4.4 percent by March 2025.
Thompson believes the RBA will closely monitor any forecast that indicates the labor force is set to weaken more than expected.
“So far, however, it can be said that the RBA has successfully ‘threaded the needle’ towards a soft landing out of this inflationary period,” she said.
However, unlike Miller and Bloxham, Thompson noted that while it is almost certain that the policy rate will remain unchanged after Tuesday’s meeting, the U.S. Federal Reserve’s unexpected 50 basis point cut has increased the likelihood of a rate cut in November.
However, she added: “Assuming the economy continues to cool at a reasonably steady pace, I still expect the first policy rate cut to take place in February 2025.”
AMP’s My Bui agreed with the assumption that rate cuts could happen in early 2025, but highlighted potential cracks emerging in the jobs landscape.
Indeed, analysis of the latest employment figures showed that although employment increased by more than 47,000, the growth was driven by part-time jobs rather than full-time employment.
Despite this, according to Bui, “it is probably not yet time for the RBA to cut rates”.
“But looking ahead, leading employment indicators tell us all that labor demand is already weakening and could deteriorate further, leaving room for the Reserve Bank to ease policy early 2025,” Bui said.
Krishna Bhimavarapu, APAC economist at State Street Global Advisors, offered a slightly different perspective.
Reflecting on the Fed’s massive rate cut and Australia’s unemployment data, Bhimavarapu said: “These developments and falling inflation mean the RBA may not [be] very far from seeing a path towards rate cuts.”
However, he admitted that there is still a “slim chance” of this change happening in the short term, especially as the bank meets a day before the August monthly CPI is released next week.
Big banks eye rate cut in December
CBA economist Gareth Aird remained the most optimistic, delaying the bank’s rate cut forecast by just one month from November to December.
Earlier this week, the ABC predicted that the reduced average CPI for Q3 24 would be lower than the RBA’s expectations – at 2.7 per cent for the 12 months to August. However, Aird said on Thursday, recent strength in employment growth, coupled with the RBA governor’s still relatively hawkish rhetoric, means that “we now view December as the most likely month to begin to normalize the rate cash”.
“The August labor market data was better than expected,” Aird said.
“In other words, recent strength in labor market data means that a reduced average CPI in Q3 24, in line with our forecasts, is unlikely to be enough for the RBA to be willing to cut its policy rate in November.”
Instead, Aird suggested that by December the RBA will have reviewed not only the critical Q3 2024 CPI, but also the Q3 Wage Price Index, labor force data from October and the national accounts for the September quarter, thus providing a holistic view for their decision-making.
“We now believe this more comprehensive set of data will need to be reviewed and assessed by the RBA board if it is to be ready to join a host of other central banks in cutting rates in 2024” , said the economist.
The risk for his revised call at the start of an RBA easing cycle in December is a later start date, namely February 2025, Aird admitted.
The CBA made no changes to its base case scenario of policy easing of 125 basis points by the end of 2025, which would raise the money rate to 3.10 percent.
Aird noted that fiscal policy remains the main source of domestic uncertainty, particularly as Australia approaches an election year.
