The latest unemployment figures have prompted the CBA to reconsider its rate cut forecasts. Although it remains the last major bank to predict a rate cut in February, it acknowledged Thursday that the data cast doubt on its projection.
The unemployment rate fell 0.2 points to 3.9 percent due to a drop in the participation rate, and surprised the market which had widely predicted a rate of 4.2 percent.
The ABS said employment increased by 36,000 people and the number of unemployed fell by 27,000 people, pushing the rate down.
Responding to the publication, the ABC’s Gareth Aird said that, taken at face value, the data indicates that the labor market is not easing despite GDP growth being well below trend.
But Aird estimated that “Australia should be able to achieve an unemployment rate of around 4 per cent and see inflation sustainably within the target range.”
As such, he said: “We maintain our call for the RBA to begin normalizing the cash rate in February. But it’s clear that this view is in doubt following today’s workforce report.
“It will almost certainly take a reduced average CPI of 0.6%/t in Q4 24 for the RBA to cut its policy rate in February. And the job market should show signs of easing in December.”
VanEck’s head of investments and capital markets, Russell Chesler, was less optimistic, pointing out that the data released on Thursday significantly reduced the chances of an RBA rate cut in the near future.
“The RBA expects the labor market to ease a little further as we reach the home stretch of the current tightening cycle, with the quarterly unemployment rate rising by 40 basis points to 4.5 for hundred and remaining there until the end of 2026.’” Chesler said.
“This time last month, the market was predicting that the first rate cut would occur in August 2025. Many analysts have since moved their forecasts to February or May 2025, provided the labor market remains as strong as ever. it was last year. and a half and there are no exogenous shocks in the meantime, we maintain our long-standing position that the first rate cut will come later in 2025.”
ANZ stuck to its guns on Thursday, reaffirming that May was the most likely month for a cut.
“Weaker economic data from the recent national accounts release increased the risk of a reduction in February, but this labor market result somewhat offsets this risk,” the big four banks said.
“Our preferred measure of labor market tightening (FTE-pop) remains at levels consistent with inflation returning to the RBA’s 2-3 per cent target range.”
AMP’s My Bui said the employment figures prove Australia’s labor market is still very resilient, despite a long period of restrictive rates.
“Overall, today’s employment figures support a later start to the RBA’s spending-cutting cycle as a tighter labor market makes it harder to cut spending. “inflation of labor and service costs,” Bui said.
She noted, however, that weak household consumption, a general slowdown in inflationary pressures as well as “further cracks” in the labor market mean there is a “strong” chance of an earlier reduction in FEBRUARY.
“Regardless, we expect rates to fall to 3.6 percent by the end of 2025.”
