Dual mandate: Commuters crossing the street at Town Hall in Sydney. Policymakers are trying to tame persistent price pressures without triggering widespread decline in jobs, a balancing act complicated by limited spare capacity in the economy. — Reuters
SYDNEY: Australia’s economy unexpectedly shed jobs and fewer people sought work, suggesting a gradual loosening in the labour market that may allow the Reserve Bank (RBA) to extend an interest-rate pause.
Employment fell by 21,300 – driven by full-time roles – and compared with an expected 20,000 gain, data from the Australian Bureau of Statistics showed yesterday. The jobless rate held at 4.3% in November compared with economists’ forecasts for a tick-up to 4.4%.
Yields on policy-sensitive three-year government bonds extended losses to be on track for their biggest single-day drop since May. The currency fell while stocks extended gains.
The RBA’s dual mandate to maintain low, stable inflation and full employment makes the current moment unusually delicate.
Policymakers are trying to tame persistent price pressures without triggering widespread job losses, a balancing act complicated by limited spare capacity in the economy.
That tension has, for now, pushed the RBA to the sidelines after three rate cuts this year, setting up one of the shortest easing cycles among developed economies.
The bank held rates again on Tuesday, with governor Michele Bullock warning that the next move may well be up.
By contrast the US Federal Reserve cut for a third straight meeting overnight.
The jobs data are crucial for the RBA’s rate-setting board as the resilience of the labour market, and uncertainty about its tightness, threaten to help fuel price pressures.
Australia’s unemployment rate has edged up from its post-pandemic low of 3.4%, but the RBA still judges the labor market to be tight.
Officials point to a range of indicators to support that view: an elevated vacancies-to-employment ratio, an above-average share of firms reporting difficulty finding staff, brisk unit labour cost growth and model estimates suggesting the economy is close to full employment.
The RBA expects the jobless rate to sit at 4.4% through its forecast horizon that runs until the end of 2027, while employment growth is seen decelerating.
The forecasts released in November were based on the assumption that the cash rate would be 3.4% in mid-2026, implying one cut between now and June.
Updated forecasts will be released at the central bank’s next policy announcement on Feb 3.
A string of recent releases pointed to an economy that’s operating close to capacity.
Credit growth is surging while house prices are hitting record highs.
At the same time, consumers show signs of caution, with real per-capita spending broadly flat and the savings ratio edging higher as households rebuild financial buffers.
Before the RBA’s February meeting, policymakers will receive an additional round of jobs data as well as the key fourth-quarter inflation report.
Simon Warner, chief investment officer at Aware Super who manages A$210bil in assets, expects the growth outlook for Australia to remain broadly stable.
“And that means that the RBA will naturally toggle rates up and down, but not by huge amounts,” he said.
“It’s currently likely, I think that we see an edge up, but I don’t think we are on a big cycle that’s aiming to stifle economic demand.” — Bloomberg
