Oz unemployment falls back to 3.7% – but Oxford Economics sees 4.5% by 2025

The latest labour force data for Australia has seen the Australian Bureau of Statistics (ABS) post a decline back to 3.7% for the national unemployment rate.

Prima facie, this could be taken as the kind of news that might alarm a bear.

Interest rate cuts are on the horizon for Australia in H2CY2024, especially ratified by the fact US Fed chief Jerome Powell overnight said the US market can expect 3 cuts through 2024.

And as for Australia, Barclays see an RBA cut in Q3 while NAB has a more conservative Q4 forecast in place.

But falling unemployment could be taken as a signal that Australians might need to expect a delay to the cutting schedule, given that the labour force appears resilient.

And it is, that can’t be denied.

“With employment growing by around 116,000 people, and the number of unemployed falling by 52,000 people, the unemployment rate fell to 3.7 per cent,” ABS head of labour stats Bjorn Jarvis said.

“Both the employment-to-population ratio and the participation rate in February were around where they were in August 2023, given employment growth and population growth have both been around 1.4 per cent over the past six months, and there has been relatively little change in unemployment.”

Hours worked in February jumped up as people returned to work after January leave periods wound up. Typically jobs in the top end of town see leave periods lasting the entire first month of the year – a dead spot for market-facing industries.

But if all of this sounds like bad news for the disinflation trajectory, and thus rate cutting schedule, Oxford Economics sees it differently.

Oxford Econ’s lead economist for Australia Ben Udy is confident that the fall back to 3.7% is a sort of blip on the radar.

“Don’t get too excited about the strong rise in employment in February as it only unwinds the weakness over the last two months,” Udy said.

“While the labour market is clearly tighter than we previously thought, we still see the unemployment rate rising toward 4.5% by the end of this year.”

Udy noted the average rise in employment over the last 3 months was a “modest” 23,000. Tight, but not tight enough to change the firm’s projection of 4.5% unemployment heading into 2025.

Udy did note, however, the recovery in employment through February was stronger than “we, or anyone else had forecast.”

The RBA is sure to be watching.