A file photo of shoppers in Sydney
The unemployment rate is stable at 3.9 per cent for the second consecutive month. Image by Jane Dempster/AAP PHOTOS
  • economy, business and finance

Rate cut prospects up in the air as labour market cools

Kat Wong January 18, 2024

Borrowers are holding out hope for a rate cut in coming months after jobs data signalled a cooling labour market.

The jobless rate held at 3.9 per cent for a second month as employment dropped by 65,000 and the number of unemployed Australians slipped by 1000, data from the Australian Bureau of Statistics released on Thursday revealed

The December decline was the largest monthly fall in employment since the COVID-19 lockdowns.

Construction workers in Sydney
 The loss of 65,000 jobs was offset by the employment of 52,000 new workers, ABS data shows. Image by Flavio Brancaleone/AAP PHOTOS 

But there were still 52,000 more people employed last month than in September as seasonally adjusted employment grew by about 32,000 people per month.

ABS head of labour statistics David Taylor says this reveals reasonably strong underlying growth during 2023.

“The strength in employment in October and November and the fall in December, reflected changes in the timing of employment growth in the last few months of 2023, compared with earlier years,” Mr Taylor said.

“Both the unemployment and underemployment rates remained relatively low and the participation rate and employment-to-population ratio relatively high, suggesting that the labour market remains tight.”

Employment Minister Tony Burke said the result was “the best set of annual figures Australia has ever had in the history of the monthly series”.

Some economists are now tipping an additional drop in the cash rate.

The ABS last Wednesday revealed the monthly consumer price index for November had slowed to 4.3 per cent, its lowest level since January 2022.

Tony Burke
 Employment Minister Tony Burke said the latest jobs data was the best ever set of annual figures. Image by Toby Zerna/AAP PHOTOS 

According to IG Australia market analyst Tony Sycamore, these figures taken together raise prospects of a rate cut announcement from the Reserve Bank.

“Make no mistake, the labour market is cooling and following a recent run of softer inflation data, RBA rate cuts are coming,” he said.

Though Mr Sycamore is expecting two 25 basis point rate cuts in 2024, the possibility of a third will become clearer after fourth quarter inflation data is released on January 31.

KPMG chief economist Brendan Rynne said the RBA had completed its tightening cycle, with inflation expected to continue falling towards the target band.

“However, the RBA will only start cutting rates if it sees inflation firmly in the target band and a sustained rise in the unemployment rate, and these conditions are not anticipated to materialise until the latter part of 2024,” Dr Rynne said.

A file photo of Angus Taylor
 Shadow treasurer Angus Taylor highlighted the drop in jobs and said the economy was going backwards. Image by Mick Tsikas/AAP PHOTOS 

Treasurer Jim Chalmers said the resilience of the Australian labour market was one of the nation’s greatest strengths.

“(We’re) seeing the impact of global challenges and higher interest rates which are slowing our economy in expected ways,” he said on Thursday.

But shadow treasurer Angus Taylor pointed out the drop in jobs was the biggest fall since 1993, outside of the pandemic.

“We are seeing the impact of an economy that’s going backwards,” he said.

The Reserve Bank will make its first interest rate decision of the year on February 6.