Unemployment: Jobless rate rises to 4 per cent as Reserve Bank mulls rate cut

The official unemployment rate has risen to 4 per cent, up by 0.1 percentage points in December, according to data released today by the Australian Bureau of Statistics (ABS).

The fresh data will be watched by the Reserve Bank as it prepares to deliberate on whether to cut interest rates in February, with the data showing that the Australian economy continues to be robust from a hiring perspective.

“The number of employed people grew by 0.4 per cent in December 2024, slightly higher than the average monthly rise of 0.3 per cent during 2024. It was also higher than the average monthly population growth of 0.2 per cent over the year,” Bjorn Jarvis, ABS head of labour statistics said.

The ABS also found the participation rate continued to rise, a sign that more people were joining the workforce, and looking for jobs.

In total, 56,000 more people were in work while the number of unemployed increased by 10,000. A high participation rate suggests workers are optimistic about job prospects.

“The participation rate rose 0.2 percentage points to a record high of 67.1 per cent in December. This was 0.5 percentage points higher than a year ago, and 1.6 percentage points higher than March 2020.”

Late last year, the Bank signalled growing confidence that inflation is on track to decline as forecast by 2026, leading markets to price in a 75 per cent chance of a 0.25 per cent February cut.

While November’s labour market figures showed unemployment slightly lower at 3.9 per cent, a decline in hours worked for the first time in six months, this December print showed hours worked at the second highest level in decade.

That suggests that employers are continuing to experience strong labour demand.

“The Australian job market finished the year on a high note, with almost every labour market metric performing strongly,” said Callam Pickering, APAC economist at global job site Indeed.

“Australia’s labour market remains incredibly tight and shows few signs of slowing in the near-term.”

“Australian employment continues to surge higher, driven by strong job creation across most sectors. Forward-looking indicators of labour demand – such as job vacancies and ANZ-Indeed Job Advertisements – suggest that job creation in the near-term will remain strong.”

The official data is diverging from the Reserve Bank’s forecasts for unemployment to reach 4.3 per cent, suggesting that there is no immediate economic need to cut rates in February to stimulate the economy.

Quarterly inflation data, to be released on 29 January, will be closely watched to see if prices are moderating at a sustainable pace.

Inflation continues to ease, with annual food inflation dropping to 2.9 per cent in November, but persistent price pressures in services sectors like rentals, health, and education remain a concern. Rent inflation stayed high at 6.6 per cent annually, reflecting tight housing markets.

If tight labour markets lead to an increase in wages, the RBA would be disinclined to lower rates, warning in its most recent interest rate minutes that if data came in stronger than expected the process of relaxing monetary policy could take longer.

“The market continues to price in a high likelihood of rate cuts being delivered in early 2025. It’s difficult to square that away with what continues to be an incredibly strong job market, particularly a job market that is showing few signs of slowing down,” Mr Pickering said.

“The job market is much tighter than expected and proving to be more resilient than even the most optimistic economy-watcher might have anticipated. This sort of labour market strength, coupled with what is otherwise a weak economy, will give the RBA plenty to think about when they meet in February.”