A shock rise in Australia's unemployment rate to 4.5% in September - well above expectations to its highest since late 2021 - has put an RBA rate cut in November firmly back on the table. Market pricing for a 25bps cut on Melbourne Cup day surged to above 80% on today's data, only a day after the odds had lengthened below 50% following cautious comments from the bank's chief economist. While the RBA may be less concerned by the rise in unemployment than markets given employment is still rising, it seems only a matter of time until the RBA makes a similar pivot to the Fed in focusing more on the full employment side of its dual mandate than inflation.
By the numbers | September
- Employment lifted by 14.9k in September, below the 20k rise expected and the 4th downside surprise in the past 5 months. The initially reported 5.4k decline in August was revised to a larger fall of 11.9k.
- National unemployment rose to 4.5% from an upwardly revised 4.3% in August (from 4.2%). With underemployment increasing from 5.7% to 5.9%, total labour force underutilisation lifted from 10% to 10.4%.
- Labour force participation rebounded to 67% in September after falling to a 5-month low in August (66.8%). The employment to population ratio held steady at 64%.
- Hours worked increased by 0.5% month-on-month, reversing a 0.4% fall in August. But total hours worked in Q3 only maintained their level from Q2.
The details | September
Australia's unemployment rate broke out to 4.5% in September - its highest level since the pandemic-affected conditions of late 2021 - succumbing to the recent softness in employment growth. Although employment rose in September by 14.9k (8.7k full time/6.3k part time), it was far outpaced by growth in the labour force of 48.9k, reflected in the participation rate rising from 66.9% to 67% - just below cycle highs. Meanwhile, the employment to population ratio - the share of working aged Australians with a job - has ebbed from its peaks but is still very elevated at 64%.
The dynamic of subdued employment not matching growth in the labour force is pushing the unemployment rate up - not people losing jobs. Headline unemployment averaged 4.3% in the September quarter, up 4% in the final quarter of last year, while the cycle low was 3.5% in the back half of 2022. The RBA in August forecast unemployment would reach its current level by year-end. In a historical context, unemployment is still low for Australia, around its lows on the eve of the global financial crisis back in 2008/09. The broader underemployment rate stands at 5.9% and total underutilsation is 10.4% - both increased in September but are still lower than they were around 12 months ago.
Hours worked (0.5%) recorded their strongest result since May, firming annual growth from 1% to 1.4%. But the story is less encouraging for the quarter, after hours worked rose 0.3% in July but then fell 0.4% in August. Overall, this left hours worked flat in Q3 compared to Q2, a weak signal for quarterly GDP growth.
In summary | September
A strong reaction to today's print has a November rate cut firmly back in calculations. The upcoming CPI inflation data for Q3 (due October 29) is still key, a report the RBA has flagged upside risks around. If materialised, that could well put the brakes on a November cut; however, risks are also now rising around the labour market.
