The Australian labour market rediscovered form as the October report beat expectations across the board. Employment increased by 42.2k - its strongest result since April - seeing the unemployment rate fall back to 4.3%, reversing its shock rise to 4.5% last time out. Markets reacted by marking this as the floor for the RBA's easing cycle. The 3-year yield - the most interest-sensitive point on the curve - is up nearly 15bps on the back of today's report to 3.84% - almost 25bps above the current cash rate setting of 3.6%. Pricing a hike as the RBA's next move seems a little premature given the labour market has eased, and temporary factors interrupted with the economy's disinflationary momentum in Q3. Nonetheless, today's report does validate the RBA's decision last week to look through the poor report in September and hold the cash rate steady.
By the numbers | October
- Employment advanced by 42.2k in the month, double the expected rise of 20k. This was just the second upside surprise on consensus in the past 6 months. August's gain was downwardly revised to 12.8k from 14.9k.
- National unemployment fell back to 4.3%, reversing its rise to 4.5% in September and outperforming expectations to print at 4.4%. The underemployment rate (5.9% to 5.7%) and labour force underutilisation (10.4% to 10%) also tightened.
- Labour force participation held steady at 67%, sitting just below cycle highs, while the employment to population ratio was also unchanged at 64%.
- Hours worked rose 0.5% month-on-month for the second month in succession, with annual growth lifting from 1.4% to 2.1%.
The details | October
A much-needed acceleration in employment growth in October saw the unemployment rate rollback from 4-year highs. Employment rose by 42.2k on net in the latest month - full time rising 55.3k as part time fell 13.1k - to post its strongest result since April's 91.1k surge. More evidence will be needed but there are tentative signs that employment is starting to come out of its mid-year slowdown. The 3-month average for employment firmed to 15.1k in October, up from 12.7k in September and 9k in August.
With the participation rate holding steady at 67%, some 25.2k people joined the labour force in October. As this was far outpaced by the addition of 42.2k people moving into employment, in roads were made into unemployment (-17k). Accordingly, the unemployment rate, which was sitting at its highest level (4.5%) since November 2021 going into today's report, fell back to 4.3%. Increases in underemployment and underutilisation in September were also reversed, suggesting that last month's report was noise rather than signal. Underemployment fell from 5.9% to 5.7%, tightening total underutilisation in the labour force from 10.4% to 10%.
Rounding out a strong report, hours worked advanced by 0.5% in October and 2.1% over the year. Interestingly, the ABS estimated that hours worked by people in part time roles rose by 0.7% in the month (3.1%yr), that was despite employment in that segment declining. Hours churned out by those working full time lifted by 0.5% month-on-month (1.9%yr).
In summary | October
October's increase in employment exceeded even top end of the range of estimates (10-40k) for today's report. That is an encouraging result after employment had clearly slowed through the middle of the year. But the employment data have been volatile in recent times. Markets overreacted to the weak report in September and are probably doing the same now - but in the opposite direction - effectively pricing in a hike as the next move from the RBA whenever it does come.
Labour market tightness has eased this year: the 3-month average for the unemployment rate is now 4.3%, up from 4% at the start of the year. Although inflation reaccelerated in the September quarter, a range of temporary factors played a role. If inflation does start to fall back - even with labour market conditions remaining broadly as they are - the RBA could still cut again in this cycle. But for the time being, an extended hold looks the most likely course.
