RBA interest rates: Unemployment drops to 4.1 per cent in sign of hot labour market

Homeowners face a nail-biting wait heading into the Reserve Bank’s February meeting after bumper jobs growth moved the chance of an interest rate hike to almost a coin toss.

Unemployment dropped from 4.3 per cent to 4.1 per cent through December with more than 65,000 new roles created.

The vast majority were full time, and more young Australians aged 15-24 years old were “moving into employment”, according to the Australian Bureau of Statistics.

The jobs market’s unexpected strength led investors to dramatically raise their bets on a rate hike at the RBA’s 3 February meeting, up from about one-in-four to greater than 50-50.

That’s despite the RBA signalling it will look through short-term volatility in data, preferring to judge where inflation will land a year or two in advance when making interest rate calls.

HSBC and UBS now tip a rate hike as soon as next month — although ANZ and AMP still consider a hold most likely.

“Today’s jobs figures were a strong set of numbers and a significant upside surprise,” HSBC chief economist Paul Bloxham said.

“Although we had thought the RBA may have been able to look through the higher core inflation readings and still forecast core inflation heading back to its target, this view relied on the central bank being able to argue that the loosening jobs market would deliver disinflation over time.

“Today’s jobs figures mean that it is very hard to argue that the jobs market is loosening. In particular, the unemployment rate is falling and is well below the RBA’s own estimates of full employment.”

Full employment means the jobs market is in a sustainable long term balance and not adding extra pressure to inflation.

Yet other economists argued next week’s inflation data would be the deciding factor for Governor Michele Bullock’s board.

Core inflation was 3.2 per cent through the year to November — above the 2-3 per cent target — and further price increases would push the figures above the RBA’s latest forecasts.

“Today’s strong labour market report does not guarantee a Reserve Bank interest rate hike at the February policy meeting,” Betashares chief economist David Bassanese said.

“But it does make next week’s December quarter inflation report even more a “make or break” moment for nervous mortgage holders.”

He said a “shock” fall in employment in November tempered the jobs news somewhat.

“The labour market remains firm rather than red-hot and somewhat softer than earlier last year,” he said.

Even as borrowers face a worrying wait ahead of looming mortgage pressure the data had plenty of good news for Aussie jobseekers.

Treasurer Jim Chalmers was keen to talk up that angle when he spoke to media on Thursday.

“We’ve maintained low unemployment, high participation, strong wage growth, and overseen the creation of more than 1.2 million new jobs, and over four in five of these have been in the private sector,” he said.

“Our three big economic priorities for this year are addressing inflation, productivity, and global uncertainty, and our resilient labour market gives us a strong foundation to build on the progress we’ve already made”

Youth unemployment dipped from 10 per cent in November to 9.1 per cent as about 16,000 Australians aged between 15 and 24 found jobs through the month.