Australia’s 13-Year Low Unemployment May See RBA End Bond Buying

(Bloomberg) -- Australia’s unemployment rate tumbled to a 13-year low in December, potentially setting the stage for the Reserve Bank to scrap its bond-buying program and bring forward interest-rate increases.

The jobless rate dropped to 4.2%, the lowest level since August 2008, as the economy added a forecast-beating 64,800 roles, government data showed Thursday. The currency advanced following the release, while three-year bonds held declines and 10-year yields were little changed.

The strong jobs report boosts the chances of the RBA ending quantitative easing at its Feb. 1 meeting, having said late last year that this would be an option if the economy performed better-than-expected. Two economists today brought forward their forecasts for the beginning of the RBA’s tightening cycle.

“These numbers definitely increase the likelihood of the RBA abandoning bond buying next month,” said Diana Mousina, senior economist at AMP Capital Markets. “They also increase the likelihood of the RBA hiking rates earlier,” she said, bringing forward her rate-rise call to August from November in response to the data.

Just prior to the release, Westpac Banking Corp.’s Bill Evans brought forward his expectations for rate increases to August from February 2023 previously. 

RBA Governor Philip Lowe will deliver his first speech of the year at the Press Club on Feb. 2, a day after the board meeting, and is likely to be questioned on whether rate hikes this year are now in play, having previously rejected them.

The central bank has said the cash rate will remain at a record-low 0.1% until the bank’s forecasts show underlying inflation hitting the mid-point of its 2-3% target. The RBA’s most-recent outlook only had that happening in late 2023.

Omicron Fears

Today’s jobs survey was conducted in the first two weeks of December when cases of the omicron variant of coronavirus were still benign, highlighting the labor market’s strength before surging infections cast a shadow over near-term activity.

What Bloomberg Economics Says

“The rapid spread of the omicron variant will buffet the labor market over the coming months. It’s not clear when the wave will peak but if it occurs in 1Q, temporary labor supply pressures should ease from 2Q.”

James McIntyre, Economists. Click to read more.

The strong jobs result will also be a much-needed boost for the nation’s conservative government, which is trailing in opinion polls ahead of an election due by May. 

It’s aiming to buttress its economic credentials after facing criticism over chaotic management during the omicron outbreak that has left everyday Australians clamoring for rapid antigen tests, painkillers and fresh food at supermarkets. 

In addition, an increasing number of staff are in isolation due to illness, causing the country more acute pain from the variant. 

Other Details:

• Full-time roles increased by 41,500 while part-time positions rose by 23,300
• The underemployment rate declined 0.8 percentage point to 6.6%
• Underutilization fell 1.3 percentage points to 10.8%
• The employment to population ratio increased 0.3 point to 63.3%
• Hours worked climbed by 1%
• The participation rate was unchanged at 66.1%

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