The Reserve Bank of Australia could be forced to increase interest rates as soon as May after surprisingly strong employment gains led some economists to warn that the central bank has not done enough to cool the economy.
About 53,000 people found work in March, according to data released by the Australian Bureau of Statistics on Thursday, outstripping forecasts for modest employment growth of 20,000.
The gains meant the jobless rate held steady at a near-five-decade low of 3.5 per cent, while there are now almost 900,000 more people in work than at the onset of the pandemic.
The jobless rate held steady at a near-five-decade low of 3.5 per cent in March.
Experts said the data proved the jobs market remained resilient in the face of higher interest rates, and raised the risk that the RBA board would need to increase the cash rate to 3.85 per cent next month if inflation data out on April 26 also came in above expectations.
The employment gains led bond traders to raise the estimated probability of an interest rate increase in May to 24 per cent from 20 per cent.
The Australian dollar went above US67¢ on the prospect that interest rates would be kept higher for longer, and the S&P/ASX 200 closed 0.3 per cent lower at 7324.1.
Employment gains of at least 31,000 are needed each month to stop unemployment from ticking higher based on the current rates of population growth, assuming the participation rate stays unchanged.
The employment gains in March were driven by an increase of 72,200 full-time workers, which was only partly offset by a fall of 19,200 in part-time employment.
The high demand for workers has caused the share of employees working full-time to increase steadily over the past couple of years.
About seven in 10 workers are now full-time, the highest level in a decade, excluding the unusual month of May 2020 when lockdowns led to disproportionately large job losses among part-time workers.
The number of unemployed people fell by 1600, but the underemployment rate increased to 6.2 per cent from 5.8 per cent.
BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said there were very few signs of weakness in the data and little to suggest the labour market was slackening in a meaningful way.
“This affirms our expectation that the March quarter CPI print will be a strong one, and we expect to see the RBA raising rates again in May,” he said.
Tight market
Overall, the data shows the labour market remains extremely tight, as the unemployment rate holds steady at levels not reached since the 1970s.
The participation rate was unchanged at 66.7 per cent in March, just beneath the record highs reached late last year.
In a statement from Washington DC, where he is attending a series of high-level talks with his international counterparts, Treasurer Jim Chalmers said the jobs numbers were remarkable.
“Today’s result is a positive one for Australia’s economy and our prospects in contending with the uncertainty we face in the global economy right now,” Dr Chalmers said.
His opposition counterpart, Angus Taylor, said the strength of the labour market was at risk if the federal government did not act to lower inflation.
ABS head of labour statistics Lauren Ford said the total hours worked had increased by 5.5 per cent over the past year, outstripping annual employment growth of 3.3 per cent.
“The strength in hours worked relative to employment shows the high level of demand for labour, to some extent, is being absorbed by people working more hours,” Ms Ford said.
The RBA’s assessment of the labour market and the March-quarter inflation report on April 26 will play a decisive role in determining whether the central bank’s decision to keep rates on hold at 3.6 per cent at its most recent meeting will be repeated next month.
Earlier this month, RBA governor Philip Lowe had said that updated economic forecasts and data on business sentiment and household spending would also be pivotal to next month’s rates decision.
“The balance of risk lies to further rate rises. But it depends upon the data,” he told the National Press Club.
For the RBA’s February inflation forecasts to eventuate, underlying annual inflation will need to fall from 6.9 per cent to about 6.5 per cent in the March quarter CPI data.
ANZ senior economist Catherine Birch said the March inflation figures were likely to show that underlying price pressures remained sticky, with trimmed mean inflation tipped to come in at 1.5 per cent in the quarter, to be 6.8 per cent over the year.
“We think persistent stickiness in the June quarter CPI report, due in late July, will prompt a final 25 basis point hike from the RBA in August, taking the cash rate to a peak of 3.85 per cent,” Ms Birch said.
“Risks remain tilted towards a higher terminal rate in our view.”
Rent inflation is forecast to accelerate to a 14-year high of 5.2 per cent in March, and further rent increases are likely because of strong net overseas migration and rock-bottom vacancy rates.
If inflation remained stubbornly high, another rate rise would be warranted, EY chief economist Cherelle Murphy said.
“Labour force data are often the last to show weakness when there is a turning point in the business cycle. But according to the latest March data, there is no turning point in the demand for workers,” she said.
AMP deputy chief economist Diana Mousina said she expected the RBA to keep rates on hold again in May.
“But clearly it’s a close call and the risk of another 0.25 per cent hike is very high,” she said.
Ms Mousina said the continuing strength in the labour market increased the risk of wage growth increasing to uncomfortably high levels, stoking inflation.
The RBA expects the unemployment rate to increase to 3.8 per cent by the end of the year and to 4.3 per cent by December next year.
JP Morgan senior economist Tom Kennedy said the declines in leading indicators for the labour market, such as job advertisements, suggested an increase in unemployment was more likely than further falls.
“With that in mind, reported labour supply shortages in recent years are likely to make firms reticent to pre-emptively shed headcount and we look for an adjustment in hours worked before a deterioration in employment growth,” he said.
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2023-04-13 02:08:00Z
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