Australia jobless number dives to lowest since 2008 as case builds for rate rise

Australian employment raced ahead in December as the jobless rate fell to its lowest point since 2008, showing strength that should help the economy weather the current surge in coronavirus cases across the country.

Data from the Australian Bureau of Statistics on Thursday showed employment jumped 64,800 in December, topping market forecasts of a 43,300 rise and adding to Novembers record jump of 366,000.

The unemployment rate fell to 4.2%, from 4.6% in November, the lowest reading since August 2008, when the jobless rate bottomed out at 4%. The ABS noted that to find a result under 4% you needed to go back to the 1970s.

Investors reacted by nudging the local dollar up to $0.7228 on wagers of an early rate increase from the Reserve Bank of Australia (RBA), which has been seeking to drive unemployment to 4% or lower to lift wage growth after years of sub-par gains.

The blistering growth in jobs hit a speed bump this month, however, as a surge in new Omicron cases spooked consumers away from shops and restaurants and played havoc with distribution systems as workers fell ill or isolated.

So far most of the hit has been to hours worked rather than to employment, with analysts estimating hours might drop 3-4% over January, though layoffs could come if the outbreak lingers through February.

Encouragingly, demand for labour remains strong with job advertisements easing only modestly in December after a run of stellar gains to leave them 33% higher on the year.

PUSHING FOR A RATE RISE

Such is the need for workers that the government on Wednesday waived the cost of visas for students and backpackers wanting to come to Australia and work part time.

Analysts hope that demand is finally stoking wage growth, though evidence so far is largely anecdotal.

Official data on wages for the fourth quarter are not out until Feb. 23 and may not show much of a pick-up given the inertia baked into the pay system in Australia.

The last measure of wages showed growth of just 2.2% a year, compared to 4.8% in the United States and 4.9% in the UK.

This is a key reason the RBA has argued that interest rates will not need to rise from their record low of 0.1% until 2023, even as the U.S. Federal Reserve seems ready to raise rates in March.

Markets are wagering a tightening will come a lot sooner, perhaps as early as May given the persistence of global inflationary pressures.

Data on Australian consumer prices for the December quarter is due next week and some economists are predicting core inflation could jump to its highest since 2009 at 2.5%, adding greatly to the case for an early rise in rates.

Bill Evans, chief economist at Westpac, on Thursday forecast an increase would now come in August, a major shift from his previous call of a first move in February next year.

“Our forecast revisions reflect a much faster lift in inflation and wages growth than envisaged,” said Evans. “We now expect one hike of 15 basis points in August to be followed by a further hike of 25 basis points in October.”