(Bloomberg) — Employment growth in Australia beat expectations for a second consecutive month in March, underlining the resilience of the economy and supporting the case for the Reserve Bank to raise interest rates again.
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Government data on Thursday showed that the advanced currency and bond yields rose after employers added 53,000 jobs – more than double economists’ estimates – driven by full-time jobs. The unemployment rate held steady at 3.5%, hovering around a 50-year low and beating expectations for a rise to 3.6%.
The stronger-than-expected result underscores the strength of the labor market after the RBA’s 10th consecutive interest rate hike and reinforces economists’ expectations for another increase to raise the liquidity rate to 3.85%. Policymakers stopped hiking last week and indicated that the hurdle to further tightening could be high.
“The job market may be past its best but it is still very tight,” said Su-Lin Ong, chief economist for Australia at the Royal Bank of Canada. “Today’s data is likely to reinforce the RBA’s narrow bias and we leave a 25 basis point increase in our profile.”
The Australian dollar rose 0.5% and the three-year government bond yield rose 5 basis points to 2.95%. The indexed swaps overnight suggest that the RBA is completely done tightening.
What Bloomberg tells the economy…
“The surprisingly large jump in job growth in Australia in March raises prospects of a 25 basis point rate hike in May. The first-quarter CPI report, due on April 26, is the latest major data point that could make or break the case for further tightening.”
James McIntyre, economist.
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The jobs data is an important piece of the puzzle for Governor Philip Lowe as he tries to assess the impact of the price hikes so far. Lowe wants to hold on to employment gains after 3.5 percentage point increases since May last year.
The governor said the council would closely watch figures on inflation, jobs, consumer spending and business surveys before making a decision. Figures released on Tuesday showed that business sentiment remained resilient, while timely data on household spending indicated a moderation in consumption.
If the strength in March numbers continues into April and May, Calam Pickering, chief economist at global jobs site Indeed Inc., believes that will “significantly increase” the likelihood of further hikes this year.
The Labor government will welcome the strong employment that helped boost the fiscal position over the past year. Treasury Secretary Jim Chalmers has said repeatedly that he will release additional revenue ahead of the May 9 budget in an effort to narrow the deficit and avoid a spike in inflation.
“This is an amazing result,” said Chalmers after the release. Low unemployment, strong job growth and higher wages “will be important factors in protecting Australians from the effects of the deteriorating global economic environment.”
The strength of the labor market has also been a major factor in the RBA’s confidence that Australia can avoid a recession. The central bank expects the unemployment rate to remain around 3.5%-3.6% until mid-2023.
Some economists doubt the current round will continue, pointing to a peak in job vacancies and faster population growth as a result of higher immigration.
Bloomberg Economics estimates that job growth will need to average 2.3% annually, or 26,000 per month, to stop unemployment rising further — a tough question at a time when the economy is expected to slow.
As Thursday’s jobs report showed:
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Participation rate kept at 66.7% adjusted
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Underemployment rose to 6.2% and underemployment rose to 9.7%.
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Full-time roles jumped by 72,200, while part-time jobs fell by 19,200
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The employment-to-population ratio jumped to 64.4%.
– With assistance from Tomoko Sato and Matthew Burgess.
(Adds comments from an economist, treasurer.)
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