The unemployment rate remained steady in August, coming in at 4.2 per cent, but employment growth remained ahead of market expectations at 47,000.
While consensus was for an unemployment rate of 4.2 per cent, employment was expected to peak at 25,000.
Commenting on the data, GSFM’s Stephen Miller suggested that it is unlikely to prompt an immediate RBA rate cut, arguing that there is no significant deterioration in the labour market to justify a near-term policy change.
He believes any RBA policy rate reduction this year is a “remote prospect”, unless there is “some wholly unanticipated” – and at this stage, “unlikely” – deceleration in inflation.
“The RBA’s inflation containment task continues to be frustrated by counter-productive government policies despite some tortured political commentary that denies that circumstance,” he said.
Miller criticised Australia’s wage-setting and industrial relations regulations, as well as excessive and “poorly constructed” government spending, particularly at the state level, noting that they are likely to exacerbate inflation by increasing aggregate demand.
“With excess demand a primary driver of inflation, that government contribution is problematic, at least those elements that don’t have attenuating and near-term supply-side effects, which arguably the income tax cuts do,” he said.
“What they do, however, is give the RBA some ability to exercise patience in contemplating any downward adjustment to the policy rate. An unkinder interpretation is that fiscal laxity has exacerbated inflation pressures and led to a delay of interest rate relief.”
He maintained that February 2025 remains “the most likely time for the first reduction in the policy rate”, but added that it could be as late as May.
Similarly, HSBC’s Paul Bloxham doesn't expect rate cuts until Q2 2025 and sees only limited easing in 2025. Like Miller, he attributed strong job creation to public sector employment and high labour participation, with the jobs market only gradually loosening.
“Get ready for quite a bit of divergence between the RBA’s cash rate path and those of many other central banks, including the Fed,” he cautioned.
“Still strong job creation and an economy that is operating at near its full capacity are contributing to Australia’s sticky inflation challenge, and mean rate cuts are unlikely to be on the agenda for some time yet.”
Jobs print good news for RBA?
Anneke Thompson, chief economist at CreditorWatch, described the jobs print as “good news for the RBA”, indicating that the central bank is managing to avoid raising unemployment beyond its forecasts – 4.3 per cent by December 2024 and 4.4 per cent by March 2025.
Thompson believes the RBA will be keeping a close eye on any forward guidance indicating that the labour force is about to weaken more than is expected.
“Thus far though, it can be argued that the RBA is successfully ‘threading the needle’ to a soft landing out of this inflationary period,” she said.
However, unlike Miller and Bloxham, Thompson noted that while it's almost certain the cash rate will stay on hold after Tuesday's meeting, the US Federal Reserve's unexpected 50 bp cut has heightened the likelihood of a rate cut in November.
However, she added: “Assuming the economy continues to cool at a reasonably steady pace, I still expect the first cut to the cash rate to be February 2025.”
AMP’s My Bui agreed with the expectation that rate cuts could occur in early 2025, but highlighted potential cracks emerging in the employment landscape.
Namely, analysis of the latest jobs print showed that while employment did tick up by over 47,000, growth has been driven by part-time jobs rather than full-time employment.
Despite this, according to Bui, “it is probably not time for the RBA to cut rates yet”.
“But looking forward, jobs leading indicators are all telling us that labour demand is already weakening and will potentially deteriorate further, which allows room for the Reserve Bank to ease early in 2025,” Bui said.
Krishna Bhimavarapu, APAC economist at State Street Global Advisors, offered a slightly different perspective.
Reflecting on the Fed’s supersized rate cut and Australia’s unemployment data, Bhimavarapu said: “These developments and declining inflation mean that the RBA may not [be] very far from seeing a path towards rate cuts”.
However, he admitted there is still a “bleak chance” of that pivot happening in the near-term particularly given the bank meets a day before the August monthly CPI will be released in the next week.
Big bank banks on December rate cut
CBA economist Gareth Aird remained the most optimistic, delaying the bank’s rate cut expectations by just a month, from November to December.
Earlier this week, the CBA predicted the Q3 24 trimmed mean CPI print would come in below the RBA’s expectations – at 2.7 per cent for the 12 months to August. However, Aird said on Thursday, the recent strength in employment growth, coupled with still relatively hawkish rhetoric from the RBA governor, means “we now see December as the more likely month for the start of normalising the cash rate”.
“The August labour market data was stronger than we expected,” Aird said.
“Put another way, the recent strength in the labour market data means a Q3 24 trimmed mean CPI in line with our forecast is unlikely to be sufficient for the RBA to be willing to cut the cash rate in November.”
Instead, Aird suggested that by December, the RBA will have reviewed not only the critical Q3 2024 CPI but also the Q3 wage price index, October’s labour force data, and the September quarter national accounts, providing a comprehensive view for their decision making.
“We now believe this fuller suite of data will need to be seen and assessed by the RBA board for it to be willing to join a host of other central banks in cutting rates in 2024,” the economist said.
The risk to its revised call for the commencement of an RBA easing cycle in December is a later start date, namely February 2025, Aird admitted.
The CBA has not made any changes to its base case for 125 bp of policy easing by end-2025 that would take the cash rate to 3.10 per cent.
Aird noted that fiscal policy remains the key source of domestic uncertainty, particularly as Australia heads into an election year.
