Australian Employment Declines in February

By Stella Qiu

SYDNEY (Reuters) – Australian employment unexpectedly fell in February, marking the end of a strong run of gains. This suggests the hot labor market may be loosening, although the jobless rate remains low.

The disappointing headline result led to a 0.4% drop in the Australian dollar to $0.6334, while three-year government bonds rallied, increasing by 7 ticks to 96.29, their highest in over a week.

Swaps indicate only a 10% chance of a rate cut on April 1. However, a May cut is now priced at 78%, up from 70% previously, as strong labor market performance is seen as a barrier to easing policy.

According to figures from the Australian Bureau of Statistics (ABS) released on Thursday, net employment fell by 52,800 in February compared to January’s downwardly revised rise of 30,500, contrasting with expectations for a 30,000 increase.

Annual job growth sharply decreased to 1.9% from 3.5% the previous month but remains consistent with long-term averages. The participation rate, which reached a record 67.2% in January, dropped to 66.8%.

Despite the decline, the jobless rate stayed at 4.1%, aligning with market expectations. The ABS highlighted that fewer older workers returned to jobs in February, contrary to anticipations for a post-New Year return.

Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, indicated this decrease in older workers likely reflects a withdrawal from the labor market rather than less demand.

“This looks like a sideways move for the labor market, which remains tight,” noted Langcake. Measures of underemployment and underutilization saw slight declines, although hours worked fell by 0.4%.

The Reserve Bank of Australia recently cut interest rates for the first time in four years but warned that additional easing is not guaranteed due to the unexpectedly strong labor market potentially fueling inflation.

The bank forecasts core inflation, which decreased to 3.2% in Q4, to bottom out at 2.7% later this year, above its target range of 2-3%.

Though strong employment usually leads to rising wages, wage growth hit a two-year low in the last quarter. Sean Callow, senior FX analyst at ITC Markets, remarked, “RBA has been concerned about wage surges due to a strong job market, but it seems they needn’t have worried.”

Analysts at ANZ suggest that one weak report will not significantly influence the RBA’s rate decisions, noting solid labor market fundamentals persist with overall robust employment growth, a low unemployment rate, and high job advertisement levels.