ANZ finds gloom in jobs figures to suggest December RBA rate cut is likely

The unemployment rate holding firm at 5.4% in October should not prevent the RBA from cutting the cash rate to 3% on December 4, says ANZ.

Markets had tipped the unemployment to rise to 5.5%.

ANZ says that ongoing softer labour market conditions prevail and support its view that the RBA will need to reduce the cash rate further, with a 25-basis-point rate cut “pencilled in for December”.

Borrowers should take note of this forecast – ANZ was the only major bank to correctly tip the RBA to leave the cash rate on hold on Melbourne Cup Day in November.

According to ANZ, the key metric is not the overall unemployment rate, but the "employment-to-population ratio", which “fell a little further, meaning that jobs growth is not keeping pace with population growth”.

“The less-volatile, and in our view more important, ANZ job ads series points to further declines in this ratio coming months,” says ANZ.

EMPLOYMENT-TO-POPULATION RATIO VERSUS ANZ JOB ADS

Sources: ABS, ANZ 

“Population growth is strengthening in Australia so stronger employment outcomes are necessary to stop upward pressure on the unemployment rate.

“At current rates of population growth (+27,000 per month), 17,000 net new jobs are required each month to keep the ratio of employment to population steady and prevent the unemployment rate rising (barring lower participation),” says ANZ.

There were 10,700 more people employed in October – well below the 17,000 required, while ANZ also points out that the ABS trend measure of employment growth has remained in the 2,000 to 2,500 range for the past four months, “which is clearly weak”. 

According to ANZ, the unemployment rate remaining unchanged at 5.4% in October, following a “sharp 0.3 percentage point jump in September” confirms that “Australia’s labour market, while gradually deteriorating, is not collapsing”

The bank forecasts the jobless rate to rise to around 5.75% by mid-next year.

Taking a look at the jobs data, CommSec chief economist Craig James says there is “something for everyone”.

“The optimists could focus on the ongoing rise in full-time employment over the past four months and conclude all is fine.

“The pessimists would look at the fall in the participation rate and hours worked and conclude something more concerning."

But he says what is clear is that the labour market is “treading water”.

“Yes, it was encouraging that employment grew but more forward looking indicators like job advertisements have suggested that further labour market gains may be more circumspect. In fact internet and newspaper job advertisements have fallen for seven consecutive months, suggesting job growth is likely to flat line in coming months,” says James.