October unemployment: Rate cut in doubt as Australia’s jobless rate falls back to 4.3 per cent

Australia’s unemployment rate fell back to 4.3 per cent in October from a four-year high a month earlier in a sign the labour market is still tight leading to another big four bank declaring the Reserve Bank won’t be cutting rates at all next year.

NAB, Australia’s biggest business lender, on Thursday cancelled its prediction of a May rate cut after new data showed 42,200 new jobs were surprisingly created last month. The national jobless rate returned to where it was in August, when the Reserve Bank of Australia last cut interest rates.

The latest jobless rate is below the 4.4 per cent level the RBA this month predicted for December, after dropping from September’s four-year high of 4.5 per cent.

The unemployment rate for October was also better than market expectations of a 4.4 per cent jobless rate and a monthly job creation tally of 20,000. Full-time employment increased by 55,300 last month as the number of part-time jobs fell by 13,100.

Economists say this could delay any potential interest rate cut. A tight labour market and almost non-existent productivity growth mean the higher costs of employment could be more likely to be passed on to consumers in the form of higher prices for goods and services, potentially adding to inflation.

NAB’s head of Australian economics Gareth Spence said the RBA would no longer be cutting rates in May, or 2026 for that matter, as a pick-up in private sector employment growth led to higher consumer prices.

“For now, it’s skewing to later. It clearly skews the risk,” he told The Nightly.

“The challenge we’ve had in our mind is the activity side is pretty healthy. There’s a handover from the public to the private sector. That can be a bit bumpy.”

NAB has joined the Commonwealth Bank in declaring the RBA won’t be cutting rates next year. ANZ and Westpac are still expecting February relief.

KPMG senior economist Terry Rawnsley said Thursday’s labour force data was bad news for borrowers, with headline inflation now above the RBA’s 2 to 3 per cent target and underlying inflation, without volatile items, much higher than the mid-point of that band.

“Today’s data is unlikely to change the RBA’s interest rate outlook. The unemployment rate reinforces the view that there are still short-term inflationary pressures in the economy,” he said.

“The figures aren’t good news for mortgage holders. Today’s tightening of the labour market, combined with the recent jump in core inflation will continue to encourage the Reserve Bank to keep interest rates steady.”

EY chief economist Cherelle Murphy said the RBA had no more room to ease monetary policy.

“The Reserve Bank will remain alert to the risk the jobs market poses to inflation – especially in the face of weak productivity growth,” she said.

“The Reserve Bank has highlighted that the economy may be close to its supply capacity, which means it cannot cut the cash rate much further, if at all, without generating inflation.”

But Employment and Workplace Relations Minister Amanda Rishworth rejected any suggestion of a wage-price spiral, even though pay growth and inflation both remain above 3 per cent.

“In terms of the impact it will have on, say, interest rates, that is a matter for the RBA,” she told reporters on Thursday.

“But what I would say is that there hasn’t been any evidence of a price, wage spiral. And so I would say that jobs for Australians is good news. Obviously, the RBA takes a range of factors into consideration, but I think more Australians in work in full time work is good news for this country.”

The futures market regards the prospect of a rate cut on December 9 as a mere 14 per cent probability. RBA Governor Michele Bullock this month noted the labour market was still tight as the cash rate was left on hold at 3.6 per cent for the second consecutive meeting.

The Reserve Bank also released a new report on Thursday, predicting it would be years before AI boosted Australia’s weak productivity, based on its business liaison feedback.

“Our survey results, along with the cited empirical studies, suggest that technology investment will remain elevated, but the realisation of productivity gains from the adoption of technology could take time,” it said.

State of labour

Tasmania has the lowest jobless rate of 3.9 per cent, which was better than mining-rich Western Australia’s 4.1 per cent level.

Queensland was also below the national average at 4.2 per cent. NSW and South Australia equalled the national average at 4.3 per cent.

Among the States, Victoria had the highest unemployment rate of 4.7 per cent. The Northern Territory was higher at 5.2 per cent.

The Australian Capital Territory was also higher than average at 4.5 per cent, despite public sector employment growing at a faster pace than private enterprise under Labor.

The participation rate of 67 per cent is near the record-high level of 67.2 per cent reached in January in a sign Australians are upbeat about their prospects of finding work.

Treasurer Jim Chalmers noted unemployment under Labor had been the lowest, on average, since Gough Whitlam was prime minister during the early stages of the OPEC oil crisis.

“We’ve overseen the lowest average unemployment of any government in the past 50 years,” he said.

But since Labor came to power in May 2022, unemployment has edged up from historic lows of 3.9 per cent with the RBA raising interest rates 13 times across 2022 and 2023 to alleviate inflationary pressures sparked by higher crude oil prices.

“We’re one of few countries around the world that have been able to keep people in jobs in the face of extreme global uncertainty, and that’s what this data shows,” Dr Chalmers said.

The Westpac-Melbourne Institute’s consumer sentiment survey for November showed labour market expectations were significantly more upbeat than overall consumer optimism.

But with youth unemployment more than double the national average at 9.8 per cent in October, the survey also showed those aged 18 to 24 were less positive.

Harry Murphy Cruise, the head of research for Oxford Economics Australia, said that while a near-term rate cut was unlikely, unemployment was still more likely to increase next year.

“Even with October’s bumper numbers, some caution is warranted,” he said. “Forward indicators still point to a gradual easing in job growth over the next six months, nudging unemployment higher. And with rates likely on hold until at least May, higher borrowing costs may weigh on consumer and business sentiment.”