World Wide

Australia's Unemployment Rate Rises Unexpectedly to 4.1%, RBA Rate Cut Chances Increase

Australia's unemployment rate rises to 4.1%, fueling speculation of an RBA rate cut as job additions primarily come from part-time sector.

By Mackenzie Crow

5/15, 22:36 EDT
article-main-img

Key Takeaway

  • Australia's unemployment rate unexpectedly rose to 4.1% in April, leading to an 80% chance of a December RBA rate cut.
  • The rise in joblessness, despite the addition of 38,500 jobs, has impacted bond yields and the Australian dollar negatively.
  • Fiscal measures introduced to combat inflation may complicate the RBA's efforts amid aggressive rate hikes since May 2022.

Unemployment Rate Climbs

Australia's unemployment rate unexpectedly rose to 4.1% in April, up from a revised figure of 3.9%, according to the latest data from the Australian Bureau of Statistics (ABS). This increase was accompanied by the addition of 38,500 jobs, primarily in the part-time sector, surpassing the forecasted gain of 23,700 roles. The unexpected rise in unemployment has led to increased speculation among traders about the possibility of a policy easing by the Reserve Bank of Australia (RBA), with the odds of a rate cut in December jumping to 80% from 60% before the data release. Following the announcement, the yield on three-year bonds fell 14 basis points to 3.82%, and the Australian dollar saw a decline, erasing earlier gains.

Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, suggested that the rise in unemployment could be partly due to a larger-than-usual number of people waiting to start new jobs, a factor that contributed to labor force data volatility at the start of 2024. Langcake anticipates these workers will enter employment in the following month, potentially easing the unemployment rate.

Policy and Economic Outlook

The RBA has maintained its cash rate at a 12-year high of 4.35% since late 2023, aiming to manage consumer price gains amidst inflationary pressures. The government, in its recent budget announcement, introduced measures such as energy rebates and rent assistance to help hasten inflation's return to the central bank's target range of 2-3%. Despite these efforts, first-quarter inflation was reported at 3.6%, higher than expected, with RBA Governor Michele Bullock affirming the board's vigilance over price pressures. The government's budget measures aim to reduce inflation to 2.75% by the end of the year.

Fiscal Measures and Market Reactions

The labor government's budget has shifted from a surplus to a projected deficit of A$28.3 billion by 2025, incorporating fiscal policies like energy rebates and rent assistance to combat inflation. However, these measures have sparked concerns among economists that increased consumer spending could further fuel inflation, potentially complicating the RBA's efforts to control price increases. The aggressive rate hikes totaling 425 basis points since May 2022 have brought interest rates to a significant high, reflecting the central bank's commitment to stabilizing the economy.

Street Views

  • Sean Langcake, Oxford Economics Australia (Neutral on the Australian economy):

    "Some of the increase in unemployment is attributable to a larger-than-usual number of people being attached to a job they are waiting to start... These workers will flow into employment next month, putting some downward pressure on the unemployment rate."