A sharp rebound in Australian employment sent the jobless rate lower and pushed markets to price a growing chance of an RBA hike as soon as February. The outcome was well above market expectations for a gain of around 30,000 and points to a clear payback after several softer monthly results. Much of the strength came from full-time employment, which rose 54,800 after a sharp fall in November, signalling a more durable improvement in labour demand rather than a reliance on part-time roles.
The unemployment rate fell sharply to 4.1%, a seven-month low, from 4.3% previously. Markets had been braced for a rise toward 4.4%, making the decline all the more striking. The participation rate edged up to 66.7% from 66.6%, but was not sufficient to absorb the surge in job creation, allowing the jobless rate to fall. Hours worked also rose 0.4%, reinforcing the picture of strengthening labour utilisation.
While the monthly labour force series remains volatile, the December quarter outcome adds weight to the argument that labour market slack is not building as quickly as policymakers had anticipated. The unemployment rate averaged 4.2% across the December quarter, below the RBA’s forecast of 4.4%, suggesting underlying conditions remain tighter than expected.
Markets responded swiftly. The Australian dollar jumped following the release, while interest-rate expectations shifted meaningfully. Pricing is at roughly a 50% chance of a February 3 rate hike, with May fully priced for the first increase. The strength of the labour data heightens the focus on next week’s quarterly CPI report (January 28 11.30am Sydney time), which is likely to be pivotal in determining whether the RBA moves sooner rather than later
