RBA to cut interest rates this year, CBA economist predicts
A loosening labour market and predicted rise in unemployment will likely force the RBA to cut rates this year, according to CBA.
The ABS released its Labour Force data for December yesterday, revealing that unemployment rate remained at 3.9 per cent in December.
Employment dropped by 65,000 people and there was a small fall in the number of unemployed people.
ABS head of labour statistics David Taylor said the fall in employment in December followed larger than usual employment growth in October and November, a combined increase of 117,000 people, with the employment-to-population ratio and participation rate both at record highs in November."
With the fall in both employment and unemployment in December, the seasonally adjusted participation rate fell 0.4 percentage points to 66.8 per cent, back to around the September level.
The employment-to-population ratio also fell, down 0.4 percentage points to 64.2 per cent. This was the lowest employment-to-population ratio since May 2022, but still 1.9 percentage points higher than March 2020.
CBA head of Australian economics Gareth Aird said while the big reported fall in employment was completely at offs with the market forecast of a 15,000 lift in jobs, it is important to look at the data for the entire quester.
Employment growth over the entire December quarter slowed to 17,200 jobs per month, with the unemployment rate continuing to trend higher.
From a monetary policy perspective the unemployment rate is the key metric of the labour market and its rise indicates the labour market is loosening, said Mr Aird.
“Other indicators of the labour market also capture its loosening. Jobs growth over the past six months has all been in the part-time space. Employment for part-time workers has risen by 222k, while it has fallen by 98k for full -time workers,” he said.
“Hours worked posted a decline of 0.4 per cent in the December quarter. This is the second consecutive quarterly decline. The trend decline in hours worked means the demand for labour has cooled.’
Mr Aird said that other second tier labour market data also paints a clear picture of a loosening labour market.
“Seek jobs ads in December, published earlier in the week, were down by 17.4 per cent over the year and the number of applicants per job ad continued to march higher in November,” he said.
Applicants per job ad were up by 81.1 per cent over the year to November. Looking ahead, we forecast the unemployment rate will gradually lift over 2024 to end the year at 4.5 per cent.
Mr Aird said he believes RBA rate cuts will be required this year to prevent the unemployment rate from rising much above 4.5 per cent.
CBA predicts the RBA will commence an easing cycle in September.
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