Unemployment returns to 3.5% as workers commence new jobs

This was a decrease from a rate of 3.7% in January, driven by higher participation (up to 66.6%), and workers heading back into the office and commencing new jobs.

The level of employment increased by 64,600 while the number of unemployed decreased by 16,500 people. 

ABS Head of Labour Statistics Bjorn Jarvis said February’s unemployment rate was back to the level seen in December last year.

“The February increase in employment follows consecutive falls in December and January,” Mr Jarvis said.

“In January, this reflected a larger than usual number of people waiting to start a new job, the majority of whom returned to or commenced their jobs in February.

“This was particularly evident in the South-East of Australia, with larger than seasonal numbers of people entering into employment across New South Wales, Victoria and the ACT.”

With the higher than usual number of people transitioning into employment in February, the number of people indicating they were waiting to start a new job returned close to normal levels.

Amongst the major bank economists, forecasts for February’s unemployment rate differed.

NAB pencilled in an employment gain of 60,000 with unemployment falling back to 3.5% in February.

Meanwhile, CommBank predicted a lift in employment of 45,000 with unemployment remaining at 3.7%. 

The Reserve Bank’s Statement of Monetary Policy (SOMP) released in early February, revealed the expectation for the unemployment rate to remain around 3.5% until mid-2023, before rising as growth in output slows.

In terms of hours worked throughout February, the ABS detailed a 3.9% uplift, reflected by more Aussies returning to the workforce. 

“Following the 2.1% fall in January, when more Australians than usual took annual leave, the hours worked in February bounced back strongly to a level similar to late 2022, and were 5.1% higher than February 2022,” Mr Jarvis said.

“In February, there were also no major disruptions that affected peoples’ ability to work their normal hours, such as the widespread sickness or natural disasters that we have seen over recent years.”

Further, the ABS detailed seasonally adjusted underemployment rate declined to 5.8%, 0.3 percentage points below February 2022.

What does this mean for the next RBA rate hike?

Speaking to the 2023 Financial Review Business Summit last week, RBA Governor Philip Lowe said a pause in rate rises is imminent, with incoming data on inflation, jobs, business sentiment and consumer spending set to determine whether borrowers would be relieved from an 11th consecutive interest rate rise.

Yet, with unemployment returning in the mid-threes, this will likely support the case for another rate hike in April as it indicates the economy is still robust enough to withstand more rate rises to stamp out inflation.

CommBank Senior Economist Belinda Allen said today’s unemployment result suggests the April RBA Board meeting remains live.

“The RBA was expecting a solid pick up in employment today, and that was delivered,” Ms Allen said.

“Given the current global financial market volatility, we will continue to monitor the release of upcoming Australian economic data and global developments prior to finalising our April RBA call.”

ANZ Senior Economist Adelaide Timbrell echoed a similar sentiment, noting Thursday’s unemployment data signals the RBA will increase by 25 basis points in April and May.

“We acknowledge market pricing has moved considerably over recent days,” Ms Timbrell said. 

“That said, our assessment of the underlying momentum in the economy - reflected in the very robust level of business conditions in the February NAB business survey and today’s labour force survey - combined with the fact that inflation remains too high, means further tightening will ultimately be required over coming months.”

Read More: What does the next RBA cash rate movement hinge on?

Advertisement

Need somewhere to store cash and earn interest? The table below features savings accounts with some of the highest interest rates on the market.

Image by Sol via Unsplash