This has caused analysts and stakeholders to speculate that the Reserve Bank of Australia (RBA) could trim interest rates next month.
The Australian Bureau of Statistics reported earlier today that the economy just added 14,900 jobs in September, so it didn’t hit its forecast of a 20,000 gain.
Meanwhile, the participation rate rose to 67%. Even if there were jobs created, the number of unemployed people has seen a massive rise to 684,000.
What makes this so significant is that this is 30,000 individuals higher than in August. Let’s explore how a potential RBA rate could just improve the Australian labour market.
The Current Figures
According to the current figures, it seems like after a long period of resilience, Australia’s job market is losing steam.
Annual employment growth has slowed to 1.3%, compared with 3.5% at the start of the year.
Although both full-time and part-time work increased slightly, more Australians are still hunting for jobs, pushing the unemployment rate to its highest level since late 2021.
This has also caused many to focus on freelancing and investments, like forex trading.
In a sign of cooling demand, Jobs and Skills Australia said that the number of advertised roles in September was down 32% from the peak two years ago.
The data jolted financial markets, as traders quickly priced in a 70% chance of a November rate cut, up from 40% before the figures were released.
The Australian dollar slipped 0.4% to US$0.6485, while bond yields dropped sharply. Interestingly, the S&P/ASX 200 rallied to record levels on expectations that easier monetary policy might be coming soon.
What’s Going on With the Labour Market?
From the current situation, it seems like the labour market is cooling down. For most of 2023 and early 2024, Australia managed to dodge major job losses despite the rising interest rates. But it seems like the cracks are showing now, with unemployment hitting a four-year high.
In this situation, employers aren’t hiring as aggressively as they should. This has caused job openings to decline, and more people are looking for work than there are positions available. It doesn’t necessarily mean that an economic crisis is around the corner, but it might be a normal adjustment process after years of strong growth.
However, for everyday Australians, it can mean fewer job opportunities, slower wage growth, and a more competitive job hunt.
Why a Rate Cut Could Help
The RBA controls the official cash rate, which is basically the interest rate that influences borrowing costs across the economy.
When the RBA cuts rates, it becomes cheaper for banks to borrow money, which usually means lower mortgage rates and cheaper business loans.
The lower rates would stimulate economic growth in several ways:
- Businesses can borrow more easily: With cheaper credit, companies are more likely to invest in expansion, like opening new locations or launching new projects. That often means more hiring.
- Consumers feel more confident: When loan repayments are lower, people have more disposable income. They spend more on goods and services, which supports jobs in retail, hospitality, and other service industries.
- Investors get active: Lower rates make saving less attractive and investing more appealing. That can lift the stock market, increase business valuations, and even boost their balances, all of which feed back into consumer confidence.
Since rate cuts inject momentum into the economy, they can also reverse the slowdown in hiring and employment by encouraging spending and investment.
What Economists Are Saying
Analysts and economists are paying more attention to projected RBA cuts, as Governor Michele Bullock recently told the Senate economics committee that while the labour market ‘has eased, and we still forecast it to ease a bit further, that doesn’t mean it’s still not a little bit tight.’
That means that the RBA knows jobs growth is slowing down but believes that there’s still some underlying strength left in the economy.
However, another economist, Ryan Wells, thinks that the latest data support the idea that a rate cut is likely in November.
He pointed to a ‘rebalancing across industries’ where sectors like health and aged care, traditionally major job creators, are now seeing slower growth, while others, like construction and technology, are recovering unevenly.
Meanwhile, economists at ANZ are less convinced. They posit that while the job numbers look soft, inflation pressures could still prevent the RBA from cutting too soon.
They’re looking forward to the next inflation report, especially the trimmed mean, which is a measure of underlying inflation that strips out volatile price changes.
If that number is too high, the RBA might stay away from cutting rates too quickly, as this might reignite inflation.
The Impact on the Market
Financial markets are betting big on a November cut. After the soft job figures were released, the Australian dollar dipped, which is usually a sign that investors expect easier policy ahead. Lower rates usually make a currency less attractive because they reduce the return investors get from holding it.
Bonds have also fallen sharply, which is another sign that markets are anticipating a lower interest rate environment. Meanwhile, the stock market actually rose, because investors often see lower interest rates as good news for company profits, especially in interest-sensitive sectors like property, banking, and retail.
RBA Rate Cuts Can’t Solve Everything
Australia’s labour market is now at a crossroads. The surge in unemployment to 4.5% represents one of the weakest jobs growths in years, and falling job advertisements all point to a slowdown that could deepen if left unchecked.
A rate cut by the RBA won’t solve everything overnight, but it might cushion the downturn and reignite hiring momentum. It’s a reminder that monetary policy remains one of the most powerful levers for shaping economic outcomes, especially when confidence starts to fade.
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