Monthly Labour Market Update – November 2024

— Unemployment rate back below 4 per cent on the back of solid rise in full-time jobs. —
— Participation falls marginally to 67.0 per cent, down from record high 67.1 per cent. —
— Signs of increased industrial action may point to growing wage pressures. —

Good news on jobs continues to dampen interest rate hopes

Hints of a slow-down in the pace of job creation observed in October were quickly erased as the Labour Force Survey figures for November recorded an increase in the number of Australians employed by 35,600.

That was the result of a very solid increase in full-time jobs (+52,600), partially offset by a decline in part-time jobs (-17,000).

Combined with a slight fall in participation, the increase in employment pushed the unemployment rate back under 4 per cent, down 0.2ppt to 3.9 per cent.

While there’s nothing particularly magical about the 4 per cent reference point, it would be fair to say most economists would consider it as constituting ‘full employment’. You can rule out interest rate cuts while the unemployment rate has a ‘3’ in front of it.

Earlier in the week the Reserve Bank passed up the last opportunity for 2024 to cut interest rates, as was widely anticipated.

The RBA’s media statement noted that recent economic data had been softer than expected, and the national accounts data showing real GDP grew by just 0.3 per cent in the September quarter would have been front of mind in that assessment.

However, it also noted that labour market conditions remain tight – and November’s figures will have reinforced that view.

RBA forecasts contained in November’s Statement on Monetary Policy projected an unemployment rate of 4.3 per cent for the current December quarter, rising to 4.4 per cent for the June quarter 2025, and 4.5 per cent by the end of 2025.

It is clear the unemployment rate for the current quarter will be well below forecast. Even if no additional jobs are created next month, and with the participation rate unchanged, the December monthly and quarterly unemployment rates would stand at 4.1 per cent.

Those December figures, due out on 20 January, will be the only update on the labour market before the RBA Board meet again in the first week of February.

The December quarter inflation figures, due at the end of January, will be crucial, but this latest evidence of continued strength in the labour market will have reduced chances of an interest rate cut coming early in 2025.

There is also scope for participation to fall further if employment growth does weaken, which would limit any rise in unemployment.

At 67.0 per cent for November, the current participation rate remains close to its all-time high of 67.1 per cent observed for the preceding two months.

Growing unrest?

A key reason the RBA sees unemployment rising to 4.5 per cent as part of the path to lower inflation is that lower unemployment adds to wage and inflation pressures.

Of course, an ideal outcome would see unemployment remain low and inflation return to the 2-3 per cent p.a. target range. Indeed, the RBA’s recent media release noted wage pressures had eased more than anticipated.

This month’s Monthly Labour Market Update reports on recently released figures relating to the industrial relations environment. The proportion of employees who are members of a trade union has shown its first increase in over 10 years.

While still low in a historical context, the number of industrial disputes and associated working days lost increased in each of the June and September quarters of 2024.

Anecdotally, the growth in industrial unrest appears to be extending into this quarter, with recent strikes impacting Woolworths distribution centres, Qantas, and Sydney train services among others.

It may be a sign that workers are becoming more willing to exercise their bargaining power to pursue better wages and conditions.

That would be a predictable response in the face of low unemployment and several years of falling real wages.

It’s also one of the forms of responses embedded in economic models and in the RBA’s psyche that suggest unemployment needs to rise in order to bring inflation back to target.