Australia's Unemployment Rate Defies Expectations, RBA Rate Cut Prospects Dim

Australia's unemployment rate unexpectedly fell to an eight-month low in November, signaling a far more resilient labor market than many had anticipated, reports Reuters. This surprising strength has prompted a reassessment of the Reserve Bank of Australia's (RBA) need to cut interest rates in February, just days after the central bank surprised markets by signaling openness to rate cuts.

The jobless rate dropped to 3.9% in November, the lowest since March, from 4.1% in October, according to figures released Thursday by the Australian Bureau of Statistics. Economists had predicted a rise to 4.2%.

"Softer economic data from the recent national accounts release raised the risk of a February cut, but this labour market result offsets that risk somewhat," said Adelaide Timbrell, a senior economist at ANZ, to Reuters.

The RBA has maintained its current cash rate of 4.35% for a year, believing it is restrictive enough to curb inflation while preserving employment gains. However, a recent shift in tone came after data showed weaker-than-expected economic growth in the third quarter and underwhelming wage growth, suggesting unemployment might not need to rise further to anchor inflation.

Governor Michele Bullock has indicated that policymakers will closely watch jobs data, inflation readings, and retail sales before their next meeting in February.

The RBA's pivot followed data showing surprisingly weak economic growth in the third quarter, defying expectations for a rebound. The central bank is now grappling with a more resilient labor market than previously anticipated, potentially reducing the urgency for immediate rate cuts.

"The RBA has shifted back to a more neutral bias, but this RBA statement has not been universally welcomed by businesses that are grappling with rising costs and slowing economic growth," added Timbrell.

The ABS highlighted an unusual surge in people transitioning into employment in November after being unemployed and awaiting work the previous month. This contributed to a 27,000 decrease in overall unemployment.

"While we expect Q4 CPI to be a little below the RBA's November forecast, that alone is unlikely to be enough to see the RBA cut in February given the labour market continues to suggest little urgency for the RBA to adjust policy settings," said Tapas Strickland, head of market economics at the National Australia Bank, to Reuters.