Shock report may give us rate reprieve
In surprise news, Australia’s labour market has softened more sharply than expected, with unemployment climbing to a four-year high of 4.5% in September, fuelling fresh speculation that the Reserve Bank could trim interest rates as early as next month.
The Australian Bureau of Statistics reported earlier today that the economy added just 14,900 jobs in September, short of forecasts for a 20,000 gain, while the participation rate edged up to 67%. Despite modest job creation, the total number of unemployed rose to 684,000, up by more than 30,000 from August.
Labour market cooling
The figures suggest that after a long period of resilience, Australia’s jobs market is losing steam. Annual employment growth has slowed to 1.3%, compared with 3.5% at the start of the year. Both full-time and part-time work increased slightly, yet more Australians joined the hunt for jobs – pushing the unemployment rate to its highest level since late 2021.
In a sign of cooling demand, Jobs and Skills Australia said the number of advertised roles in September was down 32% from the peak reached two years ago.
Rate expectations shift
The data jolted financial markets. Traders increased the implied probability of a November rate cut to around 70%, up from about 40% before the figures were released, according to Reuters. The Australian dollar slipped 0.4% to US$0.6485, while bond yields dropped sharply. The S&P/ASX 200 rallied to record territory on expectations of easier monetary policy.
The Reserve Bank has held the cash rate steady at 3.6% since September, following three reductions earlier this year. Core inflation had dipped back within the RBA’s 2-3% target range, but recent consumer data have hinted at renewed upward pressure.
Governor Michele Bullock told the Senate economics committee last week that while the labour market “has eased, and we still forecast it to ease a bit further… that doesn’t mean it’s not still a little bit tight".
Yet "today’s data lends weight to our view that there is still a good chance the RBA will cut rates in November", said Westpac economist Ryan Wells.
"Underlying this slowdown in employment growth is a rebalancing across industries, with the contribution from the job-intensive ‘care economy’ falling while the market sector stages a gradual and ‘patchy’ recovery," Wells added. "We will not have the complete detail on how the industry mix fared for the September quarter until the next instalment of the Labour Account (due 5 December), but we suspect a continuation of these broad trends."
ANZ economists are holding firm in their belief that rates will stay put for the remainder of 2025.
"The monetary policy decision in November will come down to the balance between the labour market and inflation," said ANZ's Aaron Luk and Adam Boyton in a joint research note.
They continued: "We suspect this labour force print will ultimately be outweighed by an uncomfortably high Q3 trimmed mean outturn later this month. The likely reemergence of services price inflation will also complicate the assessment of exactly where the balance between demand and supply is.
"With signs of a pick-up in consumer spending and a faster rate of GDP growth than was the case a year ago we still think that no move in November and a final easing in February is the most likely outcome, although that’s less clear cut than was the case before today’s release."
Regional disparities emerge
Unemployment has now climbed above 4% across all states and territories. Victoria’s rate of 4.7% was the highest in the country, accompanied by a rise in underemployment to 6.6%. New South Wales recorded 4.3%, while underemployment there also edged higher.
Implications for mortgage professionals
For lenders and brokers, the latest figures signal a turning point. Softer employment and increased underutilisation could temper wage pressures, giving the RBA room to deliver one more cut to stabilise household budgets ahead of year-end.
But analysts remain cautious. Capital Economics senior economist Abhijit Surya told The Sydney Morning Herald that “today’s soft job [numbers] will bring the RBA a bit closer to cutting rates,” although a hotter-than-expected inflation print later this month “could still tilt the scales in favour of a hold.”
For the housing and mortgage market, any easing cycle would likely lower funding costs and boost refinancing activity – but rising unemployment could also weigh on borrower confidence and loan serviceability.
