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A strong bounce in job numbers last month will maintain pressure on the Reserve Bank to keep increasing official interest rates, despite global banking jitters.
Key points:
- Unemployment returned to 3.5 per cent, with 64,600 jobs added in February
- Hours worked and workforce participation rose, while underemployment fell
- Economists say the strong jobs numbers make another interest rate rise very likely
The unemployment rate fell back to 3.5 per cent in February, according to the Australian Bureau of Statistics, with almost 65,000 jobs estimated to have been added to the economy last month.
In an all around strong set of numbers, the proportion of Australians in work or looking for it also rose, along with hours worked, while underemployment fell.
"The underemployment rate is currently almost 3 percentage points lower than it was before the pandemic, with falls over the past year underpinned by stronger growth in hours worked than in employment," said the bureau's head of labour statistics Bjorn Jarvis.
"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," Mr Jarvis added.
Labour supply increasing, but demand still strong
Recent estimates from Westpac put net migration to Australia at more than 400,000 people last year, a record level based on a "catch-up" on those who left or did not arrive during the two-year closed borders period of the pandemic.
"The surge in net migration is beginning to have a material impact on the labour market too, with growth in the working age population rising to be well above pre-pandemic levels at an elevated 2.1 per cent [over the year]," wrote Westpac associate Ryan Wells.
The bank expects net migration to slow slightly this year to 350,000 people, before falling again to 275,000 in 2024.
While reopened borders are increasing the pool of workers available to employers, for the moment at least, there appears to be more than enough demand to absorb the additional labour supply.
Jay Thakrar has been waiting to come to Australia since 2020 and arrived with his wife and two children at the start of last month to take up an accounting job with paint manufacturer Omega Industries.
"This is my dream destination," he told ABC program The Business.
"I was preparing the documents to migrate to Australia through the point-based system but, fortunately, this offer came to me and that brought me here quickly to Australia."
Geeta Shetty is a director of Omega Industries and started the business with her husband. She said the ability to bring in skilled staff from overseas is crucial for expanding their operations.
"After COVID there was a shortage of labour, we applied to the government for work permits under the skilled category and we were surprised that within two months our applications were approved, and we got accountants and we got chemists," she said.
"With the borders opening, we're really happy that things can only go up from now.
"Now we're looking for some production staff, because there's a wealth of skilled talent overseas and to make up for the shortage here, especially for the manufacturing industry.
"This is the only way to go until we can develop our own skilled staff within Australia."
'Red hot' numbers to prompt rate rise
In a recent speech, Reserve Bank governor Philip Lowe said the RBA would be looking at four key economic data points before deciding whether to pause or keep raising rates at its April 4 board meeting — the labour force figures were among those.
The December and January jobs data had shown some signs of weakness, with falls in employment and a jump in unemployment to 3.7 per cent from October's 48-year low of 3.4 per cent.
However, both the ABS and RBA had attributed this to an unusually large number of people waiting to start a new job, who now appear to have done 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," observed Mr Jarvis.
Capital Economics analyst Marcel Thieliant said the "red hot" jobs numbers should all but guarantee another Reserve Bank interest rate rise next month.
"February's strong labour force figures will prompt the Reserve Bank of Australia to press ahead with another 25bp [basis point] hike at its April meeting despite mounting signs of strain in the global banking system," he wrote.
"There are still three weeks until the next RBA meeting and it's possible that tensions in financial markets caused by ailing banks in the US and Europe spiral out of control.
"As things stand though, there are no signs of major stress in Australia's financial system.
"The labour market figures released today underline that the economy is still operating well above sustainable levels and we expect the bank to press ahead with further tightening next month."
However, AMP senior economist Diana Mousina has a different view, due largely to the "panic in markets" over the past week.
"Impacts of central banks' rate hikes are increasing financial stability risks given the fast upward moves in rates over the past year and contagion risks remain high for now," she wrote.
"Additionally, we think the February retail and inflation data in two weeks' time will also disappoint expectations and our base case is that the RBA will keep the cash rate unchanged in April at 3.6 per cent and see the central bank maintaining the cash rate at this level before the risk of rate cuts in late 2023/early 2024."