Australian employment unexpectedly fell in February to end a strong run of impressive gains, in a sign that the red-hot labour market could be finally loosening a little, although the jobless rate stayed low.
The soft headline result sent the Australian dollar 0.4% lower to $0.6334, while three-year government bonds extended an earlier rally to be up 7 ticks at 96.29, the highest in more than a week.
Swaps still imply a scant chance — about 10% — of a rate cut on April 1, but a move in May is now priced at 78%, up from 70% previously, as the strength in the labour market was thought to be a hurdle for more policy easing.
Figures from the Australian Bureau of Statistics on Thursday showed net employment fell 52,800 in February from January, when it rose by a downwardly revised 30,500. That compared with forecasts for a 30,000 rise.
Annual jobs growth pulled back sharply to just 1.9% from 3.5% the previous month, although that is still in line with long-running averages. The participation rate, which hit a record high of 67.2% in January, slumped to 66.8%.
The jobless rate, however, stayed at 4.1%, matching market expectations.
The ABS noted fewer older workers returned to work in February, contrary to expectations that more people would return after the New Year holidays.
Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, noted the fall in workers close to retirement age is more likely to be a withdrawal of labour supply from the market, rather than a signal of less demand.
“This looks like a sideways move for the labour market, which remains in a tight position,” said Langcake.
Measures of underemployment and underutilisation even fell a little, but hours worked did drop 0.4%.
The Reserve Bank of Australia cut interest rates last month for the first time in four years, but cautioned further easing could not be guaranteed given the surprisingly strong labour market could risk stoking inflation.
The central bank has forecast core inflation, which slowed to 3.2% in the fourth quarter, to bottom out at 2.7% later this year, above the midpoint of its target range of 2-3%.
The main inflationary effect of strong employment is typically through rising wages, but wage growth moderated to a two-year low in the last quarter.
“RBA has been obsessing over the danger of wages surging from a strong job market, now it seems they shouldn’t have been so worried,” said Sean Callow, senior FX analyst at ITC Markets.
Analysts at ANZ, however, said they do not think one weak print would have a material impact on the RBA’s thinking on rates.
“Labour market fundamentals remain solid, with an overall robust trend in employment growth, a low unemployment rate and an elevated level of job advertisements,” they said in a note to clients.
(Reporting by Stella Qiu; Editing by Jamie Freed and Stephen Coates)
