Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Strong jobs data last week have injected further doubt into Reserve Bank of Australia productivity growth assumptions, though its initial reaction will be to look through volatile figures it believes to be largely driven by seasonal factors, MNI understands.
Some former staffers have suggested uncertainty over productivity growth poses a threat to the RBA’s forecasts and could prompt it to leave the cash rate steady at 4.35% over 2024 as it aims to pull inflation back to its 2-3% target band. The central bank noted in its February statement it believes the metric will return to its long run average of about 1%, and it had been counting on a further 0.4pp reduction in total hours worked alongside modest GDP 0.2% growth in Q4 to drive it higher.
But average hours worked instead rose in February, as employment grew by 116,000, higher than the 40,000 forecasted. (See chart) Unemployment fell 0.4 percentage point to 3.7%, undershooting the market’s 4.0% consensus, and going in the opposite direction to the expectations contained in the Reserve's statement, which saw it reaching 4.2% by Q2, to peak at 4.4% by mid-2025. (See MNI POLICY: RBA Relief As Productivity Weakness Unwinds)
The strong print will now push the RBA to update its forecasts when it publishes its next Statement on Monetary Policy alongside the May 6-7 meeting. The Reserve’s assessment factors in cyclical productivity shifts, such as employers holding on to workers during a downturn, and longer-term structural productivity growth.
But, while average hours worked rose due to the higher number of employed people, the metric is still trending down despite its more “jagged” appearance. The data followed below-average job creation in December and January.
And, while the RBA constantly updates its non-accelerating inflation rate of unemployment (NAIRU) estimate, it will not immediately change its view on full employment following one month of data, considering that it does not represent a fundamental shift to the underlying structural features of the labour market, MNI understands.
Governor Michele Bullock noted, following the RBA Board’s decision to hold the cash rate at 4.35% last week, that NAIRU is likely between 4-4.5%. (See MNI RBA WATCH: Bullock Stresses Data, Switches To Neutral Tone)
The ABS will release a further monthly labour force report before the Reserve board's May meeting, which the RBA will use to clarify at least partially the underlying data and trends within the employment market.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.