Strong employment figures will force a forecast rethink, but the RBA is not ready to fundamentally shift its view of the labour market.
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.