A surprise surge in full-time jobs has pushed the unemployment rate down to 6.1 per cent, sparking a fresh debate about the likelihood of any imminent interest rate cuts by the Reserve Bank.
The economy added a whopping 37,000 jobs in December, much better than the 5,000 jobs economists were expecting, bringing the number of employed Australians to 11.7 million.
That rise was mainly driven by full-time jobs, which rose by 41,000, while part-time employment fell by 4,000, according to figures from the Australian Bureau of Statistics on Thursday.
The upbeat data gave the Australian dollar a shot in the arm, with the currency jumping as high as 82.21 US cents following its release.
It also came moments after ANZ became the third of Australia’s big four banks to backtrack on its earlier interest rate forecasts, swapping two rate hikes in 2015 for two cuts.
ANZ now expects the RBA to cut the cash rate to two per cent in the first half of the year.
But other economists, including CommSec chief economist Craig James, said the strong jobs figures meant interest rates were firmly on hold.
“It’s a very encouraging result for the economy, with back-to-back jobs growth and the expectation of further job gains given the data we’ve seen on job advertisements and vacancies,” he said.
“We’ve also got a housing market which continues to fire and falls in petrol prices which boosts business revenues and consumer spending, so the outlook is pretty good.”
JP Morgan economist Ben Jarman said the strong figures diminished the chances of an imminent rate cut, although he expects RBA governor Glenn Stevens to adopt a more cautious tone given recent sharp falls in commodity prices.
It was still premature to say the unemployment rate had peaked.
“This report probably does overstate the momentum and strength in the labour market a bit, because it does appear that growth dropped a gear in the later part of the year,” Mr Jarman said.
“For the RBA, today’s numbers make it unlikely that the board will start the year with a bang by cutting rates in February, a prospect markets had been flirting with recently.”
ANZ said the better-than-expected figures should be characterised as a pause in the deterioration of the labour market, with expectations that unemployment will hit 6.6 per cent this year, forcing the RBA to cut.
“For the RBA, today’s figures are encouraging,” ANZ senior economist Riki Polygenis said.
“However the reality remains that the recovery in the non-mining economy has been slower to eventuate than expected and the sharp fall in energy prices creates more space for the inflation-targeting central bank to support the domestic economy.”
Westpac and NAB have also forecast two rate cuts in 2015 while Commonwealth Bank pushed its expectations for a rate hike out to early 2016, instead of 2015.
STATE BY STATE UNEMPLOYMENT RATES IN DEC:
* NSW – 5.9pct down from 6.0pct in Nov
* Vic – 6.5pct down from 6.8pct
* Qld – 6.1pct down from 6.8pct
* SA – 6.5pct down from 6.6pct
* WA – 6.0pct up from 5.3pct
* Tas – 6.7pct down from 6.9pct
Source: ABS (seasonally adjusted)