Australian unemployment in October fell back to a 48-year low of 3.4% – a grim sign of more interest rate hikes to come, adding hundreds to homeowners’ mortgage repayments.
The 3.4% unemployment rate in October was equal to July’s 48-year low, beating market expectations of the jobless rate increasing to 3.6% from 3.5% in September.
Gareth Aird, Commonwealth Bank’s head of Australian economics, said the drop in unemployment meant the Reserve Bank would likely lift rates by a further 0.25 percentage points in December, Daily Mail Australia reported.
Lifting the cash rate for the eighth consecutive month in December by another 0.25 percentage points would take interest rates to a new 10-year high of 3.1%.
This meant a borrower with an average $600,000 mortgage would owe an additional $91 a month on their repayments, taking them to $3,236 as a CBA variable rate lifted to 5.04%.
“We think today’s labour force data rubber stamps a further 25 basis point rate hike at the December board meeting,” Aird said.
The CBA economist said there were risks with the RBA raising rates further in 2023.
“We believe the RBA are very aware of the risk of overtightening and inadvertently engineering a hard landing,” Aird said. “We expect the labour market data to loosen over coming months as the lagged impact of hikes slows demand and the continual lift in foreign arrivals adds to labour supply.”
NSW had the lowest jobless rate of 3%. Victoria, meanwhile, had 3.6%, Queensland 3.3%, Western Australia 3.6%, South Australia 4.1%, and Tasmania 4%, based on seasonally adjusted figures.
In the territories, the ACT had a jobless rate of 3.2% while the Northern Territory had 3.8%.
With a tight labour market and wages growth of 3.1% – the highest level since 2013 – the central bank is more likely to raise the cash rate further from its current nine-year high level of 2.85%.
This is because a lower employment rate results in higher wages, which feeds into inflation that was already at a 32-year high of 7.3% in the year to September.
Nationally, the number of unemployed fell by 20,600 to 477,600 in October, while the number of people in work increased by 32,200 to 13,617,900, with the participation rate remaining steady at 66.5%.
Full-time job numbers jumped by 47,000.
Cherelle Murphy, EY chief economist, said interest rate hikes would likely lead to unemployment rise in 2023.
“From here we don’t expect the labour market to strengthen,” Murphy told Daily Mail Australia. “For businesses, higher input costs and pressures on their customers, plus higher interest rates, mean the demand for labour will plateau before eventually weakening.”
