High Unemployment Because of Soaring Interest Rates and Inflation: Treasurer

In this photo illustration job vacancies are displayed in the newspaper in Auckland, New Zealand, on Aug. 7, 2009. Sandra Mu/Getty Images

Australia’s treasurer has linked the latest spike in unemployment, the highest in two years, to the “inevitable” consequences of soaring interest rates and inflation on the economy.

Australia’s unemployment rate surged to 4.1 percent in January, up from 3.9 percent in December, surpassing the 4 percent mark for the first time since January 2022.

About 22,000 more people were unemployed, with only 481 jobs added, far below the expected 25,000 additional jobs, according to the Australian Bureau of Statistics (ABS).

“This is the inevitable consequence of higher interest rates and persistent inflation and global economic uncertainty,” Treasurer Jim Chalmers said in Canberra.

“Because of the pressures that people are under, the pressures our economy is under and indeed the global economy as well, those are largely the reasons for the tick up in the unemployment rate we see today.”

He explained that while the labour market is experiencing some decline, it’s from a position of strength.

“We’ve seen in job ads, we’ve seen in the way that hours have come off, that our labour market has been weakening, but it’s been weakening from a really quite incredibly strong and resilient base,” he said.

He noted 2023 was the only year when every single month had an unemployment rate below 4 percent.

“So we enter this period of economic uncertainty from a position of genuine strength, and the labour market is a big part of that story,” he said.

ABS noted the jobless increase was partly because more people than usual were not working presently but were anticipated to start or resume a job soon.

“While there were more unemployed people in January, there were also more unemployed people who were expecting to start a job in the next four weeks,” ABS head of labour statistics Bjorn Jarvis said.

He mentioned a similar trend was seen in January over the last two years.

“This may be an indication of a changing seasonal dynamic within the labour market, around when people start working after the summer holiday period. In January 2022, 2023, and 2024, around 5 percent of people who were not employed were attached to a job, compared with around 4 percent in the January surveys prior to the COVID-19 pandemic.”

Meanwhile, the participation rate remained steady at 66.8 percent and the employment-to-population ratio fell 0.1 percentage point to 64.1 per cent.

Both of these rates were still close to their recent historical highs and well above their pre-pandemic levels.

Job Market Slowdown

Oxford Economics’ Australian macroeconomic forecasting leader, Sean Langcake, said there’s a clear slowdown in the job market, with overall figures showing weakness, especially a significant 2.5 percent decrease in hours worked from month to month.

“The swift weakening in labour market conditions raises some doubts as to whether we will see an orderly easing in conditions in 2024,” he said.

He anticipates the unemployment rate to rise gradually throughout 2024, reaching a peak of 4.5 per cent.

“But with the unemployment rate reaching 4.1 percent in January, this cycle appears to be running ahead of schedule,” he added.

Diana Mousina, an economist at AMP, pointed to a notable rise in the number of job applications per advertised job on SEEK since 2022, a trend often associated with an uptick in the unemployment rate.

She adds the ratio of job vacancies to unemployed persons has declined from 0.94 to 0.65, indicating that for every three job seekers, only two job openings are available.

She said that although job openings remain elevated compared to before the pandemic, there was a risk that businesses might hold onto their existing staff instead of hiring new ones, which could result in reduced working hours for employees.

AMP’s Chief Economist Optimistic About Job Market Strength

The Reserve Bank of Australia (RBA) closely monitors the health of the job market and expects a gradual increase in unemployment as the economy slows down.

AMP’s chief economist Shane Oliver, though taken aback by the figures, says they indicate that the job market was still relatively strong, which would be positive news for the RBA when they consider interest rate decisions.

“The jobs numbers were a quite a bit softer than I thought, unemployment above 4 percent for the first time in two years, at 4.1 percent, jobs growth virtually non-existent, obviously, good news there with full-time jobs rising and part-time jobs down, but on net, no big change,” he said.

“I think this will come as a relief to the Reserve Bank, and ultimately, it will contribute to interest rate cuts,” he said.

However, he cautioned, “We probably still have a few months to go before we get to that point.”