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Unemployment reached a two-year high in January, says the ABS. Economists diverge on whether there is cause for concern.
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Rising unemployment a taste of what is to come, economist says
16 February 2024
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9 minute read
The unemployment rate rose by 0.1 per cent (rounded) across January, bringing it to a two-year high of 4.1 per cent, according to fresh ABS data.
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CreditorWatch chief economist Anneke Thompson expected the figure to climb to the “mid-fours by mid-year".
“Business activity has been slowing down quite significantly over 2023 and it has continued into the first month of the year,” she added, “I think what’s happening is a slowdown in consumer spending.”
As cost-of-living pressures continued to restrict consumer spending and business costs remained high, many employers were slowing their hiring functions.
“There are probably a few exceptions like health, education, and agriculture but, by and large, most industries will be experiencing a slowdown and that means hiring as well,” she said.
Over the month, the employed population grew by only 481 people, while the “consensus was for a 25,000 lift in jobs", said Diana Mousina, AMP Australia deputy chief economist.
Applications per job advertisement on SEEK.com had “risen substantially” since 2022 while the number of job vacancies per unemployed person has fallen, said Ms Mousina.
Though unemployment was rising, it was doing so from an historically low position. “I think the RBA will be pretty comfortable with unemployment at four to 4.5 per cent. If it starts getting over that mark, there might be cause for concern.”
On the other hand, RSM Australia economist Devika Shivadekar said “there’s a growing concern about the economy possibly weakening at a faster pace than expected".
She said if the unemployment rate continued to increase, the RBA might be compelled to “consider easing measures earlier than anticipated before inflation is well and truly under control.”
Though job vacancies were high relative to pre-pandemic levels, it was possible that they would remain that way if businesses refused to let go of existing employees, said Ms Mousina. Many employers were preferring to reduce working hours rather than having to downsize and rehire in the case of future growth, she added.
According to Bjorn Jarvis, ABS head of labour statistics, the rise might be partly explained away by emerging seasonal dynamics. For example, recent January surveys recorded an unusually high proportion of unemployed people who were expecting to start a job in the subsequent four weeks.
Recent surveys also revealed an increasing proportion of employed people taking leave over the new year period.
Ms Thompson concurred, pointing to an increasing use of mandatory leave policies among employers who “noticed their workflow was slowing” over the period.
Hours worked fell by 2.5 per cent across the month, continuing a “general slowing since mid-2023,” the ABS said. The annual growth rate in hours had “slowed considerably” over the period, falling to 0.7 per cent last month.
Underemployment and underutilisation both rose across January (by 0.1 per cent and 0.3 per cent, respectively), though both remained lower than pre-pandemic levels.
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