Australian employment unexpectedly fell in March and the jobless rate rose, unwinding some of the huge upside surprise of the prior month and reflecting restrictive settings of monetary policy.

The economy shed 6,600 roles, compared with a forecast gain of 10,000 and following an increase of over 100,000 in February, data from the Australian Bureau of Statistics showed Thursday. Unemployment ticked up to 3.8% from 3.7% in February. 

“After some wild fluctuations over the past couple of months, the labour market returned to something a little more normal,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia. “The market is still in a very tight position, which will keep upward pressure on labour cost growth this year.”

The currency erased a small intraday gain after the release to trade at 64.34 US cents while the yield on the policy-sensitive three-year government bond held at 3.92%. Traders boosted bets a tad on a November interest-rate cut to 54% from 52%.

The Reserve Bank last month held its key interest rate at a 12-year high of 4.35% as it waits on data to signal a firm trajectory for the economy. Thursday’s job figures, together with quarterly inflation due next week, will help shape debate at the bank’s May 6-7 policy meeting.

While the unemployment rate edged higher, a level below 4% still means the job market is close to full capacity.

“The labour market remained relatively tight in March, with an employment-to-population ratio and participation rate still close to their record highs,” said Bjorn Jarvis, ABS head of labour statistics.

Economists expect the RBA will begin its rate cutting cycle only toward the end of this year given inflation is proving sticky. 

First-quarter CPI will be released on Wednesday and economists anticipate it will be cooler than the 4.1% reading for the final three months of 2023. The RBA’s latest estimates show inflation only returning to its 2-3% target in late 2025, reflecting expectations that the last stretch of bringing down prices will be the toughest.

Thursday’s employment data showed annual jobs growth cooled to 2.4% in March from 4% a year earlier.

Looking ahead, the RBA - which characterises the labour market as still tight - expects employment growth will slow, sending the jobless rate to 4.4% by mid-2025. The central bank publishes its quarterly update of forecasts in May.

Thursday’s labour data also showed:

• Underemployment edged down to 6.5% and underutilisation held at 10.3%
• The economy added 27,900 full-time roles and lost 34,500 part-time jobs
• The participation rate slid to 66.6%
• The employment to population ratio fell to 64%

  - Bloomberg