Aussie jobs strong despite higher interest rates

The RBA has been signalling for months that the jobs market remains strong, and September's numbers confirm this, building on an impressive August. Despite the rate increases, our local employment market has stayed robust—something worth celebrating.

A strong economy supports investment and promotes financial stability. For investors, rising incomes (like rents) can offset higher interest rates. Given the choice, I’d take a strong economy over a weak one any day.

The unemployment rate held steady at 4.1%, with new jobs being added each month, balancing out the higher participation rate. While there are pressures building in the economy, and higher rates are undoubtedly choking some businesses, they haven’t yet led to enough job losses to cause widespread concern.

One wildcard in Australia’s jobs market is the role of government. The public sector is employing about 25% more people than pre-pandemic levels, with further hiring expected in the upcoming budget. Fortunately, the budget is positioned to support this, with surpluses on the horizon. But it wouldn’t take much for this to change quickly.

I expect the unemployment rate to flat line at current levels before gradually rising next year. The RBA will tread carefully, knowing that delaying too long could lead to a situation similar to New Zealand's, where they acted too aggressively and caused significant damage.

We may not get a rate cut before Christmas, but early next year seems likely. Macquarie Bank has already made an aggressive move, cutting its 2-year fixed rates for investors and owner-occupiers, in recent weeks. Other banks are following suit, though less boldly.

Macquarie might have gone too far and may need to pull back on its discounted rates soon. However, it tends to target higher-quality borrowers with lower debt levels, suggesting it’s playing the long game, aiming to build market share while its peers remain cautious.

Bottom line: The banks are preparing for rate cuts—it's just a matter of timing. Strong employment will delay the RBA's decision, but that's not necessarily a bad thing. Australia remains in an extremely attractive position compared to global peers, with recent stimulus from China being an added bonus.

Peter Esho is an economist and Founder of Esho Capital. He has 20 years of experience in investments and markets.