Even when inflation surged during 2022,and higher interest rates began to bite in 2023,the NSW economy continued to create jobs. The state consistently had the lowest unemployment rate among the states during 2022 and 2023.
For the first time since January 2022,the seasonally-adjusted unemployment rate has topped four per cent.
But things changed abruptly in January. Bureau of Statistics figures released on Thursday revealed unemployment in NSW jumped from 3.4 per cent to 4.1 per cent – an unusually large deterioration for a single month.
It’s as if the NSW economy was emulating the cartoon character Wile E. Coyote who routinely finds himself suspended in midair after running off a cliff in pursuit of his nemesis,the Road Runner. The state defied economic gravity for a time but,like Coyote,a fall was inevitable.
Last month,the number of unemployed people in NSW rose by 30,000 to 186,100 – the highest since November 2021,when the state was recovering from the shock of pandemic lockdowns.
As theHerald’s Shane Wright,NSW is at the epicentre of a national jobs market slowdown. More than 33,000 full-time jobs have disappeared in NSW since last June,of which 22,000 had been held by women. The jobless rate among the state’s men,which reached a record low of 2.8 per cent in May,has now climbed to 4.2 per cent.
While the severity of the January slowdown was unexpected, taken last year pointed to weaker conditions in the jobs market. A study by peak body Business NSW published in December found one in five firms expected to reduce staffing levels in the coming three months.
Meanwhile,the national unemployment rate has risen from 3.6 per cent to 4.1 per cent in just four months.
The Reserve Bank 13 times between May 2022 and November 2023,taking its official cash rate,which flows through to variable mortgage rates,to a 12-year-high of 4.35 per cent.
The January jobs report shows the RBA’s aggressive interest rate increases are now having a substantial effect on the NSW economy.
The impact of interest rate changes tends to lag,so hikes made last year will continue to be felt in the months ahead.
Sydney is disproportionately exposed to interest rate increases because high property prices in the city mean households here carry more debt,on average,than anywhere else in the country.
The average mortgage in NSW is the nation’s highest at $785,000 – the next largest home loans are in Canberra at $622,000.
Reserve Bank Governor Michele Bullock says the board is “trying to balance” the need to bring down inflation with maintaining recent employment gains.
The January employment figures underscore how difficult it will be to strike that balance.
The current inflation rate of 4.1 per cent,is still well above the RBA’s target range of 2-3 per cent. Earlier this month,Bullock said,“It’s really important we get inflation down. We have made good progress … but there is more work to do. The job’s not done.”
But the January employment figures suggest the labour market may be weakening more rapidly than expected.
The latest NSW government budget statement in December predicted unemployment in the state would be 3.75 per cent over the year to June 2024. But the actual rate is already well above that.
The RBA must pay close attention to the employment slowdown,especially in NSW,the nation’s largest jobs market. Interest rates should be reduced if job losses continue to rise more quickly than expected.
Unemployment could rise much higher than necessary if interest rates are kept too high for too long.
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