Despite the unemployment rate ticking up from 3.9 per cent to four per cent, as expected by analysts, the labour market was still substantially stronger than the Reserve Bank of Australia had been expecting.
Governor Michele Bullock has cited ongoing strength in the labour market as a reason for the central bank holding the cash rate at 4.35 per cent.
The rise in unemployment comes after a surprise drop in the seasonally adjusted rate from 4.1 per cent in November, reversing the steadily increasing trend from its low of 3.4 per cent in October 2022.
As a result, the unemployment rate has held well below the bank's 4.3 per cent forecast for the fourth quarter.
Contrary to expectations the labour market will cool gradually, the RBA will need to be alive to the risk that it has not just stabilised but could even re-tighten, said NAB senior economist Taylor Nugent.
He expects the Reserve Bank to keep rates on hold at its next meeting in February, but said the decision was "live" given inflation data out at the end of January is expected to come in below forecast.
"There is value in waiting to get a better handle on the trajectory of growth and the labour market given the broader macro backdrop does not create any urgency to cut rates," he said.
A strengthening labour market has made the Reserve Bank reluctant to cut interest rates. (Steven Saphore/AAP PHOTOS)
Growth in the number of employed people was higher than the monthly average of 0.3 per cent during 2024, said ABS head of labour statistics Bjorn Jarvis.
The participation rate rose to a record high of 67.1 per cent as the number of unemployed people climbed by more than 10,000, while the underemployment rate fell 0.1 percentage points to 6.0 per cent.
Treasurer Jim Chalmers said they were "remarkable" numbers in an economy where growth has been particularly soft.
"If you look around the world, a lot of other countries have paid for progress on inflation with either recessions or negative quarters of growth or much higher unemployment," he told reporters in Brisbane.
"What we've been able to do in Australia is to deliver inflation coming down, wages coming up and very low unemployment, and that's what a soft landing looks like in our economy."
"With employment rising by 56,000 people and the number of unemployed increasing by 10,000 people, the unemployment rate rose to 4.0 per cent," Bjorn Jarvis, ABS head of labour statistics— Australian Bureau of Statistics (@ABSStats) For more, see https://t.co/v1OivaxqkE pic.twitter.com/Yk3EeQdNe5January 16, 2025
While economists played down the need for urgency in cutting rates, Australia's peak union body argued the unemployment data showed the RBA has waited too long.
"Today's softening jobs figures provide yet more evidence of the need for an urgent rate cut," said ACTU president Michele O'Neil.
"Waiting for unemployment to get worse before cutting rates is harsh and unnecessary."
Rising union membership and real wages growth indicated employees were enjoying increased bargaining power, BDO Economics partner Anders Magnusson said - a welcome trend for workers, but something to be considered in wage and inflation forecasts.
Mr Magnusson said a cash rate cut in February is unlikely, while economists at CBA and JP Morgan retained their calls for a February cut.
Bond traders had been predicting an almost three-quarter chance of a February rate cut ahead of the bureau's employment data release, with the case having been aided by a drop in consumer spending in December.
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