Unemployment rises to its highest level in two years

The unemployment rate has risen to its highest level in two years at 4.1 percent, according to new data from the Australian Bureau of Statistics (ABS). The seasonally adjusted jobless rate increased by 0.1 percent in January, with the number of unemployed Australians increasing by 22,300 and the number of people with a new job increasing by just 500.

Bjorn Jarvis, ABS head of labour statistics, said this was the first time since January 2022 that the unemployment rate is above 4 percent. Mr Jarvis pointed out that a higher-than-usual number of unemployed people were due to start a job or return to work within the next four weeks. There was a similar trend in January last year. “This may be an indication of a changing seasonal dynamic within the labour market, around when people start working after the summer holiday period,” Mr Jarvis said.

Seasonally adjusted hours worked over the month fell by 2.5 percent. This partly reflects January being a popular time of year for workers to take annual leave. But Mr Jarvis said the drop in hours also reflected the continuation of a trend that began in mid-2023 and has accelerated since October 2023. The annual growth rate in hours worked has slowed significantly to just 0.7 percent in January.

The proportion of Australians aged above 15 years participating in the workforce remained steady at 66.8 percent and the employment-to-population ratio fell 0.1 percent to 64.1 percent. Both measures remain at near historical highs and well above pre-COVID levels. The data shows 6.6 percent of employed people would have liked to work more hours than they did. This is referred to as the rate of ‘underemployment’, and in seasonally adjusted terms it has risen 0.8 percent since the most recent low in February 2023.

CBA Head of Australian Economics, Gareth Aird, said the rate of increase in unemployment was somewhat alarming. “The jobless rate has risen quite sharply over the last five months,” Mr Aird said. “For context it was 3.6 percent in September 2023. A lift of 0.5ppts in just five months is significant and somewhat concerning. Both the unemployment and underemployment rates are at their highest levels since January 2022.”

Mr Aird highlighted that just 500 people had a new job in January, reflecting significant weakness in employment growth. Consensus market analyst expectations had been 25,000 and CBA was more bullish at 40,000. In January 2022, employment rose by 65,000 and in January 2023 it lifted by 25,000. CBA has previously predicted that weak per capita employment growth will result in the labour market deteriorating more materially than the Reserve Bank (RBA) currently forecasts.

The RBA expects unemployment to reach 4.3 percent by the year’s end, and Mr Aird said this looks too low. “We see the unemployment rate rising to 4.5 percent by end-2024. We believe RBA rate cuts will be required this year to prevent the unemployment rate from rising much above 4.5 percent.”

CBA is tipping that the RBA will commence interest rate cuts in September. It predicts a total reduction of 75 basis points in 2024 and another 75 basis points in the first half of 2025.

Four in five Australians say they have changed their investment and savings goals over the past 12 months, with 44 percent doing so primarily to make ends meet during the cost–of–living crisis. A further 25 percent say they’ve switched strategies to protect their wealth against inflation, according to a new survey by financial advisory firm, Findex.

The Superannuation and Retirement Insights report shows Australians have also changed their goals to grow their wealth (31 percent), to create a regular income stream (29 percent) and to reduce taxes (17 percent). Transferring wealth to their children or other family members has motivated 10 percent of Australians to alter their investment plans, which is likely reflective of the increasing role played by the Bank of Mum and Dad in young people’s first home purchases.

The report found that traditional investment avenues, such as property and superannuation, remain the most popular choices, with more than eight out of 10 survey respondents ranking these asset classes highly. But there is also an increasing inclination towards investments that offer the potential for quicker returns, additional perceived safety, and better liquidity or accessibility to funds.

Eighty percent of survey respondents also nominated bank savings as among their top five investment choices right now, followed by shares (66 percent) and cash (51 percent).

“This shift reflects a broader strategy to mitigate current financial uncertainties, balancing the pursuit of long-term wealth accumulation with the need for immediate financial security,” the report says.

While superannuation is considered a cornerstone investment for retirement and long-term wealth accumulation, 85 percent of Australians are exploring investments outside superannuation. The most common investments outside super are bank savings (64 percent), property (38 percent), cash (35 percent) and shares (34 percent).

However, when the data is broken down by generation, stark differences are revealed in how each age cohort chooses to invest their spare income and why.

Most popular investments outsider super and the motivations to invest by generation

Baby Boomers (born 1965-1964)

Outside superannuation, Baby Boomers prefer to invest in bank savings (60 percent), property (50 percent) and shares (46 percent).

By far, their primary motivation for investing is planning for retirement (80 percent). They also want to build wealth (51 percent) and support their children or other family members (25 percent). Other motivations include preserving wealth to beat inflation (22 percent) and paying off a mortgage or other debt (20 percent). They are the least likely generation to be saving for an investment property.

Gen Xers (born 1965–1980)

Gex Xers prefer to invest in bank savings (57 percent), property (43 percent) and shares (36 percent).

They are motivated to invest for retirement (66 percent), to build wealth (50 percent), to save for emergencies (36 percent), and to pay off a mortgage or other debt (30 percent). Interestingly, Gen X is the generation most concerned with supporting their children or family members (33 percent). This may be because Gen Xers have grown up during Australia’s long-standing property boom that began in the late 1990s and continues today.

Millennials (born 1981-1996)

Millennials have the strongest interest in bank savings as an investment avenue (70 percent), followed by property at 41 percent. They also like cash (35 percent) and shares (33 percent). Millennials have the highest uptake of exchange-traded funds (ETFs) at 21 percent. ETFs are a relatively new type of asset class, with the first ones trading on the ASX in 2001. ETFs are a basket of shares that can be purchased in a single transaction for instant diversification. Millennials are also the generation most interested in cryptocurrencies, with 22 percent invested.

Their biggest motivations for investing are to build wealth (55 percent), save for emergencies (50 percent) and plan for retirement (49 percent). They also want to support their kids (32 percent) and pay off their mortgage (32 percent). Millennials are the generation most likely to be saving for an investment property (28 percent) rather than a first home (17 percent).

Gen Zs (born 1997-2009)

Gen Zs spread their money across more asset classes than their elders. They like investing in bank savings (66 percent), cash (42 percent), shares (22 percent), ETFs (17 percent), property (14 percent) and cryptocurrencies (13 percent).

While Gen Zs are the youngest age cohort within the survey, they also have long-term goals just like their elders. The biggest motivation to invest among Gen Zs is to build wealth (52 percent). More Gen Zs are saving for a first home than any other generation, with 42 percent pursuing this goal. They are also the generation most concerned with preserving wealth to beat inflation (29 percent). Gen Zs also want short-term security, with 46 percent saving for emergencies. They’re also the generation most likely to be saving for other major purchases like a car or holiday (41 percent) and investing just for enjoyment (26 percent).