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.

A sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.

The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.

The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.

The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.

This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.

The debt behind the AI build-out

Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.

Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.

JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.

The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.

That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.

A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.

When interest rates rise, those assumptions become less forgiving.

Inflation changes the calculation

September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.

The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.

CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.

Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.

Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.

The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.

China adds another source of pressure

Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.

Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.

The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.

That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.

A reset rather than the end of the boom

The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.

What has changed is the market’s willingness to overlook the price and financing structure of that growth.

The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.

More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.

For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.

Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.

The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.

Fact box

Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026

Philadelphia Semiconductor Index: Down approximately 11.4 per cent

Micron Technology: Down approximately 14.6 per cent

Samsung Electronics: Down approximately 18 per cent

SK Hynix: Down approximately 24 per cent

US September inflation: 3.7 per cent annually

Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion