The S&P/ASX 200 Index (ASX: XJO) was enjoying a solid run on Thursday, up 0.3% at 11.30am AEDT.
Then, the benchmark index promptly plunged into the red.
Why?
Well, that's when the Australian Bureau of Statistics (ABS) released the latest Aussie unemployment data.
In a classic case of good news for the economy (or at least for its workers) being bad news for stocks, ASX 200 investors hit their sell buttons following the unexpectedly strong labour market report.
That's likely to keep upward pressure on wages in the medium term, which will in turn work to stoke inflation. And this means investors and mortgage holders alike may well be waiting until the latter months of 2025 for the first interest rate cuts from the Reserve Bank of Australia (RBA).
Here's what we learned from the ABS.
ASX 200 tanks on Aussie labour report
The ASX 200 took a tumble after the ABS reported that Australia's seasonally adjusted unemployment rate fell by 0.2% to 3.9% in November.
Commenting on the results, David Taylor, ABS head of labour statistics, said:
With employment rising by 36,000 people and the number of unemployed decreasing by 27,000 people, the unemployment rate fell to 3.9%.
In November, we saw a higher than usual number of people moving into employment who were unemployed and waiting to start work in October. This contributed to the rise in employment and fall in unemployment.
While the labour participation rate was down 0.1% in November to 67.0%, that's compared to the historic high of 67.1% in September. The participation rate is up 1.5% from March 2020 and running at the same level as this time last year.
And unemployment remains historically low despite Australia's rapid population growth.
"The recent growth in population has boosted the labour supply as employment has kept up with population growth," Taylor said.
The ongoing tight labour market clearly was not what most ASX 200 investors wanted to hear.
According to Taylor:
Compared with outcomes before the COVID-19 pandemic, the unemployment and underemployment measures are still low, while trend employment and participation measures are around all-time highs. This suggests the labour market continues to be relatively tight.
How does this compare to expectations
The late morning ASX 200 sell-off today looks to be exacerbated by the November labour data coming in stronger than most analysts have been forecasting, pushing out the prospect of the next RBA interest rate cut.
For example, National Australia Bank Ltd (ASX: NAB) noted (quoted by The Australian Financial Review), "We pencil in a 25,000 employment gain in November and a tick higher in the unemployment rate to 4.2%."
And TD Securities noted, "An uptick in the participation rate to 67.2% should pin the unemployment rate unchanged at 4.1%."
While the ASX 200 may be reacting negatively to the stronger-than-expected figures, I'd say the fact that the Aussie labour market remains strong despite high interest rates and sticky inflation is good news for the nation. And this should bode well for many stocks over the medium and longer term.
