- The unemployment rate ticked up to 4.2%, but not necessarily as a result of people losing jobs; participation rose to its highest level in more than 100 years.
- The labour market has been able to absorb record levels of immigration, though heightened participation can soften wages growth.
- Jobs are still being added generally at a faster pace than jobs lost.
- This result, coupled with wages growth figures from earlier in the week, will likely be pleasing to the RBA, but a cash rate reduction in 2024 is pretty much ruled out.
Last month’s unemployment print was the highest since November 2021.
Fresh ABS jobs data showed more than 58,000 new jobs were in fact created last month, the majority of which are in full-time roles.
However, the number of unemployed people also increased by 24,000, up from 10,000 in June, thus lifting the participation rate to a record high.
“This combined increase lifted the participation rate to a record high of 67.1%,” new ABS head of labour statistics Kate Lamb said.
According to Westpac economist Ryan Wells, the two-decimal place participation rate of 67.14%, is the highest since the Great War of 1914-1918.
The participation rate measures the percentage of the population working or willing to work, with July's outcome reflecting that labour supply continues to meet and even exceeds demand.
More people in the force and looking for work - i.e. participating - can drive the jobless rate up despite jobs being added.
Economists have expected the jobless rate to remain steady at 4.1%, with employers tipped to add 20,000 new positions.
Despite the stronger-than-expected unemployment rate, Ms Lamb noted that Australia’s jobs market remains resilient.
The labour force survey showed the employment-to-population ratio rose by 0.1 percentage point to 64.3%, a touch below the historical high of 64.4% in November 2023.
This gauge indicates employment growth was faster than population growth, as it has been for two consecutive months to date.
“Although the unemployment rate increased by 0.1 percentage point in each of the past two months, the record high participation rate and near record high employment-to-population ratio shows that there continues to be a high number of people in jobs, and looking for and finding jobs,” Ms Lamb said.
Trend data registered the same read as seasonally adjusted figures.
"Overall, these results speak to labour market resilience rather than weakness – a welcome signal for policymakers that have been desperately trying to orchestrate a ‘soft landing’ for the economy," Westpac's Mr Wells said.
Labour market remains tight
Despite the increase in the unemployment rate, Ms Lamb said the conditions in the labour market remain tight relative to pre-Covid levels.
“While unemployment increased to 637,000 people in July, the highest it has been since November 2021, it remains around 70,000 people below its pre-pandemic level,” she said.
"The employment and participation measures remain historically high while unemployment and underemployment measures remain historically low, compared with what we saw before the pandemic.
“This suggests the labour market remains quite tight.”
Major bank economists agreed while tipping that conditions will loosen from here.
“A lift in unemployment rate to 4.2% suggests slack is building,” CBA economist Belinda Allen said.
“But we still expect the labour market to loosen gradually, though admittedly this is taking longer than expected, especially on the employment front.”
Hours worked increased
Seasonally adjusted monthly hours worked rose 0.4%, in line with the increase in employment.
On a yearly basis, it went up 0.9%, notably slower compared to the 3.2% rise in employment.
The growth in hours worked contributed a 0.1 percentage point fall in the underemployment rate, down to 6.3% in July.
“This was 0.1 percentage point lower than July last year, and 2.4 percentage points lower than March 2020,” Ms Lamb said.
Generally, when hours worked slows, the underemployment rate lifts.
The number of people employed who worked reduced hours due to illness was 4.2%, higher than the five-year pre-pandemic July average of 4.6%.
This, however, was slightly offset by lower-than-usual number of employees taking annual leave around school holidays.
The underutilisation rate, which combines the unemployment and underemployment rates, rose slightly to 10.6%.
RBA expected to be relieved, major banks slightly tweak rate cut forecast
Along with slowing wage growth, today’s jobs data is expected to provide RBA some comfort.
The central bank's most recent August State of Monetary Policy (SMP) had pencilled in an unemployment rate of 4.3% by the end of the year.
“Today‘s results are still within bounds of that forecast, though we would want some stability to emerge in coming months,” said Tapas Strickland, NAB head of market economics.
The RBA’s resolve to maintain employment gains is one of the major reasons the Board has refrained from hiking the benchmark rate, despite persistent inflation.
The robust results also show that the labour market has been able to absorb the record levels of immigration, Mr Strickland noted. However, the heightened participation rate can also have a softening effect on wages, seen earlier in the week.
The central bank is expected to carefully look at today’s data over concerns that the unemployment rate may be lifting too quickly as expected – similar to what happened in the US.
“Offshore evidence has indicated this can happen quickly,” Ms Allen said.
Following labour force results, the CBA maintains its central case scenario for a November rate cut.
However, economists at Australia’s largest bank – the last of the Big Four holding out on a 2024 rate cut call – admitted they are becoming less and less convinced of their prediction.
“We are growing uneasy, given the shortening runway to achieve the data configuration required for the RBA to feel comfortable cutting the cash rate, especially after today’s employment print,” Ms Allen shared.
According to the CBA economist, the consumer spending data, Q3 2024 CPI print, and upcoming labour market data all would need to move in the right direction to achieve their central case scenario.
If not, “the risk continues to build for a 2025 start date to the easing cycle.”
A day after the August RBA Board meeting, Westpac revised its forecast for the start date to rate cuts from November 2024 to February next year, same with ANZ.
Following today’s jobs read, NAB said rate cuts could begin earlier than it expects.
“NAB expects the first RBA rate cut in H1 2025, having pencilled in May, though risks do skew earlier in 2025 depending on the data flow,” Mr Strickland said.
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