Jobless rate rise points to softer labour market

Unemployment edges higher

Australia’s unemployment rate has climbed to 4.5 per cent, adding to the case for the Reserve Bank to hold off on hiking interest rates again.

The result was driven by a fall in employment of 15,800, well below consensus forecasts for a rise of 12,000 jobs.

The Australian Bureau of Statistics released the July labour force figures on Thursday.

While the figures were softer than economists expected, the result was not as dire as the headline numbers suggest.

“Overall, the data is supportive of our view that the labour market remains on a solid footing but is slowly loosening and is moving closer to balance. Over time, this should assist in bringing inflation down and supports the case that interest rates have peaked this cycle,” Commonwealth Bank Economist Harry Ottley said.

Employment data can be volatile, and the July fall followed a jump of 80,000 jobs in June.

The ABS also reports a trend unemployment rate calculated to smooth out short-term monthly volatility to show the underlying direction of the labour market.

“Given the inherent volatility in the broader survey, we place emphasis on trend adjusted measures of employment and particularly the unemployment rate,” Ottley said. “On this front, trend‑employment rose by a solid 29,000 in July. The trend unemployment rate however has continued to rise, up to 4.5 per cent - the highest level since November 2021.”

Although most economists had expected the unemployment rate to hold steady at 4.4 per cent, the increase was more modest at two decimal places, rising from 4.43 per cent to 4.46 per cent.

The ABS also cautioned that a smaller sample size in the July survey meant “the standard errors on estimates are bigger” and fluctuations should be taken with a grain of salt.

Labour market softens slowly

Wages data for the June quarter, released on Wednesday, showed private sector wages grew 0.7 per cent, the slowest pace since 2021.

Together, the jobs and wages data were consistent with a gradual softening in the labour market.

“With the unemployment rate drifting higher, all else equal there should be less upward pressure on wages and inflation moving forward,” Ottley said.

Australia’s relatively low unemployment rate remains a bright spot in an economy weighed down by the Middle East oil shock and persistently low productivity growth.

But the Reserve Bank has been looking for the labour market to soften as it tries to bring inflation back under control.

RBA watching jobs and inflation

Reserve Bank of Australia deputy governor Andrew Hauser said on Wednesday inflation was still too high.

Hauser said the economy was softening, but more of a slowdown was needed to get inflation back to target.

“We're not seeing in our forecasts a reduction in the number of jobs in the economy, but it's a lot slower than Australia has known in the past and it's a lot slower than recently,” Hauser said.

Men drive employment fall

Sean Crick, ABS head of labour statistics, said males accounted for most of the fall in employment, with the number of men in work down by 11,000.

“Female employment recorded a smaller fall of 5,000, with females employed part-time falling by 22,000 but full-time rising by 17,000,” Crick said.

The participation rate edged down 0.2 percentage points to 66.9 per cent.