Australian employment rebounded well above expectations in August, but the unemployment rate held at 3.7%. The overlay of rapid post-pandemic population growth continues to support labour demand and add to labour supply, with the participation rate rising to a new record high in the month.
August by the numbers...
- Employment increased by 64.9k (on net), rebounding from a 1.4k fall in July (revised from -14.6k initially reported). Consensus was for a 25k rise.
- The headline unemployment rate remained at 3.7% (vs 3.6% expected). Both underemployment (6.6% from 6.4%) and underutilisation (10.2% from 10.1%) increased in August.
- Australia's labour force participation rate reset to a new record high at 67.0%, up from 66.9% previously (revised from 66.8%).
- Hours worked declined 0.5%m/m, with base effects lowering the annual pace from 5.2% to 3.7%.
The details...
Employment rebounded strongly by 64.9k in August, confirmining that July's decline (-1.4k) was driven by post-pandemic volatility in hiring patterns. Part-time employment accounted for much of the rise lifting by 62.1k - its strongest outturn since November 2021. Full time employment saw a 2.2k rise following a decline of 18.7k in July.
As a result of upward revisions and the August rebound, the momentum in employment growth remains solid. Employment gains have averaged 30.3k over the past 3 months, running an at annualised pace of 2.6% over the period.
Although employment far exceeded consensus, the unemployment rate held at 3.7% - disappointing expectations for a decline to 3.6%. However, that forecast was based on a participation rate 0.3ppt lower than the record high that printed in August at 67%. Modest rises in underemployment and total underutilisation over recent months are consistent with some loosening in the labour market, but conditions remain robust overall. Best summarising conditions, the employment to population ratio - the share of Australians in work - remains on the highs for the cycle at 64.5%.
Hours worked were reported to have declined by 0.5% in the month, to me a surprising outcome given the strength of employment. Although some may argue this links to the softness in full time employment (2.2k), consider that hours worked actually rose in July (0.2%) when full time work declined by 18.7k. This all looks to be reflecting month-to-month volatility rather than giving any signal.
In summary...
Today's report reflected a solid analysis of the labour market all told. The most important aspect was that employment came through with the expected rebound after falling in July, a decline that was very modest after revisions. The unemployment rate holding at 3.7% and a softening in broader measures of spare capacity should be enough to extend the RBA's pause further. While expectations are that the unemployment rate will drift higher over the next couple of years, I am more optimistic than the trajectory forecast by the RBA to 4.5% unemployment. Momentum in employment is running at a sustainable pace and I think strong population growth is a factor that will keep labour demand supported.
