Australian employment slowed sharply to a 6.7k increase in September, disappointing expectations. In spite of this, the national unemployment rate declined from 3.7% to 3.6% as the participation rate (66.7%) eased from record highs. The underwhelming nature of the report adds weight to the case for the RBA to extend its pause.
September by the numbers...
- Employment increased by 6.7k (on net) in September, disappointing the consensus forecast for 20k and my own view for a 30-40k outcome. A downward revision slightly lowered August's employment gain from 64.9k to 63.3k.
- Headline unemployment declined from 3.7% to 3.6% (vs 3.7% expected), with the broader underemployment rate falling from 6.5% to 6.4%. These outcomes took the total underutilisation rate down to 9.9% from 10.2% in August.
- The participation rate eased from August's record high of 67% to 66.7% in September. Australia's employment to population ratio (64.4%) remains close to record highs.
- Hours worked declined 0.4% month-on-month following a 0.5% fall in September. In Q3, hours worked declined by 0.9%.
The details...
Employment slowed to a net increase of 6.7k in September, well down from August's 63.3k surge. After a weak start to the quarter (employment declined 0.7k in July), employment lifted by 69.2k in Q3 (2% in annualised terms) - the slowest quarterly increase (outside the Covid period) since late 2019. Over the quarter, employment increased, on average, by 23.1k per month, slowing to a pace similar to that seen in the early months of 2023.
Drilling down further, there was a notable shift in the composition of employment gains during Q3, with full-time employment (-39.9k in September) declining by 53.2k while part-time employment (46.5k in September) increased by 122.4k. In the previous quarter, full-time employment lifted by 53.8k and part-time employment gained 35.8k.
Rising employment and elevated levels of job vacancies show that labour demand remains resilient to the broader econmic slowdown; however, a margin of adjustment may be playing out in hours worked. Hours worked declined by 0.4% in September and fell a sharp 0.9% in the quarter. These are typically volatile estimates (and subject to revision), but it could be a sign that some workers may be working fewer hours than the 35 hours per week the ABS defines as being employed full time. An alternative explanation - one more consistent with my upbeat view on the labour market - is that Q3 was a seasonally soft period for employment and it could now lift pace into year-end.
The key gauges of labour market slack are at historically low levels and actually declined in September. The unemployment rate fell from 3.7% to 3.6% - sitting near half-century lows - and averaged 3.65% in Q3. However, the September fall in unemployment needs to be qualified by the fact that it came alongside a decline in the participation rate from 67% to 66.7%. Nonetheless, the underemployment rate (including unemployed workers and employed workers wanting and available to work more hours) eased from 6.5% to 6.4% in the month, in line with its Q3 average (6.42%). Total labour force underutilisation (combining unemployed and underemployed workers) moved down from 10.2% to 9.9% in September, below its Q3 average (10.08%).
In summary...
Today's report has underwhelmed with employment coming in well below consensus. The detail around hours worked was weak, as it was in August. That said, there are more questions than answers at this stage. This argues in favour of the RBA remaining on pause, but it is clear from this week's communications that next week's Q3 CPI report will be highly influential ahead of the November meeting.
