Today's Labour Force Survey (due 1130 AEDT) is expected to report Australian employment rebounded by 20k in September from its shock 5.4k decline in August; however, the national unemployment rate is still forecast to rise from 4.2% to 4.3%. While the labour market has softened, the RBA's 75bps of rate cuts since the start of the year has been driven by inflation returning to the 2-3% target range. This week's communications have reinforced that the RBA continues to see conditions in the labour market as tight. Barring a significant surprise today, the upcoming Q3 inflation report (29 October) will ultimately determine the outcome of the RBA's November meeting, which markets currently see as a line-ball call between a hold or 25bps cut.
September preview: Unemployment expected to tick higher
The national unemployment rate is forecast to rise to 4.3% in September (range: 4.2-4.4%) after holding at 4.2% through July and August. Expectations for a higher unemployment rate come with employment forecast to rise by 20k on the median estimate (range: 10-35k). Despite expectations, if employment does indeed rebound from August's weak result (-5.4k), the unemployment rate could conceivably decline. Much will depend on whether the participation rate (currently 66.8%) sees any movement.
August recap: Employment falls short again
Employment unexpectedly declined by 5.4k in August against a consensus forecast of 21k, the 3rd downside surprise in the past 4 months. July's initially reported increase of 24.5k was revised up to 26.5k. Volatility continued in the underlying composition, with full time employment falling by 40.9k and part time employment rising by 35.5k - a complete reversal to July's profile (FT 63.6k, PT -37.1k).
Despite the fall in employment, the unemployment rate held steady at 4.2%. However, there was a caveat to this as the participation rate slipped from 67% to 66.8%, its lowest level since March. The broader underemployment rate declined from 5.8% to 5.7%, a somewhat surprising outcome given hours worked contracted in August. With unemployment flat and underemployment falling, the total labour force underutilisation rate - the most comprehensive measure of labour market tightness - fell back to single digits in August at 9.9% from 10.1% in July, marking a low since March.
As alluded to above, hours worked weakened in August falling by 0.4% month-on-month, more than reversing July's increase (0.3%). Annual growth halved to 1% from 2.1% in July. Hours worked in the full time segment declined by 0.9%m/m, weakening by significantly more than the fall in employment (-0.4%). By contrast, part time hours accelerated by 1.8%m/m even though employment only increased by 0.8%.
