Australian employment 64.1k in September; unemployment rate 4.1%

A very strong Australian Labour Force Survey for September has prompted markets to adjust for a more delayed start to the RBA's easing cycle, the first cut repriced from February to April 2025. Employment accelerated by more than 64k in September, the 6th consecutive upside surprise on expectations as labour demand continues to defy a backdrop of slower growth in Australia and offshore. The unemployment rate (4.1%) came in below expectations as the participation rate reached a new record high (67.2%). 

By the numbers | September 

• Employment increased by a net 64.1k in September (full time +51.6k/part time +12.5k), well above the 25k consensus. August's 47.5k rise was revised down to 42.6k. 
• The national unemployment rate printed at 4.1% (vs 4.2% expected), unchanged from a downwardly revised 4.2% in August. Underemployment fell from 6.5% to 6.3%. Total labour force underutilisation declined from 10.6% to 10.4%, a low since March.

• Labour force participation lifted to a new cycle high, rising from 67.1% to 67.2%, while the employment-to-population ratio also touched record highs at 64.4%.  

• Hours worked advanced by 0.3% in the month to be up by 0.8% across the September quarter. Annual growth accelerated from 1.7% to 2.4%, its fastest pace in 12 months. 

The details | September 

Employment surged to a 64.1k rise in September, its strongest outcome since February and the 6th consecutive upside surprise on the market forecast. Full time employment (51.6k) drove the headline outcome in September - after briefly falling in August (-5.9k) - and was supported by an increase in the part time segment (12.5k). Underscoring the current momentum in the labour market - and defying the backdrop of a slower economy - employment gains for the 3 months to September averaged 51.9k, the strongest pace since the middle of last year. Furthermore, employment lifted by 156k across the September quarter, the largest quarterly rise since Q1 2023. 

The unemployment rate printed at 4.1% in September, up from the cycle lows of around 3.5% at the end of 2022 but still at a low level. Robust employment growth - partly attributable to the support to demand from a rising population - has played a key role in limiting the rise in unemployment as labour force participation has continued to reach new highs. Broader measures of spare capacity show that tightness in the labour market has eased, but underemployment (6.3%) and underutilisation (10.4%) remain materially below their levels prior to the pandemic. 

Hours worked posted a 0.3% rise in September to be up by 2.4% over the year. Monthly hours were volatile through the middle part of the year, due partly to illness-related absences. In recent months, however, hours worked have increased steadily, seeing a 0.8% lift in the September quarter. 

In summary | September  

Today's report reaffirms the strength of the Australian labour market. Employment continues to rise at pace amid record-high participation in the labour force, holding the unemployment rate at a low level. Given the labour market conditions, the RBA remains focused on inflation and a significant surprise would be needed in the Q3 CPI report (30 October) via softer core inflation and services prices to shift the Board from its narrative that rate cuts are not on its radar in the near term. 

Preview: Labour Force Survey — September

Australia's monthly labour force survey for September is due for release this morning (11:30am AEDT). Resilient labour market conditions to the economic slowdown of the past year or so and elevated inflation continue to underpin the RBA's hawkish narrative as central banks offshore have moved into easing cycles. Although tightness in the labour market has eased, employment has continued to rise solidly and the unemployment rate remains at low levels. Today's report is expected to broadly reaffirm those dynamics.  

August recap: Employment continued to defy expectations  

Employment continued to increase with a 47.5k gain coming through in August, the 5th consecutive upside surprise on expectations. These gains in employment have been driven predominantly by the full time segment; however, in August part time employment (50.6k) accounted for all of the headline increase as full time employment eased (-3.1k). 

With the participation rate holding at a record high (67.1%), the increase in employment in August broadly absorbed the number of workers either entering or returning to the labour force. As a result, the unemployment rate printed at an unchanged 4.2%. Despite the broader underemployment rate lifting from 6.3% to 6.5%, the ABS reported total underutilisation in the labour force remained at 10.6%.  

Hours worked expanded by 0.4% in the month, matching the increase seen in July. Annual growth in hours worked lifted to 1.7%, well down from a 3.2% pace a year earlier. This has been the most responsive part of the labour market to the slowdown in economic growth. 

September preview: Employment expected to moderate; upside risk to unemployment

The main risk going into today's report looks to be an uptick in the unemployment rate should the strong run of employment gains falter. In September, a relatively modest increase in employment of around 23k is expected, with estimates ranging from a low of 10k to 45k on the high side. The expected figure is around where consensus has landed over recent months, which as noted above employment has outperformed in each of the past 5 reports. 

Despite that trend, there may be more confidence from the market in seeing a moderation in employment this time given the relatively modest rises in September in 2022 (19.7k) and 2023 (11.9k). If employment were to moderate as markets anticipate there is upside risk to the consensus forecast for the unemployment rate to hold steady at 4.2% (range: 4.1% to 4.3%) due to record high participation delivering large inflows of workers into the labour force. 

Macro (Re)view (11/10) | US dollar continues to advance

Growth and rate differentials continue to underpin broad-based support for the US dollar. The hawkish repricing of rate cut expectations in the US sees the 2-year treasury yield trading around 4%, at levels last seen in August before the Fed commenced its easing cycle with a 50bps cut. Next week, the ECB is expected to cut by 25bps, increasing the frequency of easing from the quarterly moves the governing council has made so far. Other highlights next week include employment data in the UK (Tue) and Australia (Thu), UK CPI (Wed) and US retail sales (Thu).   

It looks increasingly likely that the Fed's 50bps rate cut will be a one-off move, with the FOMC expected to downsift to more conventional 25bps increments as it moves through its easing cycle. The minutes from the September meeting reported that a 'substantial majority' of FOMC members supported a larger rate cut to start the easing cycle in the US, the move described as a 'recalibration of the stance of monetary policy' with the focus pivoting from returning inflation to target to concerns over the employment side of the dual mandate. However, the qualification that the 50bps cut should not be viewed as a signal of economic weakness or in the pace of easing going forward is consistent with what markets have heard from Fed officials since the September meeting, suggesting that 25bps rate cuts will be the play from here. 

Adding weight to this view is the incoming data, an upside CPI print in September coming on the back of last week's very strong payrolls report. Headline CPI came in at 0.2%m/m to 2.4%yr, down from 2.5% but above the 2.3% consensus while the core rate ticked up from 3.2% to 3.3%yr (vs 3.2% expected). In light of last week's significant upside surprise in payroll employment in September, markets were not dented too significantly by a notable rise in initial jobless claims (+23k to 258k) that was likely impacted by hurricanes.  

The minutes of the RBA's September meeting aligned with Governor Bullock's messaging on decision day that the Board does not have rate cuts on its radar nor is it concerned about policy divergence with many of its central bank peers now lowering rates. A lack of material developments in the run-up to the September meeting meant that it had been a straightforward call for the Board to leave the cash rate on hold (4.35%), while the accompanying guidance that rates would remain 'sufficiently restrictive' until more progress in made on lowering inflation toward its 2-3% target band was left intact. 

Of most interest in the minutes was the Board's discussion around the various scenarios that could influence the path for rates. A 'significant' weakening in economic growth or in the labour market is seen to be the most likely trigger for the Board to move into its easing cycle, while it would also act if inflation slowed more rapidly than forecast. Regarding the latter, the key for the Board will be how slower headline inflation driven by things such as government rebates on energy bills and lower fuel prices feeds through to underlying inflation. 

Alternatively, restrictive policy could be required for longer if household spending responds to the improvement in real incomes and underpins stronger labour market conditions and higher inflation than anticipated. Other factors that could require a more extended period of restrictive policy were the persistence of supply constraints or if post-pandemic productivity growth does not rebound as expected.

Turning to the key domestic data from the week, household support from the Stage 3 tax cuts and energy rebates appear to be gaining traction as consumer sentiment tracked by the Westpac-Melbourne Institute Index surged more than 6% in October as pessimsim around personal finances and the economy eased. Sentiment still remains very weak but this was at least a positive sign. In the NAB Business Survey, both confidence and conditions improved amongst firms in September while price pressures showed signs of easing.

Macro (Re)view (4/10) | US labour market shows renewed strength

It was another volatile week across asset classes with renewed geopolitical risk from the Middle East, a hawkish repricing of the Fed's easing cycle and concerns around fiscal deficits in Europe all in the mix. China continued to rally on the back of last week's stimulus announcements prior to closing for the golden holiday period. Rate differentials are seemingly back in favour of the US dollar; strong labour market data and comments Fed Chair Powell support a more gradual pace of rate cuts in the US, contrasting with ECB officials expressing concerns over headwinds to growth and Governor Bailey at the BoE hinting at hiking more aggressively. 

Renewed strength in the US labour market has reduced the risk of a hard landing in the near term, driving a hawkish repricing of the Fed curve. The expectation is that the Fed will now downshift to 25bps rate cuts following the initial 50bps move, while the extent of rate cuts priced through the cycle has pulled back by around 50bps from a week ago. After job openings surprised to the upside at 8mn in August early in the week, payrolls data came in hot leading into Friday's US session. 

Nonfarm payrolls surged by 254k in September, well above the 150k figure expected as revisions added back 72k to payrolls over the prior two months, reversing the trend of negative revisions. Arguably, the greater surprise came via the fall in the headline unemployment rate from 4.2% to 4.1% (vs 4.2%), a low since June, with the broader underemployment rate also declining from 7.9% to 7.7%. This retightening of the labour market came with participation holding at an unchanged 62.7% for the 3rd month in succession. An uptick in average hourly earnings growth to 4%yr (from 3.9%) rounded out the report. 

In the euro area, markets anticipate a more dovish ECB going forward as inflation continues to cool and concerns over the growth outlook are rising. Headline inflation slowed to 1.8%yr in September, down from 2.2% and the core rate eased from 2.8% to 2.7%yr, both outcomes in line with expectations. ECB President Lagarde told the EU Parliament this week that disinflation was accelerating while the economic recovery in the bloc was facing headwinds. Similarly, the ECB's Schnabel said a sustainable return to 2% inflation was 'becoming more likely' and that it could not ignore risks to economic growth.     

Upbeat Australian retail sales data combined with robust housing market conditions suggest the RBA will continue to hold off the start of its easing cycle. A solid 0.7% rise in national retail sales in August exceeded expectations and lifted annual growth to 3.1%, its fastest pace since May 2023 (reviewed here). A warm finish to the winter and spending in the lead-up to Father's Day underpinned an uplift in discretionary sales (0.8%) that drove the headline increase. The Stage 3 tax cuts, effective from July 1, may also have provided some support. 

With the effects of rapid population growth continuing to be felt in housing markets across Australia, CoreLogic clocked the national median housing price at $807k in September, a gain of 1% for the quarter and 6.7% over the year. Alongside rising housing prices, lending commitments extended their upswing with a further 1% gain coming through in August (reviewed here). At $30.4bn, commitments stand 31.5% above their cycle low in early 2023. Meanwhile, housing credit growth in August was running at a 5% annual pace. Staying with the housing theme, volatility in the higher-density segment saw dwelling approvals pulling back in August (-6.1%) from a sizeable gain in July (reviewed here). Lastly, the nation's trade surplus printed at $5.6bn in August (reviewed here), unchanged from the prior month around offsetting movements in exports (-0.2%) and imports (-0.2%). 

Australian housing finance extends in August

Australian housing finance commitments have continued to rise seeing a 1% gain in August (in line with consensus) to be up for the 7th month in succession. Lending to both major segments advanced: owner-occupiers 0.7% and investors 1.4%. Supply-demand dynamics are pushing up housing prices - higher interest rates notwithstanding - as a significant volume of homes remains tied up in the construction pipeline. This is driving increased lending and the associated credit growth.  

  

The suite of indicators released this week have underscored the strength of housing markets across the nation, despite the effects of higher interest rates. CoreLogic reported a 1% rise in the national median housing price over the most recent quarter to $807k, up 6.7% on a year ago. Housing credit growth has expanded alongside this at a 5%yr pace to August according to the RBA. Today's data from the ABS showed a further 1% rise in lending commitments to $30.4bn in August. Commitments are now 31.5% above the cycle low in January 2023, up 23% over the past 12 months.  

Commitments to owner-occupiers saw a 0.7% rise ($18.7bn) in the latest month. Although lending to upgraders (existing home buyers) increased (0.5%), underlying loan volumes declined (-1.1%) - pointing to the impact of rising housing prices. Meanwhile, construction-related lending was down 0.6% month-on-month, with loan volumes also soft (-0.5%). The first home buyer segment saw lending drop 0.4% on the prior month on a 1.5% decline in the number of loans written. 

Investor lending is pressing record highs following a 1.4% rise in August to $11.7bn, now only a touch below the previous peak ($11.8bn) in January 2022. Lending to the segment troughed early last year ($7.8bn) but has since surged as rising rents amid very low vacancy rates and increasing housing prices have encouraged investors.  

Australia's trade surplus steady at $5.6bn in August

Broadly offsetting movements in exports and imports held Australia's monthly trade surplus at $5.6bn in August, essentially in line with expectations ($5.5bn). The lower surpluses seen in recent months reflect exports retracing due to lower commodity prices and import spending remaining resilient.  

The trade surplus in August ($5.6bn) was unchanged from the prior month after July's surplus was revised down from $6bn in today's report. Although off its recent lows, the monthly surplus has seen significant compression over the past 18 months on lower commodity prices and elevated import spending. 

Exports declined for the first time since April softening by 0.2% in August to $43.2bn, down 7.4% over the year. Falls in rural goods (-3.9%) and non-monetary gold (-3.4%) weighed on exports; however, that was largely offset by a lift in non-rural goods (0.8%) on the back of higher coal exports (7.3%). Other major commodities were soft: iron ore -0.5% and LNG -1.8%.   

Imports declined for the third month running with a 0.2% fall coming through in August. However, imports remain elevated ($37.6bn) and are up on 12 months ago (3.4%). The decline in the latest month was driven entirely by consumption goods (-4.2%) led by a fall in vehicle imports (-7.5%). By contrast, capital goods (1.6%) and intermediate goods (1.8%) advanced in August, the latter driven by higher fuel prices.   

Australian dwelling approvals retrace in August

Australian dwelling approvals fell more than expected in August (-6.1%), retracing from a large rise in the prior month (11%). The volatility remains in the higher-density segment while detached approvals continued to lift posting their 7th consecutive monthly gain. Overall, higher interest rates and headwinds in the construction sector continue to weigh on dwelling approvals. 

August's 5.5% fall saw national dwelling approvals come in just below 14k, down from July's total of 14.9k - the highest level since May last year. Approvals have bounced around in recent months on volatility in the higher-density (or unit) segment, the August result continuing a sequence of sharp swings: May +5.9%, June -6.3% and July +11%. Smoothing the volatility, approvals for the 3 months to August averaged 14.1k, remaining in the low range of the past couple of years as higher interest rates and capacity pressures have impacted the home building sector. 

In the higher-density segment, approvals fell by 17.5% in August after a 34.6% surge in July. 3-month approvals to August averaged 4.7k, only slightly above cycle lows. Weakness continues to be most evident in high-rise units.  

 

Detached approvals climbed to their highest level in almost 2 years (9.5k) on the back of a further 0.6% rise in August, the 7th consecutive increase to be up 8.1% across the past 12 months. However, approvals in August are still down by a little more than a third on their earlier cycle peak in 2021.   

Alteration approvals - in value terms - continue to trend higher rising 1.4% to $1.1bn in August. Higher construction costs and robust demand have seen these approvals increase by almost 10% over the past year.

Australian retail sales rise 0.7% in August

Australian retail sales surprised on the upside of expectations posting a 0.7% lift in August (vs 0.4% forecast), the strongest gain since the start of the year. The ABS pointed to a warm finish to the winter and the early timing of Father's Day as the contributing factors. Although households remain under pressure from the cost of living and higher interest rates, sales increased by 3.1% across the year, the fastest pace since May 2023.   

Retail sales rose by 0.7% in August following a soft result in July (0.1%). This was the strongest gain for monthly sales since January. Over the 3 months to August, retail sales averaged a 0.4% increase, a modest pace but an improvement on the momentum in recent times. 

In the latest month, discretionary spending (0.8%) played a key role in the rise in the headline figure. Meanwhile, food sales (0.6%) were also solid. The ABS noted in today's release that unusually warm weather pulled Spring spending forward, boosting categories such as clothing and footwear (1.5%), liquor (2.8%), recreational goods (2.4%) and cafes and restaurants (1.0%). Spending in August was also supported by the timing of Father's Day, which fell on September 1. 

Spending growth was strong across most states in August. Gains of 0.7-0.9% were seen in New South Wales, Victoria, Queensland and Tasmania, but South Australia (0.3%) and Western Australia (0.4%) underperformed. Annual growth in the two largest states (NSW and Vic) is running in the 2-3% range, up from the lows earlier in the year but still subdued.