Australian employment -39.3k in September; unemployment rate 4.7%

Australia's unemployment rate reached new highs since 2021, arguably placing the RBA's tightening cycle at a crossroads. Employment fell by around 39k in September - a significant downside surprise on the expected 20k increase - while the unemployment rate printed at 4.7%, steady after an upward revision in August (4.6%) but on track to exceed the RBA's year-end forecast (4.5%). Recent survey and methodology changes to the data may have impacted September's figures; however, the RBA has already delivered one of the more aggressive tightening cycles in advanced economies this year raising the cash rate by 100bps to 4.6%. Pricing for one further rate hike this year was cut from around 50% to 15% on today's release.      

Employment nationally fell by 39.3k in September, after a large decline in part time employment (-73.7k) was only partially offset by a lift in the full time segment (34.4k). Markets went into the report with a notional forecast for a 20k rise in headline employment. Recent employment outcomes have been volatile as the ABS has been gradually implementing changes to the series. While that process is now complete, the Bureau noted that today's report may have been impacted by the lingering effects of those adjustments but would only become clear in the course of future releases. 

On the data to hand, this was the weakest month for employment since the decline in April (-41.2k). There were also backward revisions made to July (now -17.1k from -15.9k) and August (29.3k from 39.5k) that reduced employment by 11.4k compared to previous levels. On the back of this, the 3-month average change in employment swung to -9k from a respectable 29.5k in August. Across the quarter, employment fell by 27.1k or 0.2%. The last time employment saw a comparably weak period was the March quarter of last year (-11.6k or -0.1%). 

In September, the unemployment rate was 4.7%. The last time it was higher than this was October 2021 (5.2%) when the pandemic was still impacting the labour market. This particular increase will certainly be seen in a different light given it came alongside declines in employment and in the participation rate, which fell from 67% to 66.8%. While the unemployment rate is now well up from cycle lows in late 2022, employment has continued to increase, allowing the RBA to hold onto its view that the labour market remains tight. Nonetheless, unemployment averaged 4.6% in the latest quarter and is tracking on a slightly higher path than the RBA's year-end forecast (4.5%). In other news, the broader underemployment rate increased from 6.2% to 6.3%, lifting total underutlisation to 11%, its loosest since November 2021.      

Hours worked were broadly flat rising by just 0.1% in the month (1.3%yr), slowing from a 0.7% increase in August. Following the decline in July (-0.7%), hours worked contracted by 0.4% in the quarter, a weaker outcome than for employment to round out a poor report.     

Preview: Labour Force Survey — September

Australia's Labour Force Survey for September is due today (1130 AEDT). The report returns to its usual slot on the third Thursday of the month, after recent releases were delayed while the ABS overhauled the series. A strong upside surprise for employment (39.5k) in August was unable to prevent the unemployment rate rising to 4.6%, its highest since late 2021. While acknowledging that conditions have eased, the RBA still regards the labour market as a little tight and broadly consistent with its full employment objective. Expectations are that employment will rise by 20k in September, holding the unemployment rate at 4.6%. Pricing for one further RBA hike this year sits below 50% going into this report. 

September preview: Markets on watch as ABS completes survey overhaul  

Markets are sitting on the fence, forecasting employment to increase by 20k (range: 0-35k) and the unemployment rate to remain at 4.6% (range: 4.5-4.7%). This is an understandable position given the usual volatility in the series while also considering that the ABS is rolling out the report for the first time since completing the overhaul of the survey's collection methods and questionnaire. The ABS has been working up to this point after gradually implementing these changes over recent months - though the methodologies used to generate the headline employment and unemployment figures remain the same.     

  

August recap: Unemployment rate rises despite solid employment growth

The unemployment rate touched fresh highs since late 2021 after rising to 4.6% in August from 4.5% in July. That came despite employment increasing by a net 39.5k in the month (part time 45.8k/full time -6.3k), nearly double the consensus forecast (20k) and a strong rebound from July's surprise 15.9k decline. For the 3 months to August, employment gains averaged 34k per month, the strongest momentum since February.    

Even with the fairly strong employment outcome, it was not enough to outpace the increase in the labour force (67.7k) as the participation rate rose from 66.9% to 67.1%. That saw the unemployment rate rise from 4.5% to 4.6%. However, the broader underemployment rate declined from 6.3% to 6.2% as hours worked (0.8%m/m) posted their fastest rise in almost a year. That held total labour underutilisation to an unchanged 10.8%.  

Macro (Re)View (9/10) | Treasury market finds relief

Markets found some relief from the relentless rise in longer duration yields as the benchmark 10-year Treasury yield saw its first weekly decline since late August. Treasury Secretary Bessent sought to downplay concerns around higher yields, while solid demand at 10- and 30-year bond auctions during the week was also important. US equity markets posted gains and the risk sensitive AUD picked up ground against the US dollar - though the DXY index still lifted for the week given the high weighting of the euro, which continues to remain weak amid France's fiscal concerns.  

Market pricing for an October Fed rate hike remains low, sitting around 20% after falling from around 70% on the back of last week's softer-than-expected US labour market and inflation data. That was reinforced by this week's comments from Governor Waller that highlighted flexibility around the timing of rate hikes following September's 25bps increase. The minutes from that meeting were hawkish, reflecting not only the unanimous vote for the rate hike but also significant support for additional tightening this year, but that failed shift markets. However, next week's CPI report shapes as a risk event that could fuel a hawkish repricing. 

In the euro area, the impact of France's fiscal concerns continues to see elevated bond yields tightening financial conditions, effectively taking ECB hiking prospects off the table in the near term. Market discussion of how the ECB might respond centres on three courses of action: the ECB walking back its hawkish narrative; ending quantitative tightening and also reinvesting proceeds from maturing bonds; and (least likely) calling upon its Transmission Protection Instrument to close spreads. The account of the meeting back in September was released this week, outlining that upward revisions to the inflation outlook in 2027 and 2028 prompted the ECB to hike by 25bps.    

Focus in Australia turns to next week's labour market report, while the minutes of the RBA's September meeting where it hiked the cash rate by 25bps to 4.6% will also be of interest. The labour market is expected to have increased employment by 20k in September, a step down from August's rise (39.5k) but enough to keep the unemployment steady at 4.6%. A key point to watch in the minutes will be how the RBA reflects on the restrictiveness of the cash rate after this latest hike. Pricing for one further RBA hike before year-end has declined to 38% from around a 50/50 chance following the September meeting.

Macro (Re)View (2/10) | Long-End Pressure Persists

Opposing tensions in global bond markets made for a volatile week, giving renewed strength to the safe-haven US dollar, sending the DXY index to year-to-date highs. Key US data on inflation and the labour market came in weaker than expected, while influential New York Fed President John Williams indicated there was no urgency for another rate rise. That cut market odds for a Fed October rate hike sharply - falling from 70% to 15% - sparking a rally at the front end of the Treasury curve. Declining oil prices also played a role, driven not by diplomatic breakthroughs buy by increased supply through the Gulf and Europe's reserve releases. Pressure remained firmly on long-duration yields. US 10- and 30-year yields pressed new highs since 2002 amid ongoing supply and deficit concerns. That was particularly evident in Europe where plans from the government in France to reduce borrowing failed to inspire confidence. The spread between 10-year French and German bonds hit its widest since the 2011 debt crisis.         

In the US, the Fed's benchmark inflation measure slowed from 3.3% to 3%yr in August - still well above target (2%) but printing below expectations to remain unchanged. Meanwhile, the labour market also underwhelmed as nonfarm payrolls rose by just 29k in August, a downside miss on the 90k consensus as revisions reduced employment by 60k in the prior two months. That saw the unemployment rate push back up to 4.2% after spending July and August at 4.1%; however an uplift in the participation rate (61.8%), a 4-month high, was a factor. Rounding out the report, wages growth was modest (3%yr), indicating inflationary pressures from the labour market remain subdued. 

Higher energy prices saw inflation in the euro area lift from 3.2% to 3.8%yr in September, a 3-year high. Despite this, markets see only around a 10% chance of an ECB rate hike later this month, influenced by widening bond spreads - though pricing still points to a better than 50/50 chance of another 25bps increase before year-end. ECB President Largarde, said the central bank remained focused on guarding against second-round effects on inflation from higher energy prices but needed to be mindful of the impacts on growth from tighter policy. 

Domestically, the RBA increased the cash rate by 25bps to 4.6% this week - its fourth rate hike of the year (see here). The Monetary Policy Board remains open to raising the cash rate further after retaining its guidance in the decision statement. Inflation data was elevated in August (see here) showing headline CPI lifted from 3.5% to 4%yr and core CPI holding at 3.6%, suggesting all upcoming meetings are live. However, markets think the RBA will now move to wait-and-see mode after effectively pulling forward the rate hike that was previously expected next month to this week. The post-meeting press conference from Governor Bullock shaped that view, with market pricing for another hike this year falling below 50%.

Australia's trade surplus $0.5bn in August

The fastest rise in imports in 5 months compressed Australia's trade surplus to just $0.5bn in August from $1.4bn in July, disappointing expectations to widen to $2bn. The tech-related capex surge drove imports to a 5.8% increase, outpacing a 3.7% rise in exports.    

The trade surplus was just $0.5bn in August, averaging $1.3bn over the past 3 months. That represents a significant narrowing from its level 12 months ago ($3.9bn), with volatility in global trade and geopolitics and the tech sector capex surge all playing a role.  

Exports rebounded from a fall in the prior month (-3.6%) to rise by 3.7% in August to $47.4bn, an increase of 15.4% over the year. The key movement came from the volatile non-monetary gold category that saw a 20.2% lift. That was added to by a 2% rise from non-rural goods, driven by coal (4.7%), LNG (2.8%) and metals (11%) exports. Iron ore - the nation's highest value export - underperformed with a 1.5% decline.  

Imports, coming off back-to-back falls in June (-1.3%) and July (-2.4%), accelerated by 5.8% in August to $46.9bn. That lifted annual growth from 14.1% to 16.6%. In the month, capital goods found renewed strength (22.3%) on the back of a pick-up in data centre-related equipment (79.3%) and telecommunications (12%). In other movements, non-monetary gold imports (91.1%) increased at their fastest pace in over 5 years, while consumption (-7%) and intermediate goods (-2.2%) fell. This was the 4th straight fall for intermediate goods as global oil prices were retracing from their Gulf conflict highs.  

Australian dwelling approvals -6.1% in August

Australian dwelling approvals declined 6.1% in August - a downside surprise on consensus (-1%) - falling back to their lowest level since the start of the year (16,953). The result was impacted by an unwind in unit approvals that fell 19.7% to also hit a low since January (5,912). By contrast, house approvals increased by 3.3% - their strongest rise in almost a year - to break above 11k for the first time in 5 years. 

Dwelling approvals fell 6.1% in August to post their weakest outcome since March. Approvals declined by 1.9% in the month prior but rose by 6.9% in June. Over the period of the last 3 months, approvals averaged 17.8k, well up from the same time a year ago (16.2k). That uplift was supported by the RBA's easing cycle last year; however, the RBA in 2026 has now raised rates by more than it cut in 2025, with housing prices declining in response. Meanwhile, tax changes announced in the May Federal Budget were intended to advantage new builds, but it remains to be seen whether that has the desired effect.   

House approvals worked up to a 5-year high rising 3.3% in August and lifting by 18.6% over the past 12 months. The current level of housing approvals exceeds the highs of earlier cycles, though the population has also increased significantly since those earlier points in time. 

The weakness in higher-density approvals in August (-19.7%) appears to have been broadly based across all dwelling types. These approvals are by nature lumpy and so can reverse rapidly. On a 3-month average basis, higher-density approvals are tracking just below 7k, consistent with its range of the past 18 months or so.   

Australian CPI rises to 4% in August

Fuel prices surged almost 15% in August post the federal excise tax cut, lifting Australia's headline inflation rate from 3.5% to 4%yr. However, that was slightly below the expected increase (4.1%), prompting a dovish repricing that saw the market-implied odds of a November rate hike fall to below 30% from around 40% after yesterday's rate rise (see here). Core inflation, coming off a strong increase in July (0.5%m/m), slowed to a 0.2% rise, holding the annual pace steady at 3.6%.    

Headline CPI slowed from a 1%m/m rise in July to 0.4%m/m in August. Because that replaced a much weaker reading from August last year (-0.1%) in the annual calculation, headline CPI rose from 3.5% to 4%yr. The key factor driving the slowdown from July to August was a decline in holiday travel prices (-0.2%) after the peak period last month coinciding with school holidays. However, that effect was somewhat mitigated by the federal excise tax cut on fuel ending. Fuel prices increased by 14.8% in August following a 7.5% lift in July. As a result, the transport group saw prices rise 4.2%m/m. Outside fuel and holiday travel, price movements had relatively little impact on inflation. 

Trimmed mean or underlying inflation also slowed coming in at 0.2%m/m after a strong July increase (0.5%). However, the annual pace still printed at an unchanged 3.6%, leaving it around 1ppt above the midpoint of the RBA's target band. Housing-related costs (5.7%Y/Y) have been the major contributor to that on the back of rises in new dwellings (5.4%) and rents (3.6%).   

Australian household spending stalls in August

Australian household spending stalled in August as the winding down of the federal excise tax cut saw fuel prices rise sharply. Transport-related spending increased by 2.3% supported by EV sales while higher fuel prices weighed on spending across other categories. The RBA's tightening cycle has now delivered 100bps of rate rises in 2026 and that will weigh on the outlook for spending into next year.      

Household spending recorded no growth (0%) in August, slowing from solid increases of between 0.9% and 1.2% over the past three months. Annual growth eased from 7% to 6.8%. Fuel prices rose after the Federal excise tax cut ended in July and as tensions in the Gulf flared again. That and strong EV sales saw spending in the transport category rise by 2.3%, propping up household spending amid falls in several other categories, notably in the discretionary spend area that slowed (-0.3%) for the first time since April. Excluding the transport category, household spending fell by 0.4% in the month. 

The largest single category fall came in recreation and culture (-1.4%) as spending on sporting-related events eased. Clothing and footwear and alcohol and tobacco both saw falls of 1%. Meanwhile, spending on furnishings and household equipment declined (0.9%) for the first time since February. Hotels, cafes and restaurants (0.8%) were able to resist the broader trend, advancing for the fifth consecutive month.  

RBA hikes 25bps in September

The RBA hiked the cash rate by 25bps to 4.6% in a unanimous decision (9-0) by the Monetary Policy Board today. Governor Bullock maintained a hawkish tone at the post-meeting press conference saying that with upside risks to the inflation outlook materialising it was prepared to raise rates further. Market pricing was little changed, giving a roughly 50/50 chance to one more hike by December, with the cash rate still seen peaking around 5% by mid next year.  

Following today's hike, the RBA has now delivered 100bps of tightening through this cycle, and the message was that it may not be done yet. The cash rate was held at 4.35% at the past two meetings, but recent developments have forced the Board's hand to hike again. Renewed rises in fuel and energy prices with tensions in the Gulf failing to ease were a key factor behind today's decision, though it was not the only reason. Domestic growth and inflation have been stronger than the RBA was expecting, while the AI-related investment surge is also adding an inflationary impulse. 

The decision statement noted these factors warranted 'a further tightening in financial conditions' to help bring inflation back to target, removing the reference to policy being judged as 'somewhat restrictive'. Governor Bullock said that policy was still seen as restrictive, citing the slowing housing market and estimates of the neutral rate as evidence of this, though it is a sign that this is a relatively low conviction view around the Board table. 

Incoming data will be key for the rates path from here as uncertainty over the domestic economy and inflation continue be described as 'heightened'. The Board wants to see demand cooling to help ease capacity constraints and take pressure off inflation. But that will be complicated by geopolitics if the Gulf conflict keeps fuel prices elevated. The next RBA meeting is on 2-3 November. 

Preview: RBA September meeting

The RBA is set to resume its tightening cycle with a 25bps hike today. This would lift the cash rate to 4.6%, its fourth rate hike of the year after the Board returned unanimous decisions (9-0) to hold in June and August. Markets came away from the August meeting pricing the chance of a hike in September no higher than 20% and only 50/50 by year-end. A hike today is now close to fully priced (90%), with a roughly 1-in-2 chance of a further hike by December. The shift has been driven not only by the global hawkish repricing but also by changing RBA commentary to the incoming data.  

Increased concern over inflation is likely to force the Board's hand into hiking rates again. While there are developments that validate its assessment that policy is 'somewhat restrictive' with the unemployment rate (4.6%) rising to its highest since late 2021, GDP growth slowing (2.1%Y/Y in Q3) and the housing market cooling, inflation remains well above the target band (2-3%). The RBA's preferred quarterly inflation data to Q2 has headline CPI at 3.9%Y/Y and underlying inflation at 3.6%Y/Y.  

At the August meeting, the Board held rates steady as updated forecasts projected inflation would not settle at the midpoint of the target band until 2028, though it noted the risks around that outlook were 'skewed to the upside'. Governor Bullock has since told a parliamentary committee that those 'upside risks to inflation appear to be materialising', a sign that the threshold for it to hike again has been reached. Key factors informing that view were renewed rises in energy prices with the conflict in the Gulf persisting, the AI-related capex surge, and weather-related impacts. 

Second-round effects on a broader range of prices and wages from these cost increases are harder to be convinced of, but the RBA is not prepared to risk being found wanting. That is largely due to its structurally hawkish assessment of the economy, which it judges is operating with excess demand, pressures that have been amplified by years of shocks and weak productivity growth that have impaired the economy's supply capacity.