Australian employment fell for the first time since the 2021 Delta lockdowns with a surprise 40.9k fall coming through in July, likely reflecting temporary seasonal factors and Covid-related absences. Due to a lower participation rate, the unemployment rate continued to fall printing at 3.4%, establishing a new half-century low.
Labour Force Survey — July | By the numbers
- Employment decreased on net by 40.9k in July, a large downside surprise on the consensus forecast of +25k coming after June's 88.4k rise.
- Australia's unemployment rate fell from 3.5% to 3.4% (vs 3.5% expected), establishing a new low dating back to 1974. This was accompanied by declines in underemployment (from 6.1% to 6.0%) and underutilisation (from 9.6% to 9.4%), with the latter now at its lowest since 1982.
- The participation rate came off record highs in July, easing to 66.4% from 66.8% in June.
- Hours worked declined by 0.8% month-on-month (3.4%yr) driven by seasonal factors and elevated Covid-related absences.
Labour Force Survey — July | The details
Australian employment decreased by a net 40.9k in July, its first decline since the Delta wave lockdowns between winter and spring of 2021. The weakness was centred in full-time employment (-86.9k) as part-time employment increased (46.0k).
July's fall in employment may reflect a temporary slowdown in hiring around the end of the financial year, while in today's release the ABS cited Covid-related absences; a rise in annual leave coinciding with school holidays; and flooding in New South Wales as contributing factors. In July, 2.6 million Australians reported working fewer hours than usual, with those citing annual leave rising to 1.6 million from 1.0 million in June; absences due to illness and caregiving reasons remained elevated at 1.0 million, though that was down slightly from June.
These factors led to a 0.8% fall in monthly hours worked, its sharpest decline since January, leaving hours in July 4.3% above pre-Covid levels. Full-time hours fell by 1.2%m/m and part-time hours lifted 1.1%m/m, broadly matching their employment outcomes (full-time -0.9%m/m and part-time 1.1%m/m).
Labour supply softened in the month, which is likely to be seasonally related more than anything given the recent trend. Participation in the labour force saw its largest month-to-month fall since last September during the Delta lockdowns, declining from 66.8% to 66.4%. Meanwhile, the weak employment outcome lowered the employment to population ratio from 64.4% to 64.2%.
The labour force fell by 61.2k in July and because this was larger than the fall in employment (-40.9k), the measured unemployment rate declined from 3.5% to 3.4%. Underemployment (counting those wanting more hours) declined from 6.1% to 6.0%, supported by the rises in employment and hours worked in the part-time segment of the labour market. As a result, underutilisation (aggregate of unemployment and underemployment) was 0.2ppt lower in July at 9.4%, its lowest since April 1982.
Labour Force Survey — July | Insights
July's update from the ABS's high frequency payrolls series proved to be a reliable indicator of weaker activity labour market activity. The commentary in that report and in today's release cited the effects of seasonality around the end of financial year and school holidays together with Covid-related absences as the main factors. Despite today's report, the labour market remains the strongest it has been in many years and forward-looking indicators from job vacancies suggests we will see employment quickly overrunning July's fall. What it could do, however, is ease pressure on the RBA to continue hiking at its current run rate of 50bps increments, particularly after yesterday's modest rise in Q2 wages growth (see here).