Australia's Labour Force Survey for August is due from the ABS at 11:30am (AEST) today. Employment is coming off a surprise fall in July, but underlying conditions in the labour market remain very robust. In today's report, employment is expected to rebound and hold the unemployment rate at its half-century low of 3.4%.
As it stands | Labour Force Survey
Employment fell by 40.9k (on net) in July, surprising market expectations for an increase of 25k. This was the first decline in employment since the Delta wave lockdowns during winter and early spring of 2021. A sharp fall in full-time employment (-86.9k) was attenuated by an increase in part-time employment (46.0k). July's result looked to be driven by additional volatility around the end of financial year from high Covid-related absences, flooding in New South Wales and school holiday periods.
Despite the fall in employment, the unemployment rate came in lower at 3.4% from 3.5% in June. The driver was an easing in the participation rate off record highs (66.8%) to 66.4%. There were also declines in underemployment (6%) and underutilisation (9.4%) in July.
Total hours worked contracted by 0.8%m/m reflecting seasonal factors and Covid-related disruptions. All up, there were around 2.6 million Australians who reported working fewer hours than usual in July. Hours worked were 4.0% above pre-pandemic levels in July, broadly in line with the rise in employment over the period (4.3%).
Market expectations | Labour Force Survey
The market expects employment to rebound in August and rise by 37.5k, though there is a wider than usual band of estimates from 10k on the low side to 110k on the high side. Though they provided a reliable guide to employment in July, the ABS noted in its latest release of the high-frequency payrolls data that firms' reporting patterns to the ATO can change around the end of financial year, making it difficult to obtain a clean read on conditions. Payrolls over the reference period for the August survey were around 1.5% lower. The unemployment rate is expected to hold at 3.4% (range: 3.2% to 3.6%).
What to watch | Labour Force Survey
The underlying strength in the labour market should see July's fall in employment quickly reversed. In raising rates by 50bps last week, the RBA reaffirmed its data dependency and focus on the labour market. Markets are pricing in a downshift to a 25bps hike for the October meeting after Governor Lowe removed the reference to "normalisation" in the decision statement as the cash rate (now at 2.35%) moved closer to estimates of neutral in Australia. In a speech a couple of days later, the governor noted the case for slowing the pace of rate hikes was "stronger as the level of the cash rate rises". This comes as the outlook for the labour market remains robust, with the RBA expecting the unemployment rate to continue falling as job vacancies remain at very elevated levels.
