Resilient labour market conditions in Australia have continued into the second half of the year as employment accelerated further July (58.2k), surprising to the upside of expectations for the 4th month in succession. However, with the participation rate lifting to a new record high (67.1%), the unemployment rate increased from 4.1% to 4.2% - its highest level since early 2022. Markets responded to the employment number by paring expectations for an RBA rate cut by year-end.
By the numbers | July
- Employment increased (on net) by 58.2k (full time 60.5k, part time -2.3k), printing above the 20k consensus and up from June's 52.3k rise (revised up from 50.2k).
- National unemployment lifted from 4.1% in June to 4.2% in July, its highest since the start of 2022. Underemployment declined slightly from 6.4% to 6.3%, leaving labour force underutilisation broadly steady at 10.55%.
- Labour force participation climbed from 66.9% to 67.1%, taking out the previous record high (67%) set in November 2023.
- Hours worked advanced by 0.4% month-on-month as growth over the year firmed from 0.6% to 0.9%.
The details | July
Employment continues to advance, defying the headwinds of slower economic growth. July's 58.2k rise made this the 4th month in a row in which employment has exceeded the outcome seen in the prior month. This surge has caught markets offside as employment has now surprised comfortably to the upside of expectations in each of the last 4 reports. I have been more optimistic than others in my view that strong population growth would be a key factor supporting employment this year, despite a backdrop of slower growth. The full-time segment has been responsible for driving employment growth over the past few months, a dynamic that was repeated in July as the full-time segment (60.5k) accounted for all of the net increase in employment, with part time falling (-2.3k).
Labour markets globally continue to loosen from post-pandemic cycle tights reflecting weaker growth and the effects of monetary tightening; however, conditions in Australia are proving to be relatively more resilient. Strong employment has played a key role in slowing the rise in the unemployment rate here as labour force participation - boosted by population growth - has climbed to record highs. In July, the participation rate increased from 69.9% to 67.1%, adding 82.1k to the labour supply. Meanwhile, the employment-to-population ratio - the share of working-age Australians in employment - ticked up to 64.3%, a level materially higher than seen prior to the Covid period. These are significant developments in light of the RBA's recent assessment that the economy is more supply-constrained than it previously judged.
National unemployment moved up from 4.1% to 4.2% in July, as the employment outcome (58.2k) was outpaced by the rise in participation (82.1k). Over the past 3 months, the unemployment rate has averaged 4.1%, its highest level on that basis since early 2022 and up from the cycle lows of 3.5% in late 2022.
The broader underemployment rate (including unemployed workers and employed workers wanting additional hours) eased from 6.4% to 6.3% in July, its tightest since April 2023. Total labour force underutilisation was 10.6% (10.55% unrounded) from 10.5% previously, still at a historically low level (grey line in chart below) for Australia.
Monthly hours worked increased by 0.4% in July following a downwardly revised rise of 0.3% in June (from 0.8%). Growth in hours worked over the year is running at a subdued pace of 0.9%, with many firms likely responding to slower demand conditions by reducing hours. Something to keep in mind, however, is that the ABS continues to highlight that the proportion of people working fewer hours than usual due to illness during the winter months is significantly higher than pre-pandemic averages.
In summary | July
Today's report was a very solid update, with strength evident in both the demand and supply side of the labour market. Inflation that is lagging global trends and a labour market that is proving stronger in Australia accords with RBA Governor Bullock's direct push-back to market pricing for a rate cut by the end of the year. The market won't have to wait long to hear from the RBA about today's report, with the Bank's top officials appearing before a parliamentary testimony in Canberra tomorrow.
