Australia's labour force survey for July is due this morning (11:30am AEST). Although tightness in the labor market has eased modestly, conditions have broadly defied the headwinds from a slowing economy. Strong employment growth through the first half of the year played a key role in limiting the rise in the unemployment rate to 4.1% in June. Declines in job vacancies and slower growth in hours worked have been the more visible margins of adjustment. In its August Statement on Monetary Policy, the RBA forecast a slightly higher peak in the unemployment rate of 4.4% by mid-2025; however, the central bank actively pushed back against market pricing for a 25bps rate cut by year-end at its most recent meeting, a clear contrast with many of its peers already cutting - or about to cut - policy rates.
June recap: Employment continued to outperform expectations
Following solid increases in April (36.2k) and May (39.5k), employment accelerated by 50.2k in June (full time 43.3k/part time 6.8k) - the third consecutive upside surprise. In total, employment lifted by almost 130k in the quarter, broadly matching the gain in Q1.
Strong employment outturns are helping to keep pace with growth in the labour force, holding down the national unemployment rate. Illustrating this, the unemployment rate remained at 4.1% in June as the participation rate increased to a near-record high (66.9%). A fall in the broader underemployment rate from 6.7% to 6.5% saw the overall level of labour force underutilisation tighten from 10.7% to 10.5% - a low since March.
Following declines in April (-0.2%) and May (-0.5%), hours worked rebounded by 0.8% in June. In spite of this profile, hours worked rose strongly in the June quarter (1.6%) compared with the March quarter. However, growth in hours worked for the 12 months to June was 1.4%, down from 4.9% a year earlier - a sign of how firms are responding to slower demand.
July Preview: Employment gains expected to moderate
The key question going into today's report is whether employment continues to defy expectations for a slowdown. The median forecast is for employment to moderate to a 20k rise in July - albeit around a wide range of estimates (+50k to -5k). Markets have held a similar forecast (20k) for each of the past 3 reports, with - as noted earlier - employment comfortably outperforming on each occasion.
If the moderation does come in July, how markets interpret the outcome will be interesting; will it be viewed as a moderation in the context of the strength in recent reports, or will it be taken as a sign of something that raises more concern. The unemployment rate is expected to remain at 4.1% (range: 4% to 4.2%), based on labour force participation holding at its current level (66.9%).
