Australia's Labour Force Survey for August is due to be published by the ABS this morning (11:30am AEST). Strong employment outcomes continued into the second half of the year as the 4th consecutive upside surprise on expectations came through in July. The unemployment rate, however, lifted to 4.2% - its highest since early 2022 - as participation reached a new peak (67.1%), broadly reflecting the labour market rebalancing from cycle tights. The RBA has continued to push back on prospects for a rate cut by year-end, remaining more focused on the inflation side of its mandate.
July recap: Employment gains extend but unemployment rises
Employment increased by a net 58.2k in July (full time 60.5k/part time -2.3k), surprising to the upside of consensus (20k) for the 4th month in succession. This run of increases has seen employment rise by 188.2k, with 3/4 of the gain coming in the full time segment.
Strength in employment has gone hand in hand with growth in the working-age population, a support to demand as economic growth has slowed over the past year or so. It has also boosted labour supply, evidenced by the participation rate climbing from 66.9% to 67.1% in July - a new record high. With this, the labour market continues to rebalance, the unemployment rate now at 4.2% compared to the cycle lows of 3.5% in late 2022. Underemployment (6.3%) and total underutilsation (10.5%) have also risen but remain low by historical standards.
Hours worked lifted in June (0.3%) and July (0.4%) but growth has been subdued over the past year (0.9%) as firms have responded to a softer demand environment. During the cooler months, the ABS has been highlighting the impact of illness-related absences on hours worked. In each of the past 3 months, more than 4% of employed people have reported working fewer hours than usual due to illness. This is up from a pre-Covid average of around 3.5% over the 5 years prior to the pandemic.
August preview: Employment gains expected to moderate
Markets continue to expect a moderation in employment, with the median estimate going into today's report at 25k (range: 10k to 56.6k). The recent run of upside surprises for employment has seen the median forecast shift up modestly from 20k for each of the past 4 reports. No change is expected in the unemployment rate from its current level of 4.2% (range: 4.1% to 4.3%), though an outcome either side of consensus could easily occur on any movement in the participation rate.
Aside from August's numbers, the broader picture remains around the evolution of the labour market. A recent speech from RBA Assistant Governor Hunter outlined that although conditions have eased, the labour market remains tight relative to its assessment of full employment. The RBA's outlook is for the labour market to gradually rebalance, coming mainly via a reduction in job vacancies and hours worked. This caps the forecast peak in the unemployment rate at 4.4% by mid-2025. Signs that conditions are deteriorating more rapidly would see more of the Board's focus turn to the employment side of its mandate, but for now it is clearly more focused on restoring 2-3% inflation.
