Australia's unemployment rate remained at 4.2% in August, despite an unexpected decline in employment of 5.4k. Declines in labour force participation (66.8%) and hours worked (-0.4%) combined to make this a soft report that keeps further RBA rate cuts in play. Markets are pricing in a 25bps reduction at the November meeting and an additional cut next year.
By the numbers | August
- Employment surprised with a 5.4k decline in August, well below all estimates going into today's report where consensus sat at 21k. July's increase was revised to 26.5k from an initial figure of 24.5k.
- Headline unemployment was unchanged at 4.2%, in line with expectations. In addition to a fall in the underemployment rate from 5.9% to 5.7%, total labour underutilisation fell from 10.1% to 9.9%, a 5-month low.
- A fall in labour force participation from 67% to 66.8% reflected a 6.3k reduction in the labour force, broadly offsetting the fall in employment.
- Hours worked were down by 0.4% in August, contracting for the second time in the past 3 months. Annual growth slowed from 2.1% to 1%.
The details | August
The sequence of volatile employment outcomes seen this year continued in August. Employment was down by a net 5.4k, its softest result since February's 61.7k decline. On this occasion, full time employment was the driving factor with a 40.9k fall. Last month full time employment surged by 63.6k and in June it fell by 38.1k. Part time employment rose by 35.5k in August, which follows an up and down profile over recent months: July -37.1k, June 40.2k, May -41.4k.
Smoothing the volatility, employment over the past 3 months has averaged at a net increase of just 7.7k per month. This suggests the momentum in hiring is currently very subdued - though it is still consistent with rising employment.
The national unemployment rate managed to remain at 4.2% in today's report despite employment falling. A key factor here was that the participation rate eased back to 66.8% after spending the previous 3 months at 67%. Given steady unemployment combined with a decline in the broader underemployment rate measure (including unemployed workers and those in work wanting additional hours) from 5.9% to 5.7%, the overall condition of the labour market (strictly speaking) tightened in August as the labour force underutilisation rate fell from 10.1% to 9.9%, its lowest level in 5 months.
Hours worked have followed a similarly volatile path to employment in 2025. In August, hours contracted by 0.4% after rising by 0.3% in July. More exaggerated movements were seen through May (1.3%) and June (-0.9%). A slide in the annual growth rate to 1% suggests this is the weakest momentum seen in around 12 months.
In summary | August
Around month-to-month swings, momentum in hiring has been very subdued through the middle of the year. The unemployment rate remains in the low 4s, though hiring will need to pick up if that is to be sustained into year-end. The uplift in GDP growth June quarter on the back of a consumption-led recovery is a positive for the employment outlook, but today's report only reaffirms expectations for further RBA easing.
