Australian Employment Report

By Stella Qiu and Wayne Cole

SYDNEY (Reuters) – Australian employment exceeded expectations in July, but the jobless rate rose to a 2.5-year high as worker participation reached a record, indicating ongoing labor demand despite high borrowing costs.

The strong report bolsters the Reserve Bank of Australia’s view that interest rate cuts are still months away. Markets reduced the chance of a cut in November to 45%, down from 55% prior to the report.

The Australian dollar increased by 0.2% to $0.6610, while three-year bond futures leveled out at 96.51 after earlier gains.

Data from the Australian Bureau of Statistics revealed that net employment rose by 58,200 in July, following a jump of 52,200 in June, significantly surpassing market forecasts of a 20,000 rise.

Full-time employment surged by 60,500, marking a third consecutive month of solid growth. However, the jobless rate ticked up to 4.2%, the highest since early 2022, and above the forecast of 4.1%. This increase was attributed to more individuals seeking work, with the participation rate climbing to an all-time high of 67.1%.

Kate Lamb, head of labour statistics at ABS, commented, “The employment and participation measures remain historically high while unemployment and underemployment measures remain historically low, compared with pre-pandemic levels.” She suggested a tight labor market remains in place.

The Reserve Bank of Australia has maintained its policy since November, viewing the current cash rate of 4.35%—up from 0.1% during the pandemic—as sufficiently restrictive to achieve the inflation target of 2-3% while safeguarding employment gains.

The RBA assessed that the labor market is still somewhat tight, contributing to the underlying inflation rate remaining at 3.9% last quarter, with expectations for a return to the target band by the end of 2025.

The report confirmed employment growth of 3.2% year-on-year, roughly double the pre-pandemic average. The workforce expanded by 82,100 in July, reflecting an annual growth of 3.8%.

Hours worked also rebounded for the second consecutive month, rising by 0.4% in July, countering a previous trend of decline.

The RBA has virtually dismissed the possibility of a near-term rate cut, with analysts suggesting a significant deterioration in the labor market—characterized by falling employment and rising unemployment rates—would be necessary for such an action before Christmas.

While job vacancies continued to decline from elevated levels, wage growth slowed to a one-year low last quarter, although it remained high.

“This data contradicts our dovish expectations,” stated Krishna Bhimavarapu, APAC economist at State Street Global Advisors. “With inflation decreasing and unemployment rising, the RBA may feel less urgency to hike rates, but it could maintain the cash rate of 4.35% longer than anticipated.”