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Softer labour force data ‘fits neatly’ with RBA’s recent sentiment

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The ABS has reported an increase in the unemployment rate, supporting the RBA’s view that the labour market may be at a turning point.

Australia’s seasonally adjusted unemployment rate reached 3.7 per cent in July, according to data released by the Australian Bureau of Statistics (ABS) on Thursday.

The jobless rate came in 0.2 percentage points higher than June and was above the expectations of the market, which had anticipated a smaller increase to 3.6 per cent for July.

The ABS reported that employment dropped by 14,600 people during the month while the number of unemployment increased by 35,600 people.

“The fall in employment follows an average monthly increase of around 42,000 people during the first half of this year. Employment is still around 387,000 people higher than last July,” said ABS head of labour statistics Bjorn Jarvis.

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Mr Jarvis noted that the month of July included school holidays and said the ABS had continued to observe some changes around when people take leave and start or leave a job.

“It’s important to consider this when looking at month-to-month changes, compared with the usual seasonal pattern. The only other fall in employment in 2023 was in April, which also included school holidays,” he said.

The underemployment rate remained at 6.4 per cent in July, which is approximately 2.4 percentage points lower than before the pandemic.

The underutilisation rate, which combines the unemployment and underemployment rates, rose 0.2 percentage points to 10.1 per cent, or 3.9 percentage points lower than in March 2020.

The latest meeting minutes of the Reserve Bank of Australia highlighted the “considerable resilience” of Australia’s labour market with a “very low” unemployment rate that has remained at around 3.5 per cent for the past year.

“However, there were some signs that the labour market was at a turning point, including a small rise in the underemployment rate,” the RBA added.

The jobless rate is expected to rise to 3.9 per cent by the end of the year, according to the RBA’s forecasts in its latest statement on monetary policy, before reaching 4.4 per cent at the end of 2024 and 4.5 per cent at the end of 2025.

Commonwealth Bank (CBA) senior economist Belinda Allen suggested that the July labour force survey was “on the soft side”.

“The labour market remains tight, but there are signs that conditions are loosening, and this was confirmed in today’s report,” she said.

CBA suggested that “labour hoarding” may mean that the unemployment rate takes longer to increase than seen in previous cycles, which it has partially factored into its forecasts.

“We expect the unemployment rate to average 4.2 per cent in Q4 23 and lift to 4.6 per cent in Q2 24,” said Ms Allen.

“There does remain a risk that this deterioration takes longer to achieve and could delay the start of the easing cycle by the RBA. We currently expect this to commence in March 2024.”

ANZ head of Australian economics Adam Boyton said that the softness in the July labour force data “fits neatly” with the sentiment expressed in the RBA’s August minutes that the labour market may be at a turning point.

“That said, given the volatility in the monthly labour force survey, it will take more than one month’s data to prove that point,” he added.

“In that vein, we note that the unemployment rate printed at 3.7 per cent in January and April, only to fall back again in subsequent months.”

In ANZ’s view, the unemployment rate is likely to have seen its low for the year, but Mr Boyton noted that increases moving forward should be modest.

Softer labour force data ‘fits neatly’ with RBA’s recent sentiment

The ABS has reported an increase in the unemployment rate, supporting the RBA’s view that the labour market may be at a turning point.

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Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.

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