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Unexpected uptick in unemployment catches economists off guard

4 minute read

The unemployment rate has created a divide between Australia's top economists.

The Australian Bureau of Statistics (ABS) has reported an unexpected lift in the jobless rate, with seasonally adjusted unemployment increasing to 3.5 per cent in August.

Employment rose by 33,500 people and unemployment rose by 14,000 people during the month, pushing the unemployment rate 0.1 percentage point higher than a month earlier and returning to the same level seen in June this year.

The result came as a surprise to analysts and economists, with a divide emerging regarding how the latest employment data will impact the future path of interest rates.

“An overall solid labour market report adds to the case made by the strong NAB business survey and US CPI data earlier this week for the RBA to hike the cash rate 50 bps in October,” said ANZ senior economist, Catherine Birch.

The increase in unemployment during August, Ms Birch said, reflected an increase in participation rather than being a sign of weakness. 

Meanwhile, BetaShares chief economist, David Bassanese, said that the result was not enough of a “smoking gun” to justify another 50-basis-point (bp) increase at the RBA's next meeting.

“With official interest rates already back to their neutral range, and nationwide wage growth still fairly dormant, there is a growing case for the RBA to scale back the size of rate increases over the next two months and then pause the rate hike campaign (for a few months at least) before reconsidering the impact of its work to date in early 2023,” he suggested.

Similarly, Commonwealth Bank (CBA) economist, Stephen Wu said that the labour force report was supportive of the bank's view that the RBA has already handed down its last 50-bp rate hike.

“We reiterate our call that the RBA will slow the pace of tightening at the October Board meeting and will deliver a 25-basis-point hike. This risk of course sits with another 50-bp hike,” he said.

The ABS reported that hours worked rose by 0.8 per cent in a full reversal of last month's fall, while full-time employment increased by 58,800.

“During the pandemic, we have seen changing patterns in employment and hours worked in the months with and after school holidays,” explained ABS head of labour statistics, Lauren Ford.

“The August rise in employment and hours occurred after the winter school holidays and flooding events in New South Wales, where we saw more people than usual working fewer hours in July.”

Consistent with the increases in employment and unemployment, the participation rate moved 0.2 percentage points higher to 66.6 per cent after falling 0.3 percentage points in July.

It is now 0.2 percentage points below the record high set in June this year while still being 0.7 percentage points higher than before the pandemic.

The underemployment rate decreased by 0.1 percentage points to 5.9 per cent and the underutilisation rate — which combines the unemployment and underemployment rates — held steady at 9.4 per cent.

Looking ahead, CBA said it believes that 3.5 per cent is around the floor for the unemployment rate, while ANZ is forecasting a fall “into the high-2s” by early next year.

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.