The seasonally adjusted unemployment rate held steady at 4.2 per cent in August, according to data released today by the Australian Bureau of Statistics (ABS).
Economists had expected 21,000 jobs to be added, with the jobless rate remaining unchanged.
ABS head of labour statistics Sean Crick said employment fell by 5,000 while the number of unemployed decreased by 1,000 over the month.
“This meant that the unemployment rate remained steady at 4.2 per cent whilst the participation rate fell by 0.1 percentage points to 66.8 per cent,” he said.
The employment-to-population ratio fell by 0.1 percentage points to 64.0 per cent.
A fall in full-time employment (-41,000 people) drove the overall drop in employment numbers. Meanwhile, part-time employment saw a 36,000 person rise.
Females who were employed full-time went down by 30,000 people, and males in full-time employment were down by 11,000.
There was a rise in part-time employment for both females and males, up 18,000 and 17,000, respectively.
Krishna Bhimavarapu, APAC economist at State Street Investment Management, said the data has shown that the labour market is near its peak, but warned there are “cracks appearing”.
“If it wasn’t for a low (3.3 per cent) unemployment rate of the incoming rotation group, the overall rate would have risen as well,” Bhimavarapu said. “These cracks are far from those in the US in recent times, which eventually led to the ‘insurance’ rate cut overnight.”
He noted, however, the cyclical nature of full-time employment growth has shown that it is “tiptoeing downward and needs monitoring”.
“We expect the RBA to note this labour market weakness, but do not expect it to lead to another imminent rate cut,” Bhimavarapu added.
VanEck’s head of investments and capital markets, Russel Chesler, said the firm does not see anything in the latest Labour Force data to support another rate cut this year, despite markets pricing in an RBA cut this November.
“As well as our robust labour market, consumer spending has continued to push upward, according to the latest ABS data, with more than 5 per cent annual growth (as at end of July),” Chesler said.
“Australian property values are also rising, with the national median dwelling value increasing by 4.1 per cent year on year as at the end of August, according to Cotality,” Chesler said.
ANZ economists Adam Boyton and Aaron Luk noted the recent moderation in employment “sits a little at odds” with the 2Q gross domestic product data, however, conflicting signals across data “are common at inflection points”.
“Given that, we don’t think today’s data will sway the market much one way or another on the November RBA Board meeting (where a rate cut is widely expected), or for that matter the coming September meeting (which should pass with no change in rates).”
ANZ still maintains the view that the RBA will cut by 25 basis points in November before leaving the official cash rate at 3.35 per cent for an extended period.
Sharing a similar sentiment, Betashares’ chief economist, David Bassanese, said while the reading was weaker than expected, it is unlikely to force the RBA’s hand to cut in September.
On the upcoming monthly consumer price index (CPI) data, Bassanese noted that while the RBA has made it clear that it prefers to look through volatility in the monthly reports, the board would “take some comfort from a very low number” next week, particularly if concerns about the labour market are mounting.
“My base case remains that the RBA will cut rates in November, following confirmation that annual trimmed mean inflation in the Q3 CPI report is no higher than 2.6 per cent,” he added.
Australia and the US’ economy are beginning to diverge
Meanwhile, the US Federal Reserve announced a widely expected 25 basis point rate cut to a target range of 4–4.25 per cent, on the back of a deteriorating US labour market.
According to Chesler, today’s Labour Force figures, coupled with the Fed’s policy rate reduction, have indicated that the “trajectories of two economies are starting to diverge”.
While markets expect the Fed to continue to deliver rate cuts (around three to four this year), along with growing signs of weakness in the US’ work force, Chesler noted that the “macroeconomic backdrop in Australia looks different”.
“The labour market has sustained near-full employment levels for more than three years (albeit with some concerns about productivity) and during the recent tightening cycle, our unemployment rate actually went down rather than up.
“This resilience has been supported by strong growth in the public sector and a steady inflow of skilled and working-age migrants that have helped to boost labour supply while stimulating domestic consumption,” Chesler said.
