Australia’s Unemployment Growth in July Raises Possibility of Another Interest Rate Pause

A fishmonger shucks an oyster at the Sydney Fish Market in Sydney, Australia, on on Dec. 24, 2015. (Cameron Spencer/Getty Images)

The Australian labour market took an unexpected turn when the unemployment rate climbed 0.2 percent to 3.7 percent in July.

This came despite most economists expecting the rate to remain steady after dropping to a 48-year low of 3.5 percent in June.

According to the Australian Bureau of Statistics (ABS), the number of employed people dropped by 15,000 in July, while unemployment rose by 36,000.

“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,” ABS head of labour statistics Bjorn Jarvis said.

Mr. Jarvis cited several potential factors for the fall in employment, including school holidays and some changes around when people take their 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,” he said.

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“Despite these falls, both indicators were still well above pre-pandemic levels and close to their historical highs in May,”

Westpac Bank economists said the change in employment patterns in July indicated that there were still a lot of opportunities for individuals to start new jobs or change jobs, which reflected a tight labour market with high vacancy rates.

Regarding other labour statistics, the participation rate, which indicates an economy’s active workforce, dipped 0.1 percent to 66.7 percent.

In contrast, the underemployment rate stayed steady at 6.4 percent.

Full-time employment fell by 24,200 to 9,839,800 people, while the number of part-time workers grew by 9,600 to 4,186,900.

Among the jurisdictions, Tasmania had the highest unemployment rate at 4.7 percent, followed by Queensland at 4.5 percent and South Australia at four percent.

Victoria led the country with an employment growth rate of 0.4 percent, while the Northern Territory reported the most significant drop in the number of employed people at 0.3 percent.

Higher Unemployment Raises the Stakes for Another Interest Rate Pause

Following the rise in unemployment, many economists believed it raises the case for the Reserve Bank of Australia (RBA) to keep its official cash rate unchanged at 4.1 percent for another month.

The RBA had put the cash rate on hold in July and August in response to significant drops in inflation following 12 consecutive rate hikes.

There has been an expectation among economists and households that interest rates are likely to peak soon.

“Today’s data are likely to be the final nail in the coffin for any lingering expectations of a rate hike in September,” said Ben Udy, lead economist for Oxford Economics Australia.

Callam Pickering, an economist at the online job platform Indeed, also believed the RBA’s monetary tightening policy was over.

“Softer-than-anticipated wage growth and employment figures almost guarantee that the RBA won’t raise rates at their September board meeting. And these softer figures reduce the likelihood of another rate hike this year,” he said, reported the Australian Broadcasting Corporation.

“With inflation easing globally, including in Australia, there isn’t a strong argument in favour of hiking rates in September.

Similarly, ANZ Bank economists predicted that the RBA would keep the cash rate at 4.1 percent for some time.

Regarding the labour market outlook, Mr. Udy forecasted that the jobless rate would increase to 4.5 percent by the end of 2024 due to economic slowdowns.

While Belinda Allen and Stephen Wu from Commonwealth Bank expected that it would take longer for the unemployment rate to rise compared to the previous cycle, they forecasted that the rate could lift to 4.2 percent by the end of 2023 before hitting 4.6 percent in the second quarter of 2024.