Australia Jobless Rate Nears 5-Year High at 4.5% in July
Synopsis
Australia’s job market weakened in July as unemployment reached 4.5%. Employment fell by 15,800, while full-time jobs increased by 16,300, easing pressure on the RBA to raise interest rates soon.
Australia’s employment took an unexpected turn in July, with the employment rate climbing to 4.5%. It was the highest unemployment rate since 2021, and it is another sign that the country's labour market is starting to slow down.
The Australian dollar fell 0.2% to $0.7111 after the figure was released. Markets have largely priced out possibility of Reserve Bank of Australia’s rate increase next month, although the outlook for a hike in the year later, remain unclear,
Jobs Data Gives a Mixed Picture
Australian Bureau of Statistics figures showed that the number of employed people fell by 15,800 in July. That followed a revised increase of 80,300 jobs in June. Economists had expected employment to increase by 15,000 in July, making the result weaker than anticipated.
There was some strength beneath the headline figure. Full-time employment increased by 16,300 during the month. The unemployment rate, however, rose to 4.5%, above the 4.4% economists had forecast. It has also reached the level the RBA had previously expected to see closer to the end of the year.
Other Signs of a Weaker Job Market
The latest data shows some weakness in the labour market. The participation rate measures the share of people who are either employed or actively looking for work to 66.9% from 67%. Total hours worked also decreased by 0.6% during the same month.
Underemployment rates remain unchanged at 6.4%. This figure who has a job but would prefer to work more hours and it’s now at its highest level two years. Ben Udy, lead economist at Oxford Economics Australia, said the numbers were slightly softer than expected. Combined with weaker wage growth reported on Wednesday, the data has reduced the immediate pressure on the RBA to raise rates.
RBA Keeps Interest Rates on Hold
The RBA has acknowledged that conditions in the labour market have weakened. That was one factor behind its decision to leave the interest rate at 4.35% last week, following three rate increases this year.
Separate data released on Wednesday showed wage growth remained moderate for a fifth consecutive quarter. The RBA has not ruled out another rate increase, however. If inflation begins to pick up again, policymakers could still decide that tighter monetary policy is needed.
They have highlighted several risks to the Australian economy, including the U.S.-Israeli war on Iran, the global AI boom and weak productivity.
Overseas and Other Risks Remain
Krishna Bhimavarapu, an economist at State Street, said some of the main risks facing Australia are coming from overseas. Bond yields are moving higher and financial conditions are becoming tighter. Weather could also become an issue. An El Niño event has the potential to affect Australia’s wheat harvest and put further pressure on prices.
Bhimavarapu said poor weather could push inflation higher while the economy is already adjusting to changing conditions. That could make it harder for inflation to continue falling and add further uncertainty to the outlook for economic growth.
Source: Reuters
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