Australia’s June labour force figures delivered a result few economists had forecast, with employment surging by 76,300 as the unemployment rate remained at 4.4 per cent.
The increase was about five times the 15,000 jobs most economists had expected and immediately revived debate over whether the Reserve Bank could raise interest rates again in August.
The headline unemployment rate was unchanged for a second consecutive month when rounded to one decimal place, although the Australian Bureau of Statistics said it had risen by 0.1 percentage points in unrounded terms.
When The Indian Sun examined the outlook earlier this week, leading indicators including weaker hiring intentions in the NAB business survey and Roy Morgan’s broader unemployment measure pointed towards a slowing jobs market.
Thursday’s official figures presented a much stronger picture.
KPMG senior economist Terry Rawnsley said the combination of a resilient labour market and persistent inflation strengthened the case for another increase in the cash rate
KPMG senior economist Terry Rawnsley said the combination of a resilient labour market and persistent inflation strengthened the case for another increase in the cash rate.
“The strength of the labour market and core inflation remaining frustratingly high will give the RBA the justification it needs to increase rates, most likely in August,” he said.
That view is not unanimous. The composition of the employment increase, along with rising underemployment and limited growth in full-time hours, provides reasons for the RBA to remain cautious.
Of the 76,300 additional jobs created in June, 29,300 were full-time positions and 47,000 were part-time. Part-time employment accounted for about 62 per cent of the increase.
ABS head of labour statistics Sean Crick said some of the rise reflected workers whose employment had been delayed from the previous month.
“Part of the growth in employment this month came from those who were waiting to start a job in May,” he said.
That means part of the apparent strength in June represented employment that would ordinarily have been recorded in May, concentrating two months of hiring activity into a single result.
Hours worked rose by only 0.2 per cent. Part-time hours increased by 1.2 per cent, while full-time hours were broadly unchanged.
Businesses added workers, but the total amount of labour being used across the economy barely changed
The difference between employment and hours worked matters. Businesses added workers, but the total amount of labour being used across the economy barely changed. Much of the additional demand was met through part-time arrangements rather than longer full-time hours.
The participation rate rose by 0.3 percentage points to 67.0 per cent as more Australians entered the labour force.
That increase helped keep the unemployment rate at 4.4 per cent despite the strong rise in employment. The number of unemployed people increased by about 13,000 as the supply of available workers also expanded.
The underemployment rate rose by 0.2 percentage points to 6.5 per cent, showing that a growing share of employed Australians wanted more hours than they were receiving.
The trend underutilisation rate, which combines unemployment and underemployment, stood at 10.7 per cent. More than one in 10 people in the labour force therefore remained unemployed or unable to secure the amount of work they wanted.
Victoria recorded a seasonally adjusted unemployment rate of 5.1 per cent, one percentage point above the national figure. New South Wales had the lowest rate among the states at 4.0 per cent, while Queensland recorded 4.3 per cent and Western Australia 4.2 per cent.
Households already managing high mortgage repayments and rising living costs, the state’s weaker result provides an important counterpoint to the national employment surge.
The Reserve Bank will hold its next monetary policy meeting on 10 and 11 August. Before then, the board will receive the June inflation figures on Wednesday, 29 July.
The Reserve Bank will hold its next monetary policy meeting on 10 and 11 August. Before then, the board will receive the June inflation figures on 29 July
Before the labour force figures were released, the prevailing expectation was that the RBA would leave rates unchanged in August, with any subsequent move more likely to be down than up.
The employment surge has reopened the possibility of another increase.
MacroBusiness economist Leith van Onselen described the figures as “unambiguously strong” and said they left the RBA “in an awkward position”.
AMP deputy chief economist Diana Mousina said the result reduced the risk that another rate rise would cause an immediate economic downturn.
“Today’s strong labour force data gives the RBA room to hike rates again, because there will be less concern that another interest rate increase will hurt the economy,” she said.
The case for raising rates rests on the combination of strong job creation and inflation that remains above the Reserve Bank’s 2 to 3 per cent target.
Annual inflation was 4.0 per cent in May, while trimmed mean inflation, a measure watched closely by the RBA, was 3.6 per cent.
If the economy can continue adding jobs at a rapid pace, the bank may conclude that activity remains strong enough to withstand another increase in borrowing costs
If the economy can continue adding jobs at a rapid pace, the bank may conclude that activity remains strong enough to withstand another increase in borrowing costs.
The case against a rise lies beneath the headline employment figure. Underemployment increased, full-time hours were flat and almost two-thirds of the new positions were part-time.
Those figures suggest a labour market that remains resilient but is not necessarily overheating.
Treasurer Jim Chalmers focused on the strength of the national result.
“Even in the face of all this global uncertainty and volatility, unemployment remains relatively low and more jobs are being created,” he said, “and that reflects the resilience of Australia’s economy.”
The assessment is supported by the scale of the employment increase. But the growing number of workers seeking additional hours shows that the benefits are not being experienced evenly.
A further rate rise could add about $1,875 a year to the interest bill on a $750,000 variable mortgage
The June inflation result will now carry greater weight. If underlying inflation remains elevated or accelerates, the employment figures could give the RBA sufficient confidence to raise the cash rate for a fourth time this year.
If inflation moves clearly towards the target range, the board may instead focus on rising underemployment, flat full-time hours and the concentration of employment growth in part-time work.
For mortgage holders, the renewed prospect of an increase is unwelcome. A quarter-percentage-point rise, taking the cash rate from 4.35 per cent to 4.60 per cent, would add about $1,875 a year in interest to a $750,000 variable-rate mortgage, before allowing for differences in loan structure and repayment schedules.
Three rate rises this year have already added about $5,600 to the annual interest cost of a loan of that size.
The question facing the RBA is no longer whether the labour market is too weak to tolerate another rate rise. It is whether the headline strength is durable enough to justify one.
That answer will depend heavily on inflation figures.
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