Unemployment jump won’t stop the RBA from hiking

As reported earlier, Australia’s unemployment rate has jumped to 4.6% – the nation’s highest rate since October 2021.

As illustrated below by Alex Joiner at IFM Investors, Australia’s unemployment rate is now significantly above the Reserve Bank’s expectations, raising some caution ahead of Tuesday’s monetary policy meeting:

Chart from Alex Joiner (IFM Investors)

However, while the headline result was weak, the internals of the August labour force report were more positive.

As illustrated below, total jobs rose by a solid 39,500, monthly hours worked rose by 0.7%, and the underemployment rate fell by 0.1%:

The reason the unemployment rate jumped was a 0.2% rise in the participation rate, alongside ongoing strong growth in labour supply via net overseas migration:

As noted by Alex Joiner on X (Twitter):

“It wasn’t poor employment growth driving this, though, but labour supply being so strong”.

“Strong growth in the labour force, as the participation rate rises and working age population remains strong, risks labour supply being too strong even with solid employment growth”.

Thus, rather than a lack of job growth, the Australian economy has too many new workers chasing too few jobs.

Regardless, because of the solid results outside of the headline unemployment number, the Reserve Bank is unlikely to refrain from hiking interest rates at its September or November meetings (and possibly both).