Australia’s unemployment rate fell to a new 48-year low in July despite employment experiencing its first annual decline after a super-strong run, a mixed report that may indicate some cooling in the scorching labor market.
According to data released by the Australian Bureau of Statistics on Thursday, the unemployment rate decreased to 3.4%, whereas analysts had expected it to remain at 3.5%. The fact that it was the lowest rate since August 1974 only served to highlight how tight the labor market was.
But net employment was also unexpectedly down in July, dropping by 40,900, below expectations of a 25,000 increase and marking the first decline since October of last year.
The number of unemployed also decreased by 20,200, which unexpectedly caused the participation rate to drop from 66.8% to 66.4%, further clouding the picture.
The local currency fell slightly to $0.6927 as a result of all this statistical turbulence, but futures continued to bet that the Reserve Bank of Australia (RBA) will keep hiking interest rates anyway.
The winter break and worker absences related to COVID-19 occurred in July, according to Bjorn Jarvis, head of labor statistics at the ABS, which reduced the number of hours worked.
“During the epidemic, larger-than-usual fluctuations or slowing in employment and hours around school holidays have not been unusual,” added Jarvis.
Measures of underemployment and underutilization, which have declined to their lowest levels since 1982 and have a strong correlation with rising wages, also showed signs of strength.
Data released on Wednesday indicated that while inflation was 6.1%, pay growth in the June quarter increased only little to 2.7%. Even so, that was an eight-year high, and the private sector’s pay growth did quicken to 3.8%.
Business surveys have revealed that businesses are having a hard time finding qualified labor and are prepared to pay to keep employees.
The RBA has emphasized that increased pay and bonuses are on the horizon, and that higher labor expenses will only increase inflationary pressures. This is supported by its interactions with business.
The central bank has already increased interest rates by 175 basis points since May to reach 1.85% in an effort to slow the economy, and markets are already pricing in a top of roughly 3.6% by April of the following year.
According to Sean Langcake, head of macroeconomic forecasting at BIS Oxford Economics, “Labour demand indicators remain solid, which suggests the reduction in employment in July will be short lived.”
It appears that there is a highly tight labor market.