Today’s jobs figures are unexpectedly strong, showing the labour market continues to be very tight. The seasonally adjusted unemployment rate remained unchanged at 3.5 percent, with employment increasing by around 32,000 people and the number of unemployed decreasing by 10,900 people. This is despite the restrictive stance of monetary policy and the cost-of-living pressures.
The employment to population ratio remained at a record high level of 64.5 percent, consistent with the increase in the employment numbers. The employment to population ratio for men increased by 0.1ppt, while for women it fell by 0.1ppt.
Labour supply edged slightly lower as the participation rate declined to 66.8 percent from 66.9 percent. The participation rate increased by 0.1ppt to 71.3 percent for men, while less encouragingly, it fell for women by 0.2ppt to 62.5 percent for women.
Seasonally adjusted hours worked rose by 0.3 percent in June. This suggests high labour demand, also reflected in high job vacancies, is being absorbed though people increasing their hours worked.
The changes in the unemployment rates in June varied across the country. However, overall, jobless rates remained historically low at below 4 percent in almost all states and territories, except for South Australia (4.2 percent). The unemployment rate in Tasmania fell the most, by 0.7 percent; while the Australian Capital Territory increased by the largest - 0.8 percent.
The current state of the labour market continues to defy expectation with its strength, but we believe that this tightness may begin to ease in the near term. The economy is slowing but the full impacts of tighter monetary policy will take some time to flow through. Mortgage stress and higher costs of living will increasingly bite and ease the pressure on the labour market.
The forthcoming cash rate decision by the RBA will need to balance the risks of labour market tightness driving wage growth higher and feeding into inflation against the risk that further rate increases will push the economy into recession.
Incoming Governor Michelle Bullock said last week: ‘Our goal is to return the labour market (and the market for goods and services) back to a level more consistent with full employment – something like the endpoint in our forecasts (i.e.: an unemployment rate of 4.5 percent). We think this can be achieved if employment and the economy more generally grow at a below trend pace for a while. This would help to bring demand and supply into better balance and give us the greatest chance of securing sustainable full employment into the future.’ Today’s result shows the labour market is continuing to operate beyond full employment and at a point that is likely to be unhelpful in Australia’s fight against inflation.
Next Wednesday’s CPI data will be crucial and some additional monetary tightening may be required, but our view is that the RBA will choose to keep rates steady at its August 1 meeting to further assess how the lagged impact of the rate increases already implemented play out.
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