The jobs market finally appears to be giving way, although forward-looking indicators suggest the weakening may remain gradual.
The unemployment rate held at 4.7% in September, after the August result was revised up to 4.7% from the previously reported 4.6%. This leaves the unemployment rate at its highest level since late 2021 and, more importantly, 0.6 percentage points above where it started the year, at 4.1%. We expect it to drift further, reaching 4.8% to 4.9% by the end of the year.
Employment fell by 39,300 in September, the biggest decline in five months, driven by a sharp contraction in part-time jobs. The increase in employment in August was also revised down by 10,200.
Part-time employment sank by 73,700 in September, its biggest fall in almost five years. That followed strong growth in part-time work in recent months, as households grappled with the higher cost of living and more Australians took on multiple jobs. Full-time employment, typically the more stable component, recovered last month, rising by 34,400.
Employment data has been volatile and recent methodological changes may also be affecting the quality of the survey results. Smoothing through the month-to-month swings, employment growth averaged a decline of 9,000 over the past three months, the weakest result since late 2021 during the COVID period. Over the past six months, employment growth averaged just 7,200 per month, the softest pace in nearly a year. The trend data tells a similar story. The trend unemployment rate remained at 4.6% in September but, like the seasonally adjusted measure, has been gradually edging higher this year.
The participation rate dropped 0.2 percentage points last month to 66.8%, suggesting less people joined the search for work last month. Without that fall in the participation rate, the unemployment rate would have risen above 4.7%. Abstracting from participation, the employment-to-population ratio fell to 63.6%, its lowest level since March 2022.
So, across a wide range of measures, there is growing evidence that the labour market is giving way.
But forward-looking indicators are more mixed and not telling such a one-sided story. For example, job advertisements rose 2.2% in September and that follows two months of solid gains. The recent uplift in job ads suggests employment growth could strengthen in the near term and the weakness observed in the latest data may not be sustained. On the other hand, yesterday’s NAB business survey showed business confidence deteriorating further. The business confidence index fell four points to -13, well below zero and indicating that businesses remain pessimistic about the outlook. The latest rise in the cash rate is likely to have contributed to the business pessimism. The employment index also declined and points to some softening compared with last year.
In terms of what this means for the cash-rate outlook, whether another rate hike materialises remains a close call. Our ongoing base view remains that the RBA will not hike again next month, although we would not confidently rule one out. Swap-market pricing now attaches around a 15% probability to a November rate hike, down from 30% ahead of today’s data. The decision will rely heavily on the quarterly inflation report due later this month.
