July’s jobs data was always likely to show some pullback after a jumbo-sized (revised) rise of 80.3k in June and a solid increase of 38.2k in May. In other words, the odds favoured some degree of statistical payback. However, while consensus expectations were for a modest rise of 10k, employment instead fell by 15.8k, marking only the second monthly decline this year. Part-time employment fell by 32.2k in July following the strongest back-to-back gains in 14 months, while full-time employment recorded a moderate increase of 16.3k.
The Australian Bureau of Statistics (ABS) noted that there were only seven rotation groups in the survey for July rather than the usual eight, meaning standard errors may be larger than normal. More broadly, the monthly volatility should be viewed in the context of the underlying trend. Employment has increased by an average of 34.2k over the past three months, representing the strongest three-month moving average in four months and remaining a solid outcome.
Policymakers are still likely to suggest labour market conditions remain a little tight. The participation rate edged lower after reaching a near-record high in June, helping to contain the rise in the unemployment rate to 4.5%, up from 4.4% in June. The unemployment rate now matches the RBA’s forecast for the December quarter, which was revised up last week from 4.3% previously.
Hours worked fell 0.6% in July and are up just 0.2% over the past year. While the series can be volatile from month to month, growth in hours worked has generally lagged employment growth. This points to a gradual easing in labour-market conditions.
Looking ahead, indicators point to a continued gradual easing in labour market conditions. Job advertisements remain on a downward trend, suggesting employment growth will soften further in coming months. Yesterday’s wages data for the June quarter also showed a greater share of jobs receiving smaller wage increases and a continued moderation in wage pressures. Even so, Australia’s weak productivity performance means upward pressure on unit labour costs remains.
The moderation in labour demand is also evident in our business liaison with recruitment firms. Recruiters report that employers are becoming more selective in their hiring decisions, providing another signal that employment growth is likely to soften from here.
The easing in labour market conditions is not uniform across the country. NSW and Western Australia recorded declines in employment during July, while the remaining states posted gains, led by Queensland. South Australia continues to have the lowest unemployment rate at 4.1%, and yesterday’s wages data showed it also recorded the strongest annual wages growth. Meanwhile, Victoria and Tasmania have the highest unemployment rates at 5.1%.
The gradual easing in labour market conditions, reflected in a higher unemployment rate, softer job advertisements and moderating wage pressures, should leave the RBA comfortable sitting on its hands. We continue to expect no further rate hikes from the RBA, although elevated uncertainty means additional policy tightening cannot be completely ruled out.
