The rise in the unemployment rate to 4.6% in August, up from 4.5% in July and from a recent low of 4.1% around the turn of 2026, is masking ongoing strength in the jobs market. While the unemployment rate rose in August, so did almost everything else. Importantly, the participation rate rose by 0.2 percentage points to 67.1%, the highest level since April 2025. A higher participation rate means more Australians entered the labour force in August, pushing the unemployment rate higher, even as employment grew solidly. Indeed, employment increased by 39,500 in August, a sharp rebound from the loss of 15.9k jobs in July.
Recent months have been characterised by significant month-to-month volatility in employment. Looking through this noise, the three-month moving average suggests the underlying trend is improving. In the three months to August, employment increased by an average of 34.0k per month, the strongest outcome in six months.
The jump in participation in August was more pronounced among males than females with the male participation rate rising by 0.3 percentage points (ppts) to 71.0% compared with a 0.1 ppt increase for females to 63.3%.
If the participation rate had remained unchanged in August, the unemployment rate would have fallen to 4.4%. Perhaps this is the most telling aspect of the result. Abstracting from participation, the employment-to-population ratio remained steady at an elevated 63.9%.
Why has participation moved higher? Cost-of-living pressures from elevated inflation and the prospect of another rate hike may have encouraged more people to enter the labour force and prompted others to take on a second job. Separate data released a fortnight ago showed there were 1.0 million multiple job holders in June 2026 compared with 14.1 million single job holders. This represented an increase of 6.6% from March 2026 when there were 984,200 multiple job holders. While the data is not directly comparable because of the different reference periods, cost-of-living pressures are likely still driving an increase in multiple job holding.
The breakdown between part-time and full-time employment may also point to some fragility emerging in the labour market. Cost-of-living pressures may be encouraging some workers to seek additional or more flexible employment, while business caution amid slowing economic activity may be leading firms to favour casual and part-time workers over permanent hires. Full-time employment fell by 6.3k in August, while part-time employment surged by 45.8k, the largest increase in six months. The latter is also consistent with our business liaison. At the same time, monthly hours worked rose by 0.7% in August and were 1.7% higher over the year, suggesting firms are making greater use of their existing workforce rather than materially expanding headcount.
Across the country, Victoria and Western Australia accounted for the lion’s share of the job gains in August. Employment rose by 16.1k and 12.5k in these states last month, respectively. All states recorded gains except Tasmania (-2.5k).
The Reserve Bank Governor earlier this week suggested that an unemployment rate in the 4.5-5.0% range would likely take enough heat out of the labour market to ease pressure on inflation. We expect the unemployment rate to move towards the upper end of this range by the end of the year. The RBA itself is forecasting an average unemployment rate of 4.8% in the December quarter. If that eventuates and given the unemployment rate has been trending higher in recent months, it may suggest that one further rate hike will be sufficient. We expect that rate hike to occur next week and do not rule out a follow-up one later this year.
Financial markets, by contrast, are pricing the equivalent of 2.7 rate hikes over the next 12 months. We believe that is excessive. While we cannot rule out a follow-up move after next week’s expected rate hike, at this stage we do not expect anything like three additional rate hikes to be required.
