AUSTRALIA unexpectedly cut employment in July, while the jobless rate fell as fewer people sought work, giving the Reserve Bank (RBA) scope for a more flexible approach in its tightening cycle.
Employment tumbled by 40,900 from a month earlier, confounding expectations for a 25,000 gain, Australian Bureau of Statistics (ABS) data showed on Thursday (Aug 18). Unemployment fell to 3.4 per cent as participation slid, reflecting floods, a jump in Covid cases and holidays.
"In addition to people taking annual leave around the winter school holidays, there were also around 750,000 people working fewer hours than usual due to being sick," Bjorn Jarvis, head of Labour Statistics at the ABS, said in a statement.
The Australian dollar fell on the surprise employment drop and was trading at 69.35 US cents at 11.44 am in Sydney. Government bond yields edged down slightly.
The weaker result is unlikely to dissuade the Reserve Bank from raising interest rates further after 3 half-point hikes to take the cash rate to 1.85 per cent. But it might prompt policymakers to consider a smaller 25 basis-point increment.
Most economists expect a fourth half-point hike in September as the RBA tackles strong inflation.
Today's report defies private business surveys that show the economy is operating near full capacity. Job vacancies are hovering around record highs and the RBA forecasts unemployment will fall further.
Australia's tight labour market has so far failed to drive a significant jump in wage growth. Figures on Wednesday showed the wage price index grew 2.6 per cent, less than half the pace of inflation.
Treasurer Jim Chalmers is focused on driving higher wages and productivity gains and has announced a 'Jobs & Skills Summit' next month.
"Wages are starting to pick up but not nearly as much as inflation, which is eating into living standards," Chalmers told reporters after the wages report.
Today's report also showed:
- The labour force participation rate - the share of the population that is working or looking for jobs - fell to 66.4 per cent from 66.8 per cent
- The jobless rate is the lowest since August 1974
- Underemployment fell 0.1 percentage point to 6 per cent and underutilisation also declined to 9.4 per cent
- Full-time roles led the decline, dropping by 86,900, while part-time positions climbed by 46,000
- Monthly hours worked decreased by 0.8 per cent BLOOMBERG