Unemployment Rate Rises Slightly, Impacts Interest Rate Decisions

The Australian Bureau of Statistics may deter the Reserve Bank from cutting its key interest rate in the near future with its report that the unemployment rate edged up by 0.1 percentage points to 4.2% in July.

The Details :

• The unemployment rate added 24,000 people, while the employed rose by around 58,000. It lifted participation into a record high of 67.1 percent. The employment-to-population ratio went up 0.1 percentage points to 64.3 percent, which meant a greater proportion of the population was working, a little lower than the peak recorded in November 2023.

• Despite the slight increase in unemployment, many people are working today and actively searching for employment. The total number of unemployed climbed to 637,000 in July, the highest since November 2021 but down about 70,000 compared with the level prior to the pandemic.

• The employment-to-population ratio increased 0.1 percentage point to 64.3 percent, indicating that employment growth was stronger than population growth and was just shy of matching the all-time high of 64.4 percent in November 2023.

• The percentage of people in employment who worked reduced hours because of illness was unchanged on 4.2% in July, the same rate as May and June. This remains higher than the 5-year pre-pandemic July average of 3.6%. This is somewhat offset by slightly lower-than-normal reporting of other reasons for reduced hours such as people taking annual leave.

Why it matter :

In July, Australia's unemployment rate picked up a shade to 4.2%, indicating some moderation in the aggressive job market. This can feed into the monetary policy decisions at the Reserve Bank of Australia.

While more Australians are now in employment than ever before, with the broader picture of employment remaining bright, this may yet dissuade the RBA from interest rate cuts anytime soon. This could have implications for wage growth, consumer confidence, and wider economic activity, so it is a development that needs to be kept under close scrutiny.

Bottom line :

The slight rise in the unemployment rate may have broader implications for Australia's economy, particularly with respect to interest rates and monetary policy.