Key Points:

  • Australian employment rose by 58,200 people in July, another stellar result following gains of 52,300 in June. 
  • Australia’s unemployment rate inched higher to 4.2% as workforce participation reached a record high of 67.1%. 
  • Over the past year, growth in hours worked has fallen short of overall employment gains. 

Australian employment rose by 58,200 people in July — higher than market expectations — with the unemployment rate rising to 4.2% (up from 4.1% in June). The unemployment rate is slightly above the latest forecasts from the Reserve Bank of Australia.

Line graph titled “Australian unemployment rate.” With a vertical axis ranging from 0 to 8%, Australia’s unemployment rate inched up to 4.2% in July, from  4.1% in June. 
Line graph titled “Australian unemployment rate.” With a vertical axis ranging from 0 to 8%, Australia’s unemployment rate inched up to 4.2% in July, from  4.1% in June. 

Employment gains in July were concentrated in full-time positions (+60,500 people), which more than offset a modest decline in part-time employment (-2,300). Since the beginning of the year, around 85% of employment gains have been of the full-time variety, which is impressive at this point in the economic cycle, and marks a notable shift in hiring trends compared to last year.

Australian unemployment rate rises despite strong employment gains

Australia’s unemployment rate inched up to 4.2% in July, but the result isn’t as bad as it first appears — it was largely a product of record participation in the workforce, with the participation rate reaching 67.1%. Rising participation effectively puts upward pressure on the unemployment rate, which is why we sometimes see the unemployment rate rise despite strong employment gains.

Line graph titled “Australian labour force participation rate.” With a vertical axis ranging from  60 to 68%, Australia’s participation rate reached a record high of 67.1% in July, and is well above pre-pandemic levels.
Line graph titled “Australian labour force participation rate.” With a vertical axis ranging from  60 to 68%, Australia’s participation rate reached a record high of 67.1% in July, and is well above pre-pandemic levels.

The increase in participation over the past few years has been rather impressive given that Australia’s ageing population continues to put downward pressure on workforce participation. Australia’s job market is older than it has ever been before. However, a strong job market and the nation’s cost-of-living crisis have likely helped offset the impact of demographic factors on workforce participation.

Nevertheless, there should still be some concern around rising unemployment. The unemployment rate is up 0.5 percentage points over the past year, a considerable increase over such a short period of time. It’s particularly notable given that national employment increased by 455,400 people, or 3.2% over the past year. Excluding pandemic-related volatility, we haven’t seen growth of that nature in 16 years, and yet, it still wasn’t enough to contain unemployment. 

It highlights a clear risk that the unemployment rate might spike if employment growth slows. Obviously, that hasn’t happened yet, but the combination of high population growth and slower employment growth could trigger a big jump in the unemployment rate, if it occurs.

Total hours worked rose by 0.4% in July and have increased by 0.9% over the past year. Annual growth in hours worked falls well short of overall employment growth (+3.2%), but taking a step back, we can see that hours worked and employment have tracked pretty closely since the pandemic began, despite significant short-term variations. 

Line graph titled “Australian employment and hours worked.” With a vertical axis ranging from  -10 to 15%, growth in hours worked and employment have tracked closely since the pandemic began. Recent growth in employment, however, has easily exceeded growth in hours worked. 
Line graph titled “Australian employment and hours worked.” With a vertical axis ranging from  -10 to 15%, growth in hours worked and employment have tracked closely since the pandemic began. Recent growth in employment, however, has easily exceeded growth in hours worked. 

Assessment and implications

A mixed set of labour market figures will give the Reserve Bank of Australia plenty to think about. Strong employment growth suggests that the economy remains overheated — perhaps requiring another increase in the cash rate — and yet the unemployment rate has increased by 0.5 percentage points over the past year. The job market continues to be supported by strong hiring activity, with Indeed’s measure of job postings still 63% above pre-pandemic levels at the end of July. 

In the coming months, labour market measures will be pivotal to determining the future direction of monetary policy, along with inflation and household spending data.