Australian unemployment ticked up to 4.1% in June as more Australians joined the labour force. However, the increase was primarily due to an increase in the participation rate rather than job losses. So, the RBA will focus almost entirely on the Q2 inflation report when it decides whether to raise the cash rate in early August.
According to the ABS, the unemployment rate rose from 4.0% in May to 4.1% last month, in seasonally adjusted terms and in line with forecasts.
+50.2k new jobs were added to the economy (+43.3k full-time & +6.8k part-time) in June.
The rise in unemployment followed a rise in the labour force participation rate from 66.8% to 66.9%.
The employment-to-population ratio increased to 64.2% but remained below the peak of 64.4% reached in November 2023.
Bjorn Jarvis, ABS head of labour statistics said: "The employment-to-population ratio and participation rate both continue to be near their 2023 highs. This, along with the continued high level of job vacancies, suggests the labour market remains relatively tight, despite the unemployment rate being above 4.0 per cent since April. Unemployment rose 10,000 people in June, following a fall of 9,000 in May. While it has increased from a low of 491,000 people in October 2022 to 608,000 in June, it is still around 100,000 people or 14.2 per cent lower than just prior to the COVID-19 pandemic."
"In June, we continued to see more people than usual working reduced hours because they were sick, similar to what we saw in May. Around 4.5 per cent of employed people in June could not work their usual hours because they were sick, compared to the pre-pandemic average for June of 3.6 per cent,” Mr Jarvis said. "However, we also saw less people taking annual leave in June 2024. There were around 12.5 per cent of people working fewer hours because they were on leave, compared with the pre-pandemic average for June of 14.5 per cent. This contributed to the increase in hours worked this month."
Market Response
S&P/ASX200 8,042 +0.2%, AUDUSD 0.6738 +0.13%, Aus 2yr 4.10% +2bps, Aus 10yr 4.25% (unch)
Fin-X Wealth View
Overall, the June report remains consistent with labour demand that is just about keeping pace with supply following an increase in population.
There are more signs of general consumer weakness with fewer employees taking time off. However, the bottom line is that we are not seeing the kind of rapid weakening in the labour market that would prevent the RBA from raising the cash rate next month if the Q2 inflation report (due out on 31st July) is too high for the RBA. The RBA also has a more rosy outlook for global growth than we do. So, barring a material and evident global disappointment, a rate hike is definitely on the table.
The market is assigning a roughly 25% chance of a rate hike in early August, rising to 30% by the end of November, most likely because the Federal Reserve is closer to easing in September.
The best course of action would likely be to hold for a little longer than the Fed. But given the RBA's more positive outlook and the increase in the May monthly CPI to +4.0%, we estimate the chances of a hike to be closer to 50% in August, but likely fading as we expect global activity data to deteriorate later this year.
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