July employment figures ‘good news for inflation’
An uptick in the unemployment rate and slowdown in jobs growth will reduce pressure on wages growth and inflation, according to economists.
The unemployment rate increased by 0.2 percentage points to 3.7 per cent in July (seasonally adjusted), according to data released by the Australian Bureau of Statistics (ABS) yesterday.
ABS head of labour statistics Bjorn Jarvis said with employment dropping by around 15,000 people and the number of unemployed increasing by 36,000 people, the unemployment rate rose to 3.7 per cent.
“The fall in employment follows an average monthly increase of around 42,000 people during the first half of this year. Employment is still around 387,000 people higher than last July,” said Ms Jarvis.
“July includes the school holidays, and we continue to see some changes around when people take their leave and start or leave a job. It’s important to consider this when looking at month-to-month changes, compared with the usual seasonal pattern. The only other fall in employment in 2023 was in April, which also included school holidays.”
AMP deputy chief economist said while the employment figures can run “hot and cold” the three month moving average for jobs growth was around 31,000 which is below the average monthly growth of 42,000 for 2022.
Annual employment growth is now at 2.8 per cent which is also a reduction from the 3 per cent at the start of 2023.
“So even if July did have some seasonal factors at play, employment growth is still slowing which is expected as GDP growth has softened from the rising rate environment,” said Ms Mousina.
The tightness in the labour is unlikely to persist, she said, with indicators such as job vacancies, job advertisements and business hiring intentions signalling lower employment growth ahead.
“We see the unemployment rate increasing to 4.5 per cent by mid-2024 which is also consistent with our expectation of slowing GDP growth,” she stated.
The tick up in the unemployment rate and slowing in jobs growth is in line with the RBA’s forecasts and is consistent with the RBA remaining on hold at its next meeting in September, according to AMP.
A slowing jobs market will ease pressure on wages growth and with the June quarter wages growth data showing softer then expected wages growth at 3.6 per cent, this is “good news from an inflation perspective”, said Ms Mousina.
“While the RBA still has a tightening bias, there would need to be signs that inflation has picked up again or that wages growth will be higher than expected which we think is unlikely,” she said.
CreditorWatch chief economist Anneke Thompson said while there is no consistent trend in the data yet, there are “clear signs that more weakness in the labour force can be expected, given the deteriorating economic conditions, led by very weak consumer demand”.
ANZ head of Australian economics Adam Boyton said that the softness in the July labour force data “fits neatly” with the RBA’s August minutes.
The RBA said in its minutes that there were signs the labour market could be at a “turning point”, including a small rise in the unemployment rate.
“That said, given the volatility in the monthly labour force survey it will take more than one month’s data to prove that point,” said Mr Boyton.
“In that vein we note that the unemployment rate printed at 3.7 per cent in January and April, only to fall back again in subsequent months.”
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