Fin-X Rapid Response August 20th

The rise in Australia's July unemployment rate was overstated in the headline data, but participation fell back after a strong June. Overall, the data suggests a gradual cooling in the labour market, consistent with RBA forecasts.

• The published rise from 4.4% to 4.5% in today's Australian seasonally adjusted unemployment rate exaggerates the rise. The official ABS figures show that the increase was from 4.432% to 4.462% when expanded. 

• -15.8k jobs were lost, compared to consensus estimates of a +12.0k increase. However, the June increase was revised up from +76.3k to +80.2k. The two-month net change was therefore just -11.9k.

• The composition was better than the headline. Full-time employment rose +16.3k, while part-time employment fell -32.2k.

• The participation rate fell by -0.1% to 66.9% in seasonally adjusted terms, after rising sharply from 66.7% to 67.0% in June. 

• The employment-to-population ratio fell by -0.2% to 63.9%.

• The underemployment rate fell by -0.1% to 6.4%, and the underutilisation rate fell by -0.1% to 10.8% in seasonally adjusted terms.

• Hours worked fell by -0.6%. Sean Crick, ABS head of labour statistics, said: “There were 12 million less hours worked this month, with those employed full-time working 7 million less hours, and those employed part-time working 5 million less hours.”

• S&P/ASX200 9,066 +0.1%, AUDUSD 0.7119 -0.08%, Aus 2yr 4.56% -3bps, Aus 10yr 5.00% -5bps

Fin-X View

• The details of the July report are less alarming than the headline, and the headline is less reliable than usual due to changes in the sample structure. All of the employment decline was part-time, with full-time employment rising by +16.3k. Underemployment and underutilisation both fell -0.1%, and trend employment still rose by +29.3k.

• However, hours worked were a genuine soft spot. A -0.6% fall in hours against a -0.1% fall in employment continues June's pattern of hours being weaker than staff numbers. Two consecutive months of hours undershooting headcount is more consistent with employers trimming labour input at the margin than with a robust demand environment.

• The slight increase in the headline rate to 4.5% provides some of the loosening the RBA asked for this year. The August Statement on Monetary Policy forecast the unemployment rate at 4.5% by end-2026.

• Overall, we read this as a gradual easing embedded in the RBA's baseline rather than the beginning of a rapid deterioration.  

• Inflation is still the primary concern for monetary policy. We continue to see another rate rise as unlikely despite the market pricing a 66% chance of an increase by February. But supply-side risks remain notably in fuel and food, and the governor has made it clear that any unexpected rise in prices will be met with a higher cash rate.

Disclaimer​

The contents of this communication is prepared by Fin-X Capital Group Pty Ltd (A.C.N. 627 650 293; AFSL 520526). Any advice contained in this communication is general advice and does not take into consideration your personal objectives, goals, needs and financial situation. You should therefore not rely on the information contained in this email to make any investment decisions without first consulting an investment professional such as your financial adviser. Where there is any reference to specific products, you should obtain the relevant Product Disclosure Statement(s) and familiarise yourself prior to making a financial decision. Any unauthorised use of this communication is prohibited. This email (including any attachments) is intended only for the addressee, it may contain information of a privileged and confidential nature. If you are not the addressee of this communication, you must not copy, reproduce, disseminate or use this email and its contents. If this communication has been received in error by you, please inform us immediately and securely delete. Email transmissions cannot be guaranteed to be secure or error free, as such we do not accept any liability for any errors or omissions.