Australia Labour Market (Jul. 2022)
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Australia Labour Market (Jul. 2022)

We wouldn’t read too much into the first drop in employment since last year’s lockdowns. Indeed, the continued tightening of the labour market should encourage the RBA to press ahead with another 50bp rate hike next month.

Labour market hasn’t turned for the worse just yet

  • We wouldn’t read too much into the first drop in employment since last year’s lockdowns. Indeed, the continued tightening of the labour market should encourage the RBA to press ahead with another 50bp rate hike next month.
  • The 40,900 drop in employment in July fell well short of the analyst consensus of 25,000. The ABS noted that the reference period for the labour force survey coincided with winter school holidays and renewed flooding in New South Wales. However, the 0.5% m/m fall in employment in Victoria was larger than the 0.2% m/m drop in NSW and employment also declined in Queensland and Western Australia. And in contrast to the floods in March, there wasn’t a big rise in the number of employees working fewer hours due to bad weather. Another worrying sign is that the 0.9% m/m drop in full-time employment was the fifth-largest in the 44-year history of the monthly survey. Leaving aside the slump in employment during the 2020 lockdowns, the last time full-time employment fell this sharply was during the 1991/92 recession.
  • However, it’s worth noting that July’s drop in employment followed very strong gains in previous months, with the three-month average still a healthy 36,000. Indeed, job vacancies remain extraordinarily high and business surveys show no decline in hiring intentions in recent months. (See Chart 1.) As such, it’s probably too early to conclude that the labour market has taken a turn for the worse.
  • Meanwhile, the participation rate plunged from the record high 66.8% reached in June to 66.4%, which meant that despite the fall in employment, the unemployment rate edged down from 3.5% to yet another 48-year low of 3.4%. And with the drop in working hours largely driven by more people going on holidays, the underemployment rate also dipped by 0.1%-pts, though it remains above the low reached in May. Taken together, the underutilisation fell further from 9.6% to 9.4%, the lowest it has been since 1982.
  • All told, with the labour market still very tight by historical standards, the Reserve Bank of Australia will continue to tighten policy rapidly over coming months.

Chart : Employment Surveys & Employment

Sources: Refinitiv, Capital Economics

Table : Labour Market Data (Seasonally Adjusted)

Employment (000s)

Full time Empl. (000s)

Part time Empl. (000s)

Labour Force (000s)

Unempl. (000s)

Unempl. Rate (%)

Underutilisation Rate (%)

Participation Rate (%)

May

60.6

69.4

-8.7

68.4

7.8

3.9

9.6

66.7

June

88.4

52.9

35.5

34.1

-54.3

3.5

9.6

66.8

July

-40.9

-86.9

46.0

-61.2

-20.2

3.4

9.4

66.4

Sources: Refinitiv, ABS


Marcel Thieliant, Senior Australia & New Zealand Economist, marcel.thieliant@capitaleconomics.com

Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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