Australia’s unemployment rate ticked up for the first time in 10 months during August as more Australians looking for work offset a solid rise in employment.
Economists said the figures are a sign the jobs market is close to full capacity, with no signs yet that rising interest rates are weighing on employment numbers.
“Momentum has certainly slowed, but the labour market isn’t deteriorating,” said APAC Indeed economist Callam Pickering, adding that conditions are “holding”.
“The outlook for the jobs market still remains bright.”
The jobs market has been smashing it lately, with more job vacancies than the official estimate of unemployed people for the first time in four decades.
And the unemployment rate, despite ticking up, still remains near historic lows, with ABS estimates of employment and participation both rising during August.
However, despite these remarkably strong job numbers, there is little sign of a commensurate increase in wages growth, which is still puzzling many experts.
KPMG senior economist Sarah Hunter said workers are going to need to be patient for higher pay packets, with slow-moving wage agreements meaning that it is taking a long time for the strong jobs market to be reflected in remuneration.
“Wages growth is there, it’s just taking more time than we want it to,” she said.
Unemployment rises – for the right reasons
Experts were prepared to look through the rise in August unemployment because it was driven by a lift in people looking for work rather than a fall in employment.
Estimates of the participation rate (which measures both those working and people available and willing to work) rose 0.2 percentage points to 66.4 per cent.
Estimates of employment rose by 33,500 jobs – rising by 0.2 percentage points.
These factors combined to lift the unemployment rate from 3.4 per cent to 3.5 per cent.
Dr Hunter said these are signs that the jobs market is so strong that it’s hard for conditions to improve much further – a sign we’ve hit so-called “full employment”.
This is when practically everyone who wants and is able to work can find a job.
“It does look as though we might be reaching full employment capacity,” she said.
BIS Oxford senior economist Sean Langcake agreed, saying the jobs market isn’t improving lately, but isn’t going backwards either.
“We’re tracking sideways,” he said.
“If you look at the past two months, take them together, and we’re basically where we were at the start of June.”
These conditions are expected to continue for the rest of the year.
But beyond that economists expect employment trends will change, because of the sharp rise in interest rates as the Reserve Bank aims to curb inflation.
Higher rates are designed to subdue economic activity among households and businesses, which eventually flows through to weaker jobs market outcomes.
Mr Pickering and Dr Hunter said the jobs market will turn at some time in 2023.
“Forward-looking indicators of the labour market are still positive,” Mr Pickering said. “Certainly, they’re consistent with a tight market over the next six months.
“If rates do continue to rise [a slowdown] is going to be a story for next year.”
Wages growth the missing link
This raises the prospect that the job market may start to turn before workers benefit from the wage growth that low unemployment is supposed to bring.
Despite unemployment falling to historic lows, annual wage growth remains at decade averages, coming in at just 2.6 per cent in the June quarter.
This was much higher than during the pandemic, but below where it was in the early 2010s when the unemployment rate was materially higher than it is now.
Economists say part of the problem is that a sizeable portion of workers are on long-standing enterprise agreements where wages only change once a year.
That could be preventing market conditions from flowing through to wages, but this also means employers may be able to skip past current market tightness.
Mr Langcake said wage growth will be “a big number” in the September quarter as the effects of the industrial umpire’s minimum wage decision flows through.
“The RBA has dampened demand with an eye to making sure quarterly wage pressures at the start of next year [don’t have] runaway strength,” he said.
“There’s no question we’re going to go through a period where real compensation suffers because of really brisk inflation and wages growth moving slowly.
“But I don’t think there’s any risk that all momentum will go out of wages growth over the first half of next year.”
