RBA rate cuts likely as unemployment rate rises to 4.3 per cent

More than 34,000 jobs were lost in the Australian economy in June, pushing the unemployment rate to 4.3 per cent and raising the chances of a rate cut.

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More than 34,000 jobs were lost in the Australian economy in June, pushing the unemployment rate up to 4.3 per cent – its highest level since 2021 – raising concerns for the Albanese government and pushing the Reserve Bank closer to another interest rate cut.

In a surprise for economists, only 2000 new jobs were added to the economy, well below expectations of 20,000.

While 40,000 new part-time positions were created, more than 38,000 people lost full-time employment, according to official figures from the Australian Bureau of Statistics.

With only a small change in the overall participation rate – those active in the workforce – the latest figures are a concern for Jim Chalmers whose attempts to lift productivity and repair an unsustainable budget depend on strong employment.

The latest figures are also a signal that the Reserve Bank will have to move faster on cutting interest rates.

The bank has shifted its focus from fighting off inflation to one of ensuring full employment.

“The board’s strategy has been to bring inflation down while avoiding a sharp rise in unemployment,” RBA governor Michele Bullock said last week after keeping the official interest rate on hold at 3.85 per cent.

Ms Bullock said the bank would react to employment data and that “the board decided to wait a few weeks to confirm that we’re still on track to meet our inflation and employment objectives”.

The Treasurer said the “tick-up in the unemployment rate is the inevitable consequence of economic uncertainty and volatility around the world”.

“Despite all the challenges coming at us, Australia’s unemployment rate remains historically low and we’re pleased to see the participation rate remains near record highs,” Dr Chalmers said.

Before the jobs data were released financial markets had priced in an almost 90 per cent chance of a 0.25 percentage rate cut at the RBA’s next meeting in August.

Economists said that while the jobs numbers were not setting off alarm bells they would accelerate the RBA’s rate-cutting plans.

Oxford Economics’s Harry Murphy Cruise said the weak numbers followed “a meek” reading in May.

“Back then we weren’t convinced the data signalled a sharp rise in joblessness was looming,” he said. “And while we’re still not ringing the alarm bells, June’s slackening is another good reason for the RBA to get a wriggle on with rate cuts.”

ABS head of labour statistics Sean Crick noted that Australians also worked fewer hours, falling 0.9 per cent in June, after having risen 1.4 per cent in May. It was the largest monthly decline in more than two years.

“This month we saw a decrease in full-time hours worked, down 1.3 per cent, associated with a 0.4 per cent fall in full-time employees,” he said.

Goldman Sachs chief economist Andrew Boak said employment conditions clearly indicated there was now pressure on the RBA to cut.

“The data also support our view that Australia’s labour market is no longer ‘tight’ and should not be a barrier for further cuts,” he said.

NSW recorded a large increase in unemployment, up 0.3 percentage points to 4.4 per cent. Victoria was up to 4.6 per cent unemployment, while Queensland hit 4.1 per cent.
Opposition Treasury spokesman Ted O’Brien leapt on the worse-than-expected jobs numbers.

“Today’s increase in the unemployment rate to 4.3 per cent is yet another sign the Albanese government is failing to manage the economy,” he said.

“Labor promised to create secure jobs and strengthen the economy, but the reality is rising unemployment, falling hours worked and weak full-time job creation.”

Market Insights economist David Bassanese said the results were volatile and should be “taken with a grain of salt”.

“It’s probably premature to conclude that employment growth is slowing in a meaningful way,” he said.

“This judgment is supported by still reasonably solid hiring intentions and anecdotal reports of labour shortages across several sectors.

“Given the inherent volatility in labour market data, today’s results need to be taken with a grain of salt.

“We’ll need more consistent signs of weakness in both employment and hiring indicators before we can conclude the labour market is turning.

“That said, today’s result clearly adds to the case for a RBA rate cut at the August policy meeting provided next week’s second-quarter inflation report is not a shocker.”

Commonwealth Bank Group economists expected the economy to add around 20,000 new jobs in June, with the unemployment rate unchanged at 4.1 per cent.