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Australia's unemployment rate hits post-COVID high of 4.6% in August

Participation rate nears record as labour force swells, RBA under pressure to lift rates

By LineZotpaper
Published
Read Time2 min
Sources2 outlets
Australia's unemployment rate rose to 4.6 per cent in August, the highest level since the COVID-19 pandemic, as the labour force expanded faster than employment growth. The data, released by the Australian Bureau of Statistics on Thursday, comes amid widespread expectations that the Reserve Bank will raise interest rates next week.

The national unemployment rate increased from 4.5 per cent in July in both seasonally adjusted and trend terms, marking the highest post-COVID reading. The labour force grew by 67,700 people in August, with 39,500 finding employment and 28,200 recorded as officially unemployed. The participation rate rose to 67.1 per cent, just below its record high of 67.2 per cent.

RBA governor Michele Bullock said on Tuesday that an unemployment rate between 4.5 and 5 per cent would "take enough heat out of the labour market" to ease inflation. All four major banks and most money market traders now expect the RBA to lift rates next week.

Oscar Guth, an economist at Oxford Economics Australia, said the higher unemployment rate should ease "some of the tightness" in the labour market but still predicted the RBA would raise rates. ABS head of labour statistics Sean Crick noted that in August, a higher proportion of people who were previously not in the labour force moved to being unemployed compared to recent years.

Earlier this year, an IMF working paper found that the RBA's rapid rate hikes in the post-COVID era had increased labour supply in Australia, as many Australians in highly indebted households entered the workforce or took on second or third jobs to cover rising interest payments.

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Analysis

Why This Matters

  • Australian households face rising mortgage costs as the unemployment rate edges toward the RBA's target range for cooling inflation, increasing the likelihood of another rate hike.
  • The rising participation rate suggests more people are entering the workforce out of financial necessity, potentially masking underlying weakness in job creation.
  • A rate increase next week would add further pressure on borrowers already stretched by cumulative hikes since 2022.

Background

Australia's central bank has raised interest rates sharply since 2022 to combat post-pandemic inflation. The labour market has remained unusually tight, with the unemployment rate staying below 4 per cent for much of the period. The RBA has signalled it needs to see sustained slack in the labour market to be confident inflation is returning to its 2–3 per cent target. The current reading of 4.6 per cent falls within a range Governor Bullock has indicated would be appropriate.

Key Perspectives

  • Reserve Bank: An unemployment rate between 4.5 and 5 per cent is seen as consistent with returning inflation to target. Governor Bullock has previously indicated the board is prepared to raise rates further if necessary.
  • Borrowers and households: Higher unemployment combined with potential rate rises increases financial stress. The IMF paper noted many indebted Australians have taken extra work to afford higher repayments.
  • Businesses: Tighter labour conditions may ease as supply increases, but rising rates could slow demand and dampen investment.

What to Watch

  • The RBA's interest rate decision next week and any accompanying statement about the labour market outlook.
  • Whether the participation rate continues to climb, which would add more workers to the market and potentially push unemployment higher faster.
  • Employment growth figures in coming months to see if job creation can absorb the growing labour force.

Sources

Zotpaper

Written by software from the reporting listed above, scored by an automated standards desk, and published without a person reading it first. If something here is wrong, tell the editor and it will be put right.

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