Australia’s employment data gives RBA flexibility for tightening

In July, Australia's employment unexpectedly dropped, giving the Reserve Bank scope for a more flexible approach in its tightening cycle.

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The economy shed 40,900 jobs from a month earlier, causing confusion about expectations for a 25,000 gain, according to the data released by the Statistics Bureau on Thursday. The Australian dollar and government bond yields were lower because of the surprise reduction.

The unemployment rate fell to 3.4%, a 48 year low, as the participation rate declined, according to the report. The latter reflected the floods along the nation's east coast, a renewed Covid outbreak and school holidays that all discouraged job hunters.

Cross-currents in Australia's labor market combined with weaker than expected wages data on Wednesday might give the RBA the option of returning to quarter-percentage point interest-rate increases after three straight half-point hikes. The bank reiterated this week that it isn't on a pre-set path.

Covid has created more variation in employment during school holidays, according to Diana Mousina, senior economist at AMP Capital Markets. The weakness in employment growth is probably overstated. Most economists believe that the RBA will slack off the unexpected decline in the often volatile jobs report and execute a fourth half-point hike in September to bring the cash rate to 2.35%.

Mousina said that the risk of a 25 basis point hike is very high. The central bank could consider a 40 basis-point increase, which would signal that it is slowing its pace of tightening. A 40 basis point hike to 2.25% next month is also implied by overnight-indexed swaps.

Today s data defied private business surveys that show the economy is near full capacity. The RBA predicts that unemployment will fall further and job vacancies are hovering around record highs.

The reopening of the international border has resulted in a surge in net migration, boosting working-age population growth. Once the disruptions subside, labor supply could have a significant impact on labor market dynamics. Australia hasn't seen a significant increase in wage growth because of the tight labor market. The wage price index grew 2.6% on Wednesday, less than half of the pace of inflation.

Treasurer Jim Chalmers is focused on driving higher wages and productivity gains, and has announced a Jobs Skills Summit next month.

After the wages report, Chalmers told reporters that wages are starting to pick up but not nearly as much as inflation, which is eating into living standards.

That seems premature given that forward-looking measures of labor demand, such as job vacancies, remain incredibly high. None of the women are Smashing the Concrete Ceiling as Labor Shortages Leave a Void, despite the fact that none of them are smashing the Concrete Industry's Concrete Ceiling.