Unemployment in Australia reached the lowest level in half a century

In July, Australia witnessed its lowest unemployment level since 1974. At the same time, the country's Reserve Bank (RBA) announced tightening of monetary policy.

Partial employment has also been on the turn during the reporting period, falling by 40,900 jobs. Thus, analyst’s forecasts for an increase by 25,000 fell short of the target. A reduction was certainly a surprise to markets and led to a yield decrease of the Australian dollar and government bonds.

The Australian Department of Labor announced a record low unemployment rate reaching 3.4%. Along with this, the participation rate of the working population also declined. The key reason is the school holidays. In addition, the outbreak of COVID-19, as well as massive floods on the east coast, had a bearing over the labor force job search.

Contradictions in the labor market, coupled with low wages, could prompt the RBA to raise interest rates by 25 basis points. As a matter of fact, Australia has already experienced a three-phased rate growth, amounting to 1.5%.

“Recently, the pandemic has resulted in changes of employment level during the school holidays,” noted Diana Musina, an analyst at AMP Capital Markets. “Odds that the estimated employment growth to be a little on the high side are relatively good.”

Despite the mentioned facts, September is expected to have a fourth interest rate increase by 50 basis points, reaching 2.35%.

“However, the risk of a 0.25% rate growth is still high,” Musina added. "The central bank may also consider raising rates by 40 basis points, which would signal a slowdown in monetary tightening."

The Australian economy is operating at near full capacity as of today. Vacancy rate gains momentum, and it is likely to further reduce unemployment in the country. 

Provided that compensations and benefits increased by only 2.6%, which is less than half the pace of inflation, the labor market cannot boast of substantial wage growth.

Current statistics also contain the following data:

• Participation rate of the active force decreased from 66.8% to 66.4%.
• The Australian unemployment rate hit the lowest in 48 years.
• Monthly hours fall by 0.8%.
• Underemployment reached 6%.
• Full-time jobs decreased by 86,900, while part-time ones increased by 46,000.