Australia’s Cooling Labour Market Leaves November Rate Hike on the Table

Australia’s latest employment data has delivered mixed signals for the Reserve Bank of Australia (RBA), with falling employment suggesting a cooling labour market while the unemployment rate remains high enough to raise concerns about economic conditions. Economists remain divided over whether the slowdown will be sufficient to prevent another rate increase in November.

Labour Market Weakness May Not Prevent a Rate Hike

BetaShares chief economist David Bassanese said September’s unexpected employment decline should be treated cautiously because recent monthly figures have been volatile. He considers the unemployment rate a more reliable indicator of the underlying trend.

At 4.7%, unemployment is approaching the RBA’s estimate of full employment. However, Bassanese believes labour market conditions have not weakened enough to remove pressure on the central bank if inflation remains persistent.

Job vacancies and hiring intentions also continue to indicate reasonably firm labour demand. Bassanese’s base case is that the RBA could raise rates again on Melbourne Cup Day, although the upcoming consumer price index (CPI) report will be critical to the decision.

Moody’s Sees Further Signs of a Cooling Jobs Market

Moody’s Analytics offers a different interpretation of the employment outlook. Its head of Australia economics, Sunny Nguyen, said labour demand is weakening, with a higher proportion of people unemployed in August remaining without work in September than in the same months of recent years.

Nguyen also pointed to businesses reducing shifts and casual hours while retaining full-time employees, a pattern that can signal an early hiring downturn. Lower workforce participation may also mean the headline unemployment rate understates the weakness developing in the labour market.

Moody’s expects the RBA to hold rates in November, provided quarterly inflation does not surprise sharply to the upside, while warning that unemployment could rise more than expected next year.

Inflation Remains the Key Factor

Global inflation risks continue to complicate the outlook. Bassanese highlighted higher-than-expected US consumer inflation, elevated oil prices and ongoing tensions between the United States and Iran as factors that could sustain price pressures.

These risks mean weaker employment alone may not be enough to change the RBA’s approach. The central bank’s decision will depend on whether inflation data provides sufficient evidence that price pressures are easing.

What Investors Should Watch Next

The upcoming quarterly CPI release will be crucial in determining whether the RBA raises rates or holds in November, with implications for borrowing costs, household spending and business confidence.

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