A mixed labour market report will keep the Reserve Bank in two minds about cutting rates, with unexpectedly strong growth in people seeking work counteracting an uptick in unemployment.
The jobless rate edged up 0.1 percentage point for the second month in a row to 4.2 per cent in July, broadly in line with consensus forecasts.
But the 58,000 jobs added to the economy in the month were more than the 20,000 employment increase pencilled in by Commonwealth Bank and Westpac economists ahead of the Australian Bureau of Statistics release on Thursday.
That lifted the participation rate to a record high of 67.1 per cent and a near-record high employment-to-population ratio, ABS head of labour statistics Kate Lamb said.
The unemployment rate was the highest since November 2021, but was still one percentage point lower than the pre-pandemic level of March 2020.
“This suggests the labour market remains quite tight,” Ms Lamb said.
The RBA is closely watching the strength of the labour market – a key economic indicator informing its cash rate settings – as it tries to strike the right balance between taming persistently high inflation and avoiding weighing down a stalling economy further.
The readout will do little to change the RBA’s rates strategy, with enough in the numbers for everyone, CBA chief economist Stephen Halmarick said.
He still predicts the RBA board will begin cutting rates in November, despite growing hawkishness from governor Michele Bullock.
“We do think the unemployment rate itself is the key metric that the RBA will be watching,” Mr Halmarick told AAP.
Treasurer Jim Chalmers heralded further data from the ABS showing the gender pay gap narrowed for the fourth period in a row to a record low of 11.5 per cent.
“We are getting on with the job of getting on top of inflation without smashing jobs or the economy,” he said during Question Time.
“More people are working and keeping more of what they earn. We see that in today’s new numbers, despite the much slower growth and international uncertainty that we are seeing in our economy.”
Strength in the jobs market is expected to gradually unwind in an economy already dulled by higher interest rates.
The RBA forecasts the unemployment rate to reach 4.3 per cent by the end of 2024 before plateauing at 4.4 per cent for the next two years.
Despite tepid economic growth, the latest quarterly consumer price index was still well above the RBA’s target range at 3.8 per cent.
Consumers continue to change their spending habits as a result, with thrifty shoppers upping their outlay at discount stores and online marketplaces, according to CommBank’s July Household Spending Insights index.
“A lot of interest was in whether the income tax cuts we have seen were going to fuel a big increase in spending and granted, it’s only one month so far so it’s early days, but overall spending was flat in July,” Mr Halmarick said.
People renting a home continue to be the hardest hit, with renters lifting spending by just 0.3 per cent for the year to July compared with an increase of 3.3 per cent for mortgage holders and 4 per cent for those who own their home outright.
