Australia’s Tight Labour Market Expected to Ease, Central Bank Reports – Reuters

SYDNEY (Reuters) – Australia’s central bank reported on Wednesday that the labor market remains tight, though it is gradually moving towards balance as high interest rates work to temper demand, which is expected to lead to a mild economic downturn.

In a speech in Sydney, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter stated that current labor market conditions are tighter than the estimates for full employment, with unexpected resilience in hours worked, underemployment, and participation rates.

However, the labor market is showing signs of easing, with unemployment rising to 4.2% in July, up from last year’s low of 3.5%. The RBA anticipates this trend to continue as population growth surpasses job creation, prompting companies to reduce hours.

“Our current assessment indicates that the recent softening of labor market conditions resembles mild downturns in Australia’s historical context,” said Hunter, who leads the central bank’s economics unit. “There’s also a chance our assessment could be incorrect; conditions might be tighter than anticipated, or labor demand could grow more robustly than we expect.”

The RBA has increased interest rates by 425 basis points to a 12-year high of 4.35% in an effort to control inflation, yet the labor market has remained unexpectedly strong, with the economy adding jobs at a healthy rate.

This resilience is one reason why policymakers have consistently indicated that a rate cut this year is unlikely. Nevertheless, markets are still predicting an 84% chance of a cut in December, particularly as other major central banks adopt looser policies.

Hunter noted that Australia’s participation rate is reaching record highs, a trend that has been surprising and diverges from the patterns observed in many peer economies. This rise is partly attributed to a long-term increase in female participation and a growing number of individuals holding multiple jobs.

Employment growth has also benefited from a resurgence in migration, which has bolstered both labor supply and demand. Hunter pointed out signs that the easing labor market is beginning to impact wage growth, which is likely past its peak and is expected to further decline.