Jobless rate climbs to 4.5% in unexpected hit

The weaker-than-expected jobs data showed the number of employed people dropped by 15,800, seeing the jobless rate climb 0.1% to 4.5%.

That equals its highest level since November 2021 when the jobs market was still recovering from its pandemic hit.

But the weakness wasn't just in the number of people employed.

The employment-to-population ratio (63.9%) and the participation rate (66.9%) both fell by 0.2% last month, seasonally adjusted.

The number of hours worked also fell 0.6% (12 million less hours in the month) compared to the previous month.

Loss of part-time jobs

July's job losses were largely driven by a significant fall in part-time employment (down 32,000 workers) although full-time employment increased.

The underemployment rate - people wanting to work more hours - also dropped slightly to 6.4% but remains well above the 5.9% recorded three months ago.

Underemployment rates can climb as cost-of-living pressures bite and people want to work more hours to keep pace.

The number of unemployed people also increased by 4,200 in July.

In the Australian Bureau of Statistics' state-by-state breakdown, Victoria and Tasmania recorded the highest unemployment rates at 5.1%, at least 0.6% above other states.

Both states are seeing their highest jobless rates since 2021, while the ACT recorded the lowest unemployment rate at 4.0%.

What does the jobs data mean for the economy?

The softening jobs market is a signal Australia's higher interest rates are beginning to bite.

In a statement accompanying last week's Reserve Bank cash rate decision, the central bank noted labour market conditions had eased "a little more than expected in recent months".

The Reserve Bank forecast the unemployment rate to average 4.5% towards the end of 2026, eventually lifting to the 4.8% mark in 2028.

But this was not a bad thing in the eyes of the central bank with governor Michele Bullock saying "less tightness" in the labour market was needed to bring down inflation.

Jobs and wages data in step

The latest jobs figures are also consistent with Wednesday's Wage Price Index data showing private sector wages growing at their slowest pace in four years.

Overall, analysts agreed relatively modest annual wages growth of 3.2% was not enough to fuel inflationary pressures. 

This week's economic data supports market expectations of no further cash rate increases in the near term, given both data sets came in weaker than expected.

This indicates monetary policy, in the form of three interest rate increases to kick off 2026, is having its intended effect.

But another key piece of the puzzle will be next week's July inflation data, due to be released on Wednesday.