BCEC Monthly Labour Market Update – August 2024

Sustained jobs growth continues to stymie rate cut hopes

Monthly labour force survey estimates continue to defy expectations of a downturn in the labour market. Nationally employment increased by 47,500 persons in August. That’s the third month in a row in which the number of employed persons has increased by more than 45,000 as the labour market absorbs monthly expansions in the working-age population of a similar magnitude, due primarily to high ongoing rates of immigration.

The published unemployment rate remained at 4.2 per cent in rounded figures, but in fact fell by almost 0.1 of a percentage point. This is despite the participation rate remaining at the record 67.1 per cent set in July. Against a declining trend, the number of vacancies advertised on-line also saw a surprise jump in August (+4.8%). Aggregate hours worked were also up for the month (+0.2%).

In recent MLMUs we’ve argued the strength of the labour market has been increasing the chance that the next move by the Reserve Bank will be to raise the cash rate, rather than cut rates. We’ve had some constructive feedback taking issue with that interpretation. However, minutes of the RBA August Board Meeting, released since the July MLMU, vindicate our assessment. Reiterating that returning inflation to the 2-3 per cent target range was their highest priority, the RBA minutes reveal that the Board weighed up the cases for either raising rates or keeping them on hold, with no consideration of cutting rates.

Board members felt the risk of inflation staying higher for longer had increased and “…their tolerance for this timeframe being pushed out further was limited.” That’s a rather blunt warning. Only uncertainty around some of the key economic parameters, and the limited flow of data since the previous meeting convinced them that “…the case to leave the cash rate target unchanged at this meeting was the stronger one.”

The Board meets again on 23 and 24 September. Their tolerance will be further tested by the strong August labour force figures, but we suspect two recent developments will spare homeowners from a rate rise. One is the anaemic economic growth figures released earlier this month, with GDP up by just 0.2 per cent for the June quarter. The other is the US Federal Reserve’s larger than expected cut in US rates of 0.5 percentage points. The US cash rate remains a full percentage point above Australia’s rate of 4.35 per cent, but the reduction in the differential will ease pressure on the RBA to lift rates.

Who is driving record participation rates?

Employment increased in August for both women (+11,000 jobs) and men (+36,400), but with vastly contrasting outcomes across work hours. For women, a sizeable jump in full-time employment was partially offset by a fall in part-time employment. For men, a sizeable fall in full-time jobs was more than offset by a suspiciously large jump in part-time employment (+66,900 part-time jobs, or 4.6 per cent in a single month). Male part-time employment is up by 9.5 per cent over the year to August 2024.

That would lead one to suspect men entering the labour force has been behind the participation rate reaching a record 67.1 per cent in July and August. Over the longer term, participation has trended up as female participation has risen strongly, more than offsetting a trend decline in male participation. The biggest change by age group over the longer term has been for women aged 55-64 years, for whom participation rates have increased from around 20 per cent in the 1980s to now around 65 per cent.
From late 2016 the male participation rate stopped trending down, while the female rate continued to trend up. Having hit a low of 70.0 per cent in September of 2016 (ignoring fluctuations during the pandemic), the male participation rate is now around 1 percentage point higher.

Both the ongoing increase in female participation rates, and the reversal of the decline in male rates can be largely attributed to rising participation of older workers aged 55-64 years and over 65 years. Over the past year, it’s increased participation among older couples – both men and women – that has got us to the current record highs. That’s consistent with a growing number of dual-income households and will partly explain the rise seen in male part-time employment.