Australia’s labour market showed further signs of cooling in August, with the unemployment rate rising to 4.6%, from 4.5% in July, its highest level since 2021. The increase was unexpected, although employment still rose by 39,500 people. The participation rate increased 0.2% to 67.1%, while the employment-to-population ratio edged up to 63.9%, indicating that the rise in unemployment was partly driven by continued growth in the number of people entering the labour force. Underemployment eased to 6.2%, while the underutilisation rate remained at 10.8%.
The composition of employment growth was less encouraging, with an increase in part-time employment offsetting a smaller decline in full-time employment. This is consistent with a gradual moderation in labour demand, with businesses reducing hours rather than necessarily cutting headcount. Nevertheless, hours worked rebounded 0.7% in August and remain 1.7% higher over the year, while total employment has increased 1.6%, suggesting the labour market is cooling rather than experiencing a sharp deterioration.
From the RBA’s perspective, the data provides evidence that the labour market is loosening, but likely not enough to alleviate concerns around domestic inflationary pressure. Governor Michele Bullock said earlier this week that unemployment may need to rise towards 5% to sufficiently reduce labour-market pressures. The combination of continued employment growth, near-record participation and a stable employment-to-population ratio indicates that labour-market conditions remain relatively resilient despite tighter financial conditions.
Accordingly, the data has done little to alter expectations of further monetary policy tightening, with market pricing for a rate increase at the RBA’s September meeting next week remaining around 96% following the release. However, the rise in unemployment and shift towards part-time employment provide some evidence that tighter financial conditions are beginning to weigh on labour demand, which could become increasingly relevant to the outlook beyond September.
Source: Australian Bureau of Statistics, Labour Force, Australia, August 2026.
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