Australia's Job Market Unexpectedly Contracts in July

By Ambar Warrick

Investing.com-- The number of employed people in Australia unexpectedly fell in July, while unemployment decreased slightly as tight labor market conditions failed to result in substantial wage growth.

Data from the Australian Bureau of Statistics showed that the number of employed people in the country fell by 40,900 in July, ducking expectations for growth of 25,000 people. The rate of people participating in the jobs market also dropped to 66.4% from 66.8% in the prior month.

But Australia’s unemployment rate unexpectedly fell to 3.4% from 3.5% in the prior month, and was at its lowest level in 48 years.

While the country’s job market remains tight with an abundance of vacancies, growth in wages has largely lagged inflation. Data on Wednesday showed wages rose at an annual rate of 2.6% in July, far behind an annual consumer price inflation rate of 6.1%.

The Australian dollar showed little reaction to the data, sticking to about $0.6929. Concerns over slowing growth in China, Australia's largest export market, have dented the dollar this week, putting it on course for a weekly drop of nearly 3%.

The surprise dip in the labor market is likely to see the Reserve Bank of Australia (RBA) reconsider more sharp interest rate hikes this year.

The RBA has raised rates four times this year, with its most recent hike of 50 basis points coming earlier in August.

Given that the bank had signaled a data-driven approach to monetary policy changes, it appears likely that today’s jobs reading will factor into the bank’s decision.

Analysts now expect the bank to hold rates at 1.85% when it meets in early September. Still, Australia is grappling with inflation reaching over 20-year highs this year, amid shocks from rising fuel and food prices.