• Unemployment rate rises to 6.4% in July from 6.0% in June
• ABS has changed the definition of ‘actively looking for work’ which has raised the unemployment numbers
• Employment fell just 300 in July (NAB +20K, Mkt +13K) while the participation rate rose to 64.8% from 64.7%
• A fall in employment and a rise in the participation rate hasn’t happened this century
• Despite the higher unemployment rate, we are near a peak, even if that peak is now around 6.5-6.6%. Leading indicators point to solid employment growth ahead, so the RBA would not be too alarmed by today’s outcome. They may have edged a touch closer to an easing bias, but their continued insistence that rates are low enough to support activity means no rate cut is likely on the back of this data alone

The Australian unemployment rate rose to 6.4% in July from 6.0% in June (to 2 decimal places it rose to 6.38% from 6.05%, so a 0.33 point rise). The ABS has suggested that changes to the definition of ‘actively looking for work’ did not have a ‘significant impact’ on the number of unemployed, but there was clearly some upward effect. In July the working-age population rose 26K, and there was also an increase in the participation rate of 1.4bps to 64.8%, with all these people (in net terms) joining the unemployment queue. In total, the number of unemployed rose 44K in July, the biggest monthly jump in almost two years.
On the measurement changes, the ABS has introduced a couple of changes to the definition of ‘actively looking for work’. Included in the new definition are attending a job interview or taking steps to start a business (which would increase the number of unemployed), while now excluded are checking notice boards or registering with Centrelink as a job seeker (which would now decrease the number of unemployed). The changes do not affect the employment numbers, but obviously the net impact of the changes has been a rise in the unemployment numbers.

The fact that the participation rate rose when employment fell is a give-away that there was some impact from the changes. It is so rare to see monthly employment fall when the part-rate goes up, it hasn’t previously happened this millennium. We estimate the rise in the participation rate added around 0.2pps to the unemployment rate

The employment result was also disappointing, although the fall of 300 did consist of +14.5K full time jobs, offset by -14.8K part-time jobs. The annual rate of employment growth is still at 0.9%yoy, and only 10K jobs have been created in the past 3 months. The leading indicators continue to point to further employment growth ahead, nearing 1¾%yoy by the end of the year, so we would still expect gains averaging around 15K per month in coming months. With unemployment still trending higher, the new measurement of unemployment means we will likely see 6.5% or 6.6% unemployment in coming months. But despite the higher starting point, we are near the peak if employment growth strengthens in the second half of the year as we expect.

The poor July employment data again highlight how far away we are from a rate hike by the RBA. But while the RBA may have moved very slightly from its neutral stance towards an easing bias, today’s data alone will not prompt a rate cut. The RBA has maintained for some time that rates are low enough to support activity, so as long as we see activity indicators improving (consumption, dwelling investment, confidence, credit, house prices, etc) the unemployment rate should peak in the next couple of quarters, with a downward trend emerging through 2015.

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