Rising Unemployment Sparks Interest Rate Cut Debate in Australia

Rising Unemployment Sparks Interest Rate Cut Debate

Melbourne, Oct 16 (The Conversation) — The Australian unemployment rate is once again on the incline. According to the latest official labour force statistics released last Thursday, the seasonally adjusted unemployment rate rose from 4.3% to 4.5% for September. This marks the highest figure since November 2021 and may strengthen arguments for the Reserve Bank of Australia (RBA) to consider a potential interest rate cut in November.

About a year ago, Australia’s unemployment rate stood at 3.9%. It has consistently exceeded 4% for ten consecutive months, trending only upwards.

Implications for Interest Rates

In recent deliberations, the RBA’s monetary policy board has shown responsiveness to inflationary pressures while maintaining a positive view on labour market conditions. Yet, in its September decision, the board noted that "labour market conditions have been broadly steady in recent months and remain a little tight." This sentiment might need reassessment given the latest unemployment figures.

Charged with maintaining "the maximum level of employment consistent with low and stable inflation," the RBA's current unemployment rate exceeds many estimates of full employment.

Slowing Employment Growth

The rising unemployment rate can be attributed to decelerating employment growth. In 2024, an average of 32,600 new people found jobs per month, closely aligning with the 33,900 seeking work, thus stabilizing unemployment.

However, in 2025, an average of only 12,900 new jobs have been created monthly. Although the number of job seekers grew less dramatically, by 22,100 on average, the gap between job seekers and job creation has widened, increasing unemployment.

Indicators of a Cooling Job Market

Various statistics confirm a cooling job market. Monthly average hours worked grew by 0.27% in 2024 but only 0.04% in 2025 thus far. In 2024, the total number of jobs climbed by 351,600, whereas in the first half of 2025, it increased by merely 44,100. Additionally, underemployment — defined as the proportion of those employed who wish to work more hours — has risen from 9.9% to 10.4% since the end of 2024.

The Role of Government Spending

Surprisingly, the slowing employment growth is linked to government expenditure trends rather than anticipated reasons. Since mid-2021, the non-market sector, encompassing healthcare and social assistance, education and training, and public administration and safety, has buoyed Australian employment growth.

This growth resulted from governmental initiatives enhancing service quality and expanding programs like the National Disability Insurance Scheme (NDIS) and childcare services. While a deceleration in government spending on such services was anticipated, causing potential employment growth slackening, that is not the prime factor behind the 2025 slowdown.

Market Sector Employment Decline

Current data indicates the non-market sector’s total hours remaining stable from prior years. Instead, a decline in the market sector’s employment rate — driven by private employers scaling back on new job creation due to perceived weaker economic conditions — presents another clear sign of a softening labour market. (The Conversation) GRS GRS

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