Signs labour market outlook gloomier than RBA thinks
Economists and the Central Bank predict that the unemployment rate will fall further, but worrying signs show that the employment market may weaken in the future.
Following a shock jump in the unemployment rate to 4.5 percent in September, the unemployment rate is expected to ease slightly and settle at 4.4 percent in the new labor force figures to be released by the Australian Bureau of Statistics on Thursday.
The trend line has been moving steadily upward since the beginning of 2025.
But in their last economic forecast published in November, RBA economists predicted the unemployment rate would remain steady at 4.4 per cent for the foreseeable future.
The bank said several indicators, including low underemployment, an above-average share of firms struggling to find workers, a high ratio of vacancies to unemployed workers, and strong growth in unit labor costs, show that the labor market remains tight.
But this week two surveys measuring consumer and business sentiment painted a bleaker picture.
Unemployment expectations rose to their highest level since the pandemic in the Westpac-Melbourne Institute consumer sentiment index on Tuesday.
“This is consistent with the softening of employment growth in recent months and suggests that households are increasingly uneasy about the labor market outlook,” said AMP economist My Bui.
NAB’s monthly business survey, also released on Tuesday, showed employment conditions have stagnated in recent months.
He said future hiring in the market sector will not be enough to offset the expected slowdown in government-led hiring, meaning job growth will slow and unemployment will rise.
AMP analysts predict that the unemployment rate will rise to 4.6 percent in 2026.
Ms Bui said this would leave room for the RBA to make another cut or two in 2026.
Although financial conditions eased following the central bank’s three rate cuts in 2025, many Australians were still struggling.
Westpac research has found more than one in four Australians earn money through a side hustle, with 28 per cent considering starting a side hustle in the next 12 months.
Westpac national managing director Anthony Mathews said earning extra income to provide financial relief was the main reason for starting a side hustle, according to the survey.
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