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Australia’s unemployment rate surged to 4.5% in September, marking its highest level in almost four years. The unexpected jump caught economists off guard, suggesting that the previously resilient labor market is starting to cool.
The latest data released by the Australian Bureau of Statistics (ABS) on Thursday indicated a 14,900 increase in employment in September, falling short of forecasts for a rise of 20,000. Meanwhile, more Australians found jobs or started looking for one, slightly lifting the participation rate to 67%.
The significant increase in joblessness is a sign of a cooling economy, as employers reduce hiring and consumer demand weakens. The increase from 4.3% to 4.5%, analysts say, is a sign that the month-to-month flow of hiring has entered a decisive turn following months in which employment growth went on steadily and uneventfully, mainly overlooked by markets, politicians, or millions of less at-risk workers.
Full-time employment ticked down a step, with the increase in part-time jobs, which is often suggestive of weaker underlying demand, offsetting that decline. There are indications that the high interest rates, currently at 3.6%, are beginning to bite, economists say.
Australia last had an unemployment rate at this level in late 2021, toward the end of the pandemic recovery.
Markets bet on rate cuts
Financial markets quickly absorbed the news. Australian three-year government bond yields 11 basis points in the sharpest one-day fall since May, as investors bet Australia’s central bank would be compelled to cut interest rates by November. The Australian dollar was down about half a percent, indicating an increased likelihood of easy monetary policy.
The chances of a rate cut next month now sit at about 70%, according to Bloomberg data. The RBA will cut the cash rate to 3.35% if future figures, due later this month, show that price pressures are abating, economists believe.
The economy was in a ‘pretty good spot’, and inflation should not drift out of the 2–3% target band over the course of the medium term, said Governor Michele Bullock in recent testimony to a parliamentary committee. However, she also noted that policy settings are still “marginally tight,” implying there is room to loosen them should growth falter.
Minutes from the RBA’s September meeting showed that the board had dismissed a rate cut as counterproductive, citing fears that it might push up inflation again by tightening the labour market too much. But the latest unemployment numbers could alter that calculus.
Marcel Thieliant of Capital Economics said the latest job figures likely paved the way for the Reserve Bank of Australia to cut interest rates sooner rather than later. He noted that the central bank would view the data as further evidence that its restrictive policy measures were successfully dampening demand.
Global headwinds test Australia’s resilience
The Australian economy has been slowing since early 2024, primarily due to reduced consumer spending and global uncertainty. The slowdown in China, the country’s biggest trading partner, has blunted exports — especially of iron ore and coal.
Geopolitical tensions and shifting U.S. trade policies have also heightened uncertainty in global markets. U.S. Treasury Secretary Scott Bessent recently warned that Washington may continue its tariff freeze on Chinese imports, but warned that any new export controls by either party could still force fresh tensions between the two economic titans.
For Australia, an extended slowdown in China could continue to weigh on demand for key exports and exacerbate domestic economic headwinds.
Still, compared with other advanced economies, policymakers say Australia is in a good position. Inflation has moderated consistently, real wages are starting to increase, and population growth from immigration remains in place to support long-term demand.
And yet, economists caution that the RBA has a difficult balancing act; lowering rates too soon might stoke inflation, and waiting too long might exacerbate the slowdown.
ANZ senior economist Catherine Birch said the latest data highlighted the delicate balance the Reserve Bank of Australia had to maintain. She explained that with unemployment rising and inflation cooling, the case for easing policy was stronger, though not without risks.
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