A surprise uptick in unemployment could be a silver lining for Australian borrowers, with the chances of another interest rate cut possibly back on the cards for 2025.
The jobless rate jumped from 4.2 per cent to 4.5 per cent in September, according to data from the Australian Bureau of Statistics (ABS).
It's a nearly four-year high, blowing away economists' forecasts of a steady 4.3 per cent and prompting fresh questions about the tightness of the labour market.
The labour force figures will be a crucial indicator for the Reserve Bank of Australia (RBA) on whether to further cut interest rates from 3.6 per cent when it next meets on 4 November, which is Melbourne Cup day.
How much has unemployment grown?
The RBA had expected some cooling in September's jobs data but neither the central bank, nor scores of analysts and economists, had tipped anything near the 4.5 per cent jobless figure.
The September figure is the highest since November 2021.
Unemployment rose by 34,000 during the month, with the number employed rising by 15,000.
Sean Crick, ABS head of labour statistics, said: "As a result of these increases, the participation rate rose by 0.1 percentage points to 67 per cent, although this is below the record high of 67.2 per cent we saw at the beginning of the year."
Total full-time employment has risen by 9,000 for the month, which came from a rise of 23,000 men in full-time roles.
The number of women in full-time roles dropped by 15,000, while hours worked rose by 0.5 per cent in September.
What does it mean?
Alex Joiner, chief economist at IFM Investors, spoke to SBS' On The Money podcast. He said while the labour market is a "lagging" indicator, it does give us some insight into how the economy is tracking.
"We've seen some green shoots in the broader economy in the activity indicators and consumer sentiment has picked up a little bit ... so it gave us a little bit of hope that the consumer and household sector more broadly would start to open their wallets and spend a little more," he said.
"That's good for the economy and good for employment growth.
"But the rate of recovery is fairly measured. We're not seeing unambiguous signs of recovery, we're seeing tentative signs of recovery, and that's probably what's being reflected in the labour market."
Before the release of the unemployment numbers, Reserve Bank governor Michele Bullock said employment was a little bit "tight", which broadly meant there were more jobs than available workers.
"We look at a lot of different indicators of the labour market, so those two things [inflation and employment] suggest to us that maybe it's a little tight, but it's close to balance," she said.
But Joiner said the unemployment rate has "ticked up above where the RBA thought it might be".
"The RBA has characterised the labour market as still somewhat tight," he said.
"They may need to reassess that somewhat in light of these numbers.
"This increase in the unemployment rate has taken the RBA a little bit by surprise and that will have to feed into the board's thinking on where policy settings should be."
Is another interest rate cut on its way?
Some economists have noted the shock jobless figures could pave the way for another interest rate cut in 2025, though they also expect the Reserve Bank to be "conservative".
The higher jobless rate meant homeowners could get a mortgage reprieve soon, NAB senior markets economist Taylor Nugent said.
"Today's outcome clearly makes a November cut a higher probability than would have been the case had today's number been near our and consensus expectations," he told AAP.
"We continue to expect a hold as the RBA awaits more clarity on the outlook given the inherent month-to-month volatility."
Commonwealth Bank economists continue to predict one more rate cut in this cycle, with February 2026 the base case. While they note that there's now a "higher chance" of a cut in November, they say sticky inflation may delay action.
Commonwealth Bank's head of Australian economics, Belinda Allen, said: "This is a classic case of conflicting signals."
"Inflation has been a little stronger, consumer spending is rising, but employment growth has slowed more than expected. Until the tension between inflation and labour market is resolved, we expect the RBA to remain cautious and watchful of the data flow," she told AAP.
For Joiner, the figures are a sign the RBA will be in a "bind" and doesn't think it would cut rates at the next meeting.
"The unemployment rate is uncomfortably high for where the RBA expected it to be … The unemployment rate is rising, but inflation is also starting to potentially accelerate.
"It can't go into its November meeting saying the unemployment rate has risen, so let's cut rates immediately — it has to be concerned about the inflation outlook too."
— With additional reporting by Australian Associated Press
