Australia’s unemployment rate inched up slightly to 4.1% in June, according to the Australian Bureau of Statistics (ABS).This minimal increase, less than 0.1 percentage point from May, shouldn’t overshadow the positive signs in the job market.
The economy added roughly 50,000 jobs in June, despite the small rise in unemployment. Labor market participation remains strong, with a rate of 66.9% nearing its record high. This indicates a continued willingness among Australians to be engaged in the workforce. Furthermore, the number of job vacancies continues to be high, suggesting a strong demand for workers despite the uptick in unemployment. This points to a tight labor market where qualified individuals are still very much in demand.
There’s also a potential shift towards full-time work schedules. Hours worked climbed by 0.8% in June, which could be due to a decrease in annual leave taken compared to pre-pandemic trends. This suggests a return to normalcy following the rapid economic recovery of 2023. The underemployment rate also dipped to 6.5%, reflecting a decrease in those working part-time while seeking full-time positions.
The slight rise in unemployment shouldn’t be a cause for alarm. It’s a small change in a job market that continues to demonstrate its strength. High participation rates, job growth, and a decrease in underemployment are all positive indicators. This uptick might simply be a sign of stabilization following a period of rapid economic change.
CreditorWatch’s, Chief Economist Anneke Thompson, said: “The Labour Force data will likely be taken as benign by both markets and the RBA. Trend unemployment has remained flat at 4.0 per cent for four straight months now, while the trend employment to population ratio has been relatively steady at around 64.1 per cent since mid-2022. This indicates that while jobs growth has been strong, it has broadly kept up with population growth since the re-opening of borders in mid-2022. The unemployment rate remains well below pre-Covid levels, and labour force conditions are still strong, though not over-heating. Overall, this is positive news for the RBA, who are keen to maintain strong employment while getting inflation back into the target band – the ultimate threading of the needle. So far, they are succeeding on the employment side, but it remains to be seen if inflation can be pushed back into the band at the current monetary policy setting.
“All CreditorWatch’s leading indicators derived through our Business Risk Index (BRI) data for June 2024 point to slowing business conditions over the next 12 months. Inventories are being run down, and the average value of invoices held by businesses has fallen 49.9 per cent over the year to June 2024. We expect that with slowing business conditions, employment growth will slow down considerably over the latter half of 2024 and in to 2025, pushing the unemployment rate up. In terms of the fight against inflation, this is good news. And given that the unemployment rate will be rising off such a low base, the RBA still has a chance of maintaining close to full employment, even if the unemployment rate reaches 4.5 per cent.”
How SMEs are affected
When central bank interest rates are low, small and medium-sized enterprises (SMEs) benefit from reduced borrowing costs. This enables them to secure loans for business expansion, equipment upgrades, or inventory purchases at more favorable rates. As a result, SMEs experience improved cash flow and profitability, which can further fuel business growth.
Cheaper access to credit encourages SMEs to invest more in their businesses, fostering growth and creating jobs. This increased investment not only benefits the SMEs but also stimulates the overall economy. Lower interest rates typically align with a robust economy, leading to heightened consumer spending. SMEs that depend on consumer demand for their products or services see a positive impact on their sales and revenue.
Rising rates and their challenges
When interest rates rise, borrowing costs increase for SMEs, squeezing profit margins and making it harder to invest in growth initiatives. This financial strain can lead to reduced hiring or even layoffs as businesses tighten their belts. Existing loans become more expensive to service as interest rates climb, putting additional pressure on SME cash flow. This can limit their capacity for future investments and innovation. Rising interest rates often signal economic uncertainty, which can dampen business confidence. SMEs may become more cautious, avoiding risks such as expanding operations or launching new products.
The effect of interest rate changes varies across industries. For example, sectors like construction, which rely heavily on borrowing, may feel the pinch more acutely when rates rise. SMEs with strong financial health might turn to alternative funding sources to mitigate the impact of rising interest rates, allowing them to continue their growth trajectories despite a more challenging borrowing environment.
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