Australian labour market data for July released today showed an unexpected decline in employment, an unexpected increase in the unemployment rate, and a small decline in participation. This suggests that conditions may be moderating in response to substantial policy tightening by the Reserve Bank of Australia since mid-2022. RBA officials have paused this tightening at their last two meetings, and today's data will likely strengthen the case to remain on hold again at their next meeting nearly next month.

The number of employed persons in Australia fell by 14,600 persons in July after an increase of 32,600 in June, in sharp contrast to the consensus forecast for an increase of 15,000. Full-time employment fell by 24,200 persons in July after increasing by 39,300 persons in June, while part-time employment rose by 9,600 after falling by 6,700 previously. Hours worked rose 0.2 percent on the month after increasing 0.3 percent previously. Officials advised that there has been some changes in normal seasonal patterns relating to leaving and starting a job and taking leave around the time of mid-winter school holidays.

Today's data also show the unemployment rate increased from 3.5 percent in June to 3.7 percent in July, above the consensus forecast of 3.5 percent. The participation rate eased from 66.8 percent to 66.7 percent. Nevertheless, both the unemployment and participation rates suggest that conditions in the labour market remain relatively tight.

At a consensus rise of 15,000, employment in July is expected to fall back versus June's 32,600 and May's 76,600, both of which were much higher than expected. Unemployment is expected to hold at 3.5 percent.

The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labour force.

This report is used as an indicator of the health of the domestic economy. Employment trends highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.

The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.

The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.