Labour market conditions in Australia tightened further in July, with employment up more strongly than the consensus forecast and the participation rate moving higher. This strength will likely keep the focus of the Reserve Bank of Australia on risks to the inflation outlook.

The number of people employed in Australia rose by 58,200 in July, up from an increase of 50,200 in June. This is well above the consensus forecast for an increase of 22,000. Full-time employment rose by 60,500 persons after a previous increase of 43,300, while part-time employment fell by 2,300 persons after a previous increase of 6,800. Hours worked rose 0.4 percent on the month after increasing 0.3 percent previously.

Today's data also show the unemployment rate rose slightly from 4.1 percent in June to 4.2 percent in July. The participation rate also rose from 66.9 percent to a record high of 67.1 percent.

Employment in July is expected to rise 22,000 versus June's much stronger-than-expected 50,200 gain. Unemployment is expected to hold at 4.1 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.