Australian labour market shows signs of strain amid global economic shifts

By Newsdesk

September 18 2025
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In the latest economic data release, Australia's labour market is exhibiting signs of strain, despite maintaining a relatively low unemployment rate. According to Krishna Bhimavarapu, APAC Economist at State Street Investment Management, the current labour market is nearing its peak, but subtle indicators of weakness are beginning to emerge.

Australian labour market shows signs of strain amid global economic shifts

The unemployment rate in Australia remains at a low 3.3%, primarily buoyed by the incoming rotation group. This figure has prevented an overall rise in the unemployment rate, which would otherwise have been expected given the current economic conditions. Bhimavarapu noted, "If it wasn’t for a low (3.3%) unemployment rate of the incoming rotation group, the overall rate would have risen as well." This suggests that while the headline figures appear robust, underlying issues are starting to surface.

These emerging cracks in the labour market are not as severe as those recently observed in the United States, where economic pressures led to an 'insurance' rate cut. The US Federal Reserve's decision to lower interest rates was driven by more pronounced labour market weaknesses, which have not yet manifested to the same extent in Australia. However, the cyclical nature of full-time employment growth in Australia indicates a downward trend that requires close monitoring.

Bhimavarapu commented on the situation, stating, "The cyclical nature of full-time employment growth shows that it is tiptoeing downward and needs monitoring." This downward trend in full-time employment growth suggests that while the labour market is not in immediate crisis, it is showing signs of softening that could impact economic stability if not addressed.

The Reserve Bank of Australia (RBA) is expected to take note of these signs of labour market weakness, but according to Bhimavarapu, this is unlikely to prompt an immediate rate cut. "We expect the RBA to note this labour market weakness, but do not expect it to lead to another imminent rate cut," he said. This indicates that while the RBA is aware of the potential challenges, it may choose to adopt a wait-and-see approach rather than making pre-emptive policy adjustments.

The broader economic context provides some insight into the challenges facing the Australian labour market. Globally, economies are grappling with the aftermath of the COVID-19 pandemic, supply chain disruptions, and geopolitical tensions. These factors have contributed to economic uncertainties that are impacting labour markets worldwide, including Australia.

Domestically, the Australian economy has been navigating a complex landscape of rising living costs, housing market fluctuations, and shifts in consumer behaviour. These elements are influencing employment dynamics, with certain sectors experiencing more strain than others.

In particular, industries such as retail and hospitality, which were heavily impacted during the pandemic, are still in recovery mode. The transition to remote work and digitalisation has also reshaped the employment landscape, creating challenges and opportunities for workers and employers alike.

As the RBA considers its next steps, it will likely weigh these domestic and international factors carefully. The central bank's primary mandate is to maintain economic stability and employment, and any decision to adjust interest rates will be made with these goals in mind.

For investors and businesses, the current labour market conditions present both risks and opportunities. While a softening labour market could signal economic challenges ahead, it also offers a chance for businesses to attract talent in a competitive environment. Employers who can adapt to changing conditions and offer attractive employment packages may find themselves well-positioned to capitalise on the evolving landscape.

Australia's labour market is at a critical juncture, with signs of strain beginning to emerge despite a low unemployment rate. The RBA's response to these developments will be closely watched by economists, businesses, and investors alike, as they navigate the uncertainties of the current economic climate.

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