Australia's job market is holding steady, but cracks are starting to show beneath the surface.

The Australian Bureau of Statistics (ABS) says the national unemployment rate remained steady at 4.2 per cent in August, despite significant shifts in the labour market. 

The number of unemployed people dropped by around 10,000, and the number of employed people increased by approximately 47,000. 

The participation rate remained unchanged at its record high of 67.1 per cent.

ABS head of labour statistics Kate Lamb says that employment growth has led to an increase in the employment-to-population ratio, now sitting at 64.3 per cent. 

This ratio is just below the historical high of 64.4 per cent recorded in November 2023. 

Lamb noted that the increase in employment was mainly driven by a rise in male employment, while the employment rate for women remained near its highest levels at 60.6 per cent.

However, broader indicators suggest potential challenges ahead. 

The underemployment rate, reflecting those wanting more work hours, rose slightly to 6.5 per cent. 

Although this figure is lower than pre-pandemic levels, its increase could signal that not all new jobs provide the desired hours for workers. 

Additionally, the underutilisation rate, which combines unemployment and underemployment, remained at 10.6 per cent, a figure still below pre-pandemic levels but indicating that a significant segment of the workforce remains underutilised.

A closer look at the composition of job growth in recent months reveals that many new jobs are government-funded roles in sectors such as education, healthcare, and social assistance. 

These industries have experienced substantial increases in employment, particularly in childcare and aged care. 

However, economists warn that such growth is unlikely to be sustainable in the long term as immigration slows and the demand for government-supported roles stabilises.

While the unemployment rate has increased from its low of 3.5 per cent earlier in 2023, the Reserve Bank of Australia (RBA) has managed to balance the labour market against inflationary pressures. 

The RBA’s approach to managing inflation with less aggressive interest rate hikes compared to other countries, like the United States, has contributed to keeping unemployment relatively low.

Economic analysts caution that Australia’s labour market, though still tight, may soften in the coming months. 

With immigration rates expected to decelerate and growth in key employment sectors slowing, concerns have arisen that unemployment may rise further. 

Additionally, weaker-than-expected economic growth in the second quarter of 2024, which saw only a 1 per cent annual growth rate, could further dampen job creation.