The unemployment rate jumped to 4.5% last month — the highest in almost four years — in a surprise result that adds pressure on the Reserve Bank of Australia (RBA) to consider cutting interest rates.
Economists had tipped the September jobless rate to hold at 4.3%, unchanged from August. Instead, the number of unemployed rose by almost 34,000, outweighing modest employment gains of 14,900. With both employment and unemployment rising, the participation rate — the share of working-age Australians who are employed or actively looking for work — edged up to 67%.
The shock result landed just hours after RBA governor Michele Bullock warned the labour market was “possibly a bit tight,” and that, alongside stronger-than-expected inflation, the central bank was weighing whether further rate cuts were needed. “We talked about that coming out of our latest board meeting – that these sorts of things were giving us a little bit of time to think about whether or not there’s more easing to come or not,” she told a forum hosted by Japanese investment bank Nomura.
Today’s soft jobs report confirms the Australian labour market is cooling quickly — a trend that became notable a few months ago and more obvious after the August release. As IG Markets noted after that report, “The simultaneous decline in employment and participation signals a faster-than-expected cooling in Australia’s labour market” and “today’s jobs report suggests downside risks are mounting and the RBA’s forecast of a 4.3% unemployment rate by December 2026 may now face upward pressure.” IG
The RBA has acknowledged in recent months that some cooling was expected. However, nowhere in its most recent forecasts (August SoMP) did it project the unemployment rate rising to anything like 4.5% in the next few years.
Labour data complicates easing cycle
Last month’s warmer-than-expected Monthly CPI indicator prompted many to conclude the end of the RBA’s easing cycle was nearly complete, and subsequent RBA commentary appeared to raise the bar for additional cuts. The latest labour data complicate that picture. As seen recently in the US, when the labour market starts to crack, sticky inflation can quickly become yesterday’s problem as central banks move to cut rates to support a weakening jobs market.
Today’s labour force report strengthens the case for the RBA to cut the cash rate by 25bp in November 2025, taking it to 3.35%, irrespective of the Q3 inflation print due in two weeks. A further 25bp reduction is expected in February, which would lower the cash rate to 3.10%, close to estimates of neutral.
RBA concern
Separately, Reserve Bank governor Michele Bullock made a rare comment on Australia’s federal budget, flagging concern over Treasury’s sustained pipeline of deficits. Speaking in Washington DC on Wednesday (Thursday AEDT), Ms Bullock said the fiscal outlook was attracting “a lot of attention,” with deficits expected to persist until at least 2035. “If you look at the forecasts for the current government forecast for there are deficits out into the foreseeable future, quite substantial ones, because spending is growing very quickly, and revenues not as strongly,” she said.
With key economic indicators still relatively solid, she pointed to the “big debate” about how to strengthen the nation’s finances: “If we can’t make the budget stronger during this period – while the economy is doing quite well and there’s lots of people employed – then what happens in the next downturn?”