CBA projects 15,000 jobs growth, unemployment steady at 4.5%

CBA's figure is below consensus, Westpac's above it, so the major banks straddle the market's 20,000 forecast. Any result inside that range is unlikely to significantly move rate expectations before next week's anticipated RBA increase. The unemployment rate is the bigger variable. CBA believes the jobless number needs to trend higher to keep inflation in check. A surprise decline would bolster the case for further tightening after September, which would underpin the Australian dollar and short-dated yields. A rise toward 4.6% or higher would have the reverse effect, strengthening the view that the RBA is approaching the end of its tightening cycle. CBA notes that some job advertisement indicators have picked up, a reminder that the softening is not uniform.

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Earlier:

• Bullock highlights inflation risks, mentions higher neutral rates
• Major Australian banks now all expect RBA to raise rates to 4.60% on September 29

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Commonwealth Bank expects the Australian jobs market to continue softening gradually rather than breaking sharply. The bank sees the jobless rate ticking higher over time, precisely the pattern the RBA wants to see.

Summary:

• August labour force data for Australia will be released at 11:30 a.m. Sydney time on Thursday, September 24 (0130 GMT, 2130 U.S. Eastern on Wednesday).
• CBA predicts employment will increase by 15,000, lower than the market consensus of around 20,000 and well below Westpac's 30,000 forecast.
• CBA expects the participation rate to remain at 66.9% (66.85% unrounded), keeping the unemployment rate unchanged at 4.5%.
• CBA's own wage and labour data, derived from customer banking records, indicate that employment growth is roughly stable but softer than recent official numbers suggest. Some survey-based measures of hiring intentions have also weakened.
• CBA forecasts the jobless rate to gradually rise over time, which it considers necessary to reduce inflation.
• Job advertisement indicators have recently shown an uptick, a development the bank says bears close attention.

Commonwealth Bank projects that Australia's August labour force report will reveal mild employment growth and a stable jobless rate, aligning with a gradual slowdown in the labour market. The statistics are scheduled for release at 11:30 a.m. Sydney time on Thursday, September 24 (0130 GMT, 2130 U.S. Eastern on Wednesday).

The bank's August employment forecast of 15,000 is below the consensus estimate of around 20,000 and far behind Westpac's 30,000 prediction. This would follow an unexpected decline of about 16,000 in July. The participation rate, defined as the percentage of working-age Australians employed or seeking work, is predicted to stay at 66.9%. As a result, CBA expects the jobless rate to remain at 4.5%, matching market forecasts.

CBA stated that its forecast is based on weaker economic growth curbing demand for labour. The bank's proprietary wage and labour indicators, derived from its customers' banking activity, point to employment expansion that is generally stable but slightly softer than recent official statistics suggest. Additionally, certain survey-based hiring intention measures have declined in recent months.

CBA anticipates the jobless rate will continue to creep upward over the long term, and it said such an increase is necessary to help reduce inflation. The bank warned, however, that the data are not all pointing to weakness, citing a recent rise in some job advertisement indicators as a factor to monitor in the months ahead.

The participation rate estimate illustrates how delicate the figures are. At 66.85% unrounded, CBA's projection falls precisely on the threshold between rounding to 66.8% or 66.9%. July's unemployment rate was similarly on the edge, climbing from 4.43% to 4.46%, enough to round up to 4.5%. Consequently, small changes in labour supply can move the headline numbers more than the actual underlying conditions merit. August's release also includes a methodological change: the Australian Bureau of Statistics is altering its seasonal adjustment procedure starting with this data, which it expects will have a minor impact on month-to-month volatility.

The employment data will be published just days ahead of the Reserve Bank of Australia's September 28-29 policy meeting, at which markets anticipate a rate hike. A labour market that softens gradually, as CBA predicts, would reinforce the notion that tighter monetary policy is taking effect without triggering a severe contraction. Conversely, any evidence of renewed tightness might suggest additional rate increases remain possible.