NAB forecasts Australia's unemployment slipping to 4.4% with 20,000 jobs added

If the unemployment rate drops to 4.4%, it would indicate that Australia's labour market remains tighter than the RBA expects, according to NAB. Such an outcome could provide support for the Australian dollar and short-dated bond yields, as market participants weigh the inflation trade-off flagged by the central bank. A steady reading of 4.5% alongside modest job gains, on the other hand, would align more closely with the RBA's projections and likely prompt a less pronounced reaction. Given the changes in the ABS survey methodology, markets may discount part of any surprise, potentially limiting follow-through in the Aussie dollar unless confirmed by October's data. Alongside the headline unemployment rate, participation figures and hours worked are also of interest for gauging underlying labour demand.

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Earlier:

• Australia jobs preview: CBA sees 15,000 gain, unemployment steady at 4.5%
• Australia jobs preview: employment seen rebounding in August, jobless rate at 4.5%

• AUD is the biggest mover vs the USD at -1.02%. What next technically?

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With July's jobless rate a fraction below 4.5%, a relatively small improvement would be sufficient to post a 4.4% reading, a result that would mean the RBA's labour market is operating tighter than the central bank intended.

Summary:

• The preview projects unemployment edging down to 4.4% in August based on a 20,000 employment increase, while consensus forecasts 4.5%
• July's unrounded jobless figure was just shy of 4.5%, so the outcome is finely balanced
• Labour demand indicators do not suggest any pronounced near-term shift in conditions
• The RBA states that supply-shock cost pressures heighten the jobs-inflation trade-off, and its August forecast pegged unemployment at 4.5% by year-end
• ABS survey modernisation introduces uncertainty: July's sample was temporarily reduced, and August's seasonal adjustment method has changed
• The release schedule reverts to normal timing from September's data, due in October

National Australia Bank anticipates that Australia's jobless rate will slip to 4.4% in August, with employment rising by 20,000 in today's labour force report, although the bank describes the call as tight. The market consensus is for the unemployment rate to hold at 4.5%.

The closeness of the forecast hinges on the starting point. July's figure rounded to 4.5%, but the unrounded number was slightly below that threshold, meaning only a small improvement is required for the published rate to fall. NAB indicated that labour demand indicators do not point to any pronounced near-term shift in conditions, so the result depends on relatively marginal movements in the underlying data.

NAB's projection is somewhat more optimistic than some other forecasts. Commonwealth Bank has pencilled in a 15,000 gain with unemployment steady at 4.5%, as detailed in our CBA jobs preview, while Westpac's August jobs preview flagged expectations for employment to rebound with the jobless rate unchanged.

The outcome carries significance for the Reserve Bank of Australia. NAB noted that the central bank has been clear that cost pressures arising from the supply shock exacerbate the trade-off between sustaining the labour market and controlling inflation. The RBA's August Statement on Monetary Policy projected unemployment ending the year at 4.5%, so a decline to 4.4% would mean the labour market runs slightly tighter than the central bank expected, at a time when it is already focused on inflation risks.

There is an additional layer of uncertainty from the Australian Bureau of Statistics' modernisation of its Labour Force Survey. July's data was impacted by a temporary reduction in the survey sample, and changes in how supplementary questions are collected mean the seasonal adjustment process is being modified for August. NAB said these factors add uncertainty at the margin, which suggests some caution in interpreting a single month's move in either direction.

Looking beyond this release, the survey schedule is set to return to normal, with September figures due in October on the usual timetable. That should provide a cleaner picture of whether any change in the unemployment rate is genuine, and of how much scope the RBA has to balance jobs against inflation.