The latest jobs figures are in and unemployment is at its worst level in one year despite strong employment growth.
A record-high participation rate -- the proportion of Australians working and looking for work -- and strong population growth has meant that the number of new jobs just can't keep up.
That's enough to keep wage growth low and force the RBA to cut rates, with the market now signalling a 70% chance of a cut in October.
It seems like a pretty simple equation in theory. The more jobs you create, the lower the unemployment rate goes, and -- as businesses compete for less talent -- the higher wages must go.
Unfortunately, the Australian economy just keeps on defying it. In August, 34,700 more Australians were employed than in July, according to the latest seasonally adjusted jobs figures. Yet despite strong jobs growth -- the number of new jobs was twice what the consensus expected -- unemployment actually rose 0.1%.
"While employment growth has been reasonably healthy over the past year, the demand for labour is being met with increased supply. This is working to keep a lid on wages growth," BIS Oxford Economics senior economist Sean Langcake said in a note issued to Business Insider Australia.
Those extra jobs are being offset by the fact that Australia's participation rate -- the percentage of people working or looking for work -- has never been higher. In other words, the number of available workers is so high that the number of new jobs just can't keep pace.
"Normally the employment growth we have experienced over the past two years would have led to a sizable decline in the unemployment rate. These are not normal times," jobsite Indeed's chief Asia Pacific economist Callam Pickering said in a note.
The record participation rate combined with strong population growth has helped keep the unemployment figure up, as well as underemployment -- where workers can find work but not enough of it.
"In recent months employment growth has been driven more by part-time roles. There is also a growing divergence between employment growth and growth in hours worked," Pickering said. "That suggests that while the economy is still creating jobs it isn’t necessarily creating the same quality of jobs as it was a year or two ago."
That all has some major implications for the Australian economy as a whole, regardless of whether or not you're gainfully employed. The most significant of those is that higher unemployment and underemployment makes wage growth elusive.
The entity in charge of keeping the economy working for Australians, the Reserve Bank of Australia (RBA), has repeatedly said in no uncertain terms that it wants to slash the unemployment rate to 4.5% so that wages growth will follow.
Instead, it has now had to watch it tick up to 5.3% in August, its highest level in 12 months, all but precluding future wage growth. Without pay rises, Australians can't be expected to increase their spending, and without their dollars flowing through it, it's feared the economy will keep on slowing.
The consequence is that despite "strong employment growth", the RBA may be forced to cut interest rates ahead of schedule, according to the Commonwealth Bank (CBA).
"The August employment report puts a rate cut firmly on the table at the October RBA board meeting," CBA senior economist Gareth Aird said in a note. "We believe that today’s labour force data is the smoking gun that will force the RBA’s hand."
With no reason to expect the unemployment rate to improve, Aird said it's probable that a rate cut will be handed down in October instead of November as previously forecast.
"Financial markets have moved on today’s employment report. The market was pricing a roughly 50% chance of a 0.25% cut in October this morning. It is now pricing a 70% chance of an October rate cut, which we now also expect will be delivered," he said.
The RBA will hand down its decision on 1 October.