Why a surprise jump in unemployment isn’t as bad as it sounds

New figures show Australia’s seasonally adjusted unemployment rate unexpectedly rose to 4.3% – its highest level since late 2021 – in June this year, up from 4.1% in May.

While this is bad news, it’s not as bad as it might seem. Higher unemployment came from more people looking for work. In the long run, that’s good for the economy.

And these figures also make it more likely we’ll see an interest rate cut next month – which is now looking overdue.

What’s the bad news?

This is the second month in a row we’ve seen no growth in total employment, while total hours worked (the number of hours worked by employed individuals, regardless of whether they are full-time, part-time or overtime) in the past month has gone backwards.

All this adds to the picture of a slowing labour market since the start of the year, after surprisingly strong growth in the second half of 2024.

The latest Australian Bureau of Statistics release also includes data on where extra hours worked during 2025 have come from.

Employment growth has come entirely from the “non-market sector” – which is healthcare and social assistance, education and training, and public administration and safety. And the big driver of those extra jobs has been in social assistance and health care, which is largely government-funded.

That means employment has gone backwards in the rest of the economy, adding to a picture of a jobs market being propped up by government investment in the caring economy.

Why it’s not as bad as you might think

The reason unemployment rose is that more people were looking for work – so it’s not because employment fell.

Of course, we’d prefer those people to have found jobs. But it does mean people weren’t losing jobs for the unemployment rate to rise.

The growth in labour force participation in June continues the trend of strong growth since late 2021. In the long run, that’s a good thing – it means the country can produce more output, and more people gain an income from work.

An interest rate cut now looks more certain

Last week, the Reserve Bank surprised most people by keeping the cash rate on hold at 3.85%.

Today’s unemployment data is extra evidence that the labour market isn’t contributing to inflation pressure – in fact, it’s the opposite.

It shows an interest rate cut is now overdue. The Reserve Bank board meets again in mid-August, with a decision on rates announced on August 12.

When will we know if this is a blip or a trend?

One possibility is that some of the extra people who became unemployed in June have a job to go to in the next month. Ups and downs in that group have at times been influential in driving unemployment numbers in recent times.

In that case, this month’s figures may partly turn out to be a blip. We’ll be able to tell that when we see next month’s figures.

But the blip is unlikely to explain all of the rise in June. This is also about a labour market that is slowing.