Australian Jobs Miss Deepens Rate-Cut Case, Westpac Says

Australia's labour market softened more than expected in July, with a 15,800 job loss following June's upside surprise, according to Westpac. The result leaves average monthly employment growth at 20,800 year-to-date, above 2025's 12,600 monthly pace but below the speed required to keep the unemployment rate flat.

The unemployment rate edged up to 4.5% in July, 0.4 percentage points above its level at the start of the year. Hours worked slipped 0.6% on the month to stand just 0.2% higher over 12 months. "Slowly but surely, slack is forming in the labour market," Westpac wrote. That slack pressures activity growth but supports the disinflationary trend the Reserve Bank of Australia needs to see before cutting the cash rate, which Westpac expects in August 2026, not sooner.

The Q2 wage price index was also favourable on inflation. Headline wages rose 0.8% on the quarter to 3.2% year-on-year, meeting expectations. Private sector wage growth hit its weakest pace since Q4 2021 at 0.7% quarter-on-quarter and 3.1% year-on-year. Public sector wages provided an offset, gaining 0.9% on the quarter and 3.4% year-on-year as a larger share of public jobs got a raise (25% versus 20%), though the average increase narrowed to 3.1% from 3.5%.

Australian consumers are waking up to labour market risks. The Westpac-MI consumer sentiment survey's unemployment index rose above its long-run average in August. But cost-of-living pressures remain the bigger drag on confidence. Both "family finances versus a year ago" and "family finances next 12 months" stayed below average in August, even as mortgage holders got a reprieve from the RBA. "Time to buy a major household item" sits 24% below average despite a monthly bounce, while "time to buy a dwelling" is 20% below average. Westpac expects a lengthy period of weakness, with trend activity growth not returning until late 2028.

Offshore, the July Federal Open Market Committee minutes showed caution on the inflation outlook, reflecting uncertainty around the Middle East conflict and U.S. economic policy, and an expectation that the U.S. economy would sustain recent momentum. "Most participants anticipated that inflation would step down over the rest of the year as the effects of tariffs and earlier energy price increases wane, but many participants noted the possibility that inflation might be more persistently elevated," the minutes said. Many assessed that policy tightening would be necessary if inflation did not decline.

Data since the meeting has been constructive for disinflation, and most FOMC members who have spoken have stressed the Committee's credibility on inflation while noting they have time to assess conditions.

China's July data underwhelmed again. The return from trade is strong, but retail sales growth stalled at 0.6% year-on-year and fixed asset investment is increasingly broad based in its decline at -6.7% year-to-date. House price declines continue to weigh on household wealth, and domestic equity holdings lack the scale to compensate. Authorities may be holding back stimulus ahead of the next meeting between President Xi and President Trump, and as the U.S. expands economic actions against Iran via third parties. "Very clearly, there is an urgent need for stimulus if the 2026 and 2027 growth targets are to be achieved," Westpac wrote.