Unemployment’s up. Is it just noise or a sign of things to come?

June’s unemployment rise should all but seal a June rate cut. Only a massive quarterly inflation surprise at the end of July would stop it, writes Pendal’s head of government bonds TIM HEXT

• Unemployment may drift higher
• But no suggestion of a sharp or rapid rise
• Find out about Pendal Government Bond Fund
• Browse all Pendal’s fixed-income funds

THE unemployment rate jumped to 4.3 % for June – the highest rate since late 2021.

Job growth was a very tepid 2000. Hours worked fell by 0.9%.

In trend terms – which we prefer over the more volatile, seasonally adjusted data – job growth was 22,800 while unemployment rose from 4.1% to 4.2%.

Unemployment, June 2025 (seasonally adjusted vs trend):

Source: Australian Bureau of Statistics

June was a relatively clean month – no elections or weather events – and the Bureau of Statistics offered no one-off excuses for the poor outcome.

The Reserve Bank expected unemployment to end 2025 at 4.3%, having revised it up from 4.2% in May.

Interestingly their forecast at the start of the year was 4.5%,  but they lost patience as results earlier in the year were strong.

Noise or new trend?

The obvious question is whether this is just noise or the start of a new, upwards trend.

Every month one eighth of the survey is rotated as respondents are surveyed over eight months – so there is some impact or noise to consider.

However, as students of statistics will know, since each sample size is 3000 households (24,000 in the survey), the impact should be small.

We won’t get a breakdown by profession until the quarterly numbers, but rapid growth in non-market jobs (mainly education and healthcare) has masked softer market job growth for some time.

There are signs this non-market job growth may be slowing, so unemployment may drift a bit higher into the end of year.

However, forward indicators such as job vacancies and employment indicators in NAB’s monthly business survey, do not suggest a sharp or rapid rise.

August rate cut looks likely

The Reserve Bank next meets on Tuesday, August 12.

Today’s data should all but seal a rate cut – only a massive quarterly inflation surprise at the end of July would stop it.

The Q2 wage data and the next Labour force survey do not come out till after the meeting.

The market has two-and-a-half cuts by year end and a terminal cash rate just above 3%.

We still think bonds are range-bound by this data.

Together with bonds sitting at the cheaper end of the range, we have added some duration to our portfolios. 

About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

Find out more about Pendal’s fixed interest strategies here

About Pendal

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

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