Unemployment rose to 4.6 per cent in August even as most leading indicators pointed to steady demand for workers, and the explanation lies partly in how the jobless rate is calculated.

At first glance, two observations in the minutes of the RBA's September 2026 Monetary Policy Board meeting seem to pull in opposite directions. The unemployment rate rose to 4.6 per cent in August. Yet most leading indicators pointed to stable labour demand, and some measures of job advertisements had strengthened slightly.

How can employers be hiring at a steady pace while the share of people out of work goes up? The answer has a lot to do with the arithmetic behind the unemployment rate, and with a detail the minutes mention in the same breath: the rise in unemployment came alongside a rise in participation.

How the unemployment rate is calculated

The unemployment rate is not simply a count of people without jobs. It is the number of unemployed people as a share of the labour force, which includes everyone who is either employed or actively looking for work.

That means the rate can move for two broad reasons:

  • Changes in how many people have jobs.
  • Changes in how many people are in the labour force, including those who start looking for work.

The participation rate measures the share of the working-age population that is in the labour force. When participation rises, more people are either working or searching. If some of those new searchers have not yet found a job, they are counted as unemployed, and the unemployment rate can rise even while employment is growing.

The following is an illustration using hypothetical round numbers; it does not represent RBA or official data. Imagine an economy with a labour force of 1,000 people, of whom 955 are employed and 45 are unemployed. The unemployment rate is 4.5 per cent. Now suppose 10 more people decide to look for work, and employers hire five of them. Employment has risen from 955 to 960. But the labour force is now 1,010, and 50 people are unemployed. The unemployment rate is about 4.95 per cent.

In this illustration, employers took on more workers, yet the jobless rate rose. That is the basic mechanism by which rising participation and rising unemployment can sit alongside stable labour demand.

What the RBA actually said

The minutes record that unemployment rose to 4.6 per cent in August alongside a rise in participation. Members also cautioned about interpreting the labour force data, because of changes to survey methodology. In other words, the Board was not prepared to put too much weight on a single month's reading.

Beyond the official survey, the minutes note that most leading indicators pointed to stable labour demand and that some job ad measures were strengthening slightly. The Board's decision statement described labour market conditions as having eased broadly as expected.

Governor Michele Bullock put the recent movement in a longer context at her media conference on 29 September. She said unemployment was 4.6 per cent compared with about 3.5 per cent a couple of years earlier, and that more than one million jobs had been created over that period. She observed that "the unemployment rate is still quite low historically", and summed up: "Productivity growth remains weak and the labour market remains a little tight."

Why the distinction matters for interest rates

For the RBA, the difference between a labour market that is weakening and one that is absorbing more job seekers is important. The Board said it "will remain focused on its mandate to deliver price stability and full employment".

If rising unemployment reflected employers cutting back sharply, it would point to slack building quickly in the economy, which tends to ease pressure on wages and prices. If instead it reflects more people joining the labour force while demand holds up, the labour market may be tighter than the headline rate alone suggests.

The minutes show the Board weighed downside risks to activity and employment as part of the case for leaving rates unchanged. In the end, members decided unanimously to raise the cash rate target by 25 basis points to 4.60 per cent, with the case for raising including that upside risks to inflation had materialised. The minutes also note that unit labour cost growth was above what is consistent with the inflation target, driven mainly by subdued productivity growth rather than strong nominal wages.

The RBA's August forecasts had expected unemployment to drift up gradually, from 4.4 per cent in June 2026 to 4.5 per cent by December 2026 and 4.8 per cent by mid-2028. The August reading of 4.6 per cent is already at the level those forecasts pencilled in for June 2027, though the Board's caution about survey changes applies here too.

Questions worth asking when new figures arrive

For readers following the labour market, a few questions can help make sense of each new release:

  • Did employment rise or fall, as distinct from the unemployment rate?
  • Did participation change, and in which direction?
  • Do job ads and other leading indicators tell the same story as the survey?
  • Could methodology changes be affecting the month-to-month comparison?

None of these questions has a single right answer, and different indicators can point in different directions for several months at a time. Asking these questions does not settle whether the labour market is tight or loose, but it helps separate movements driven by hiring from movements driven by more people looking for work. It also explains why the RBA tends to look at a range of indicators rather than relying on the unemployment rate alone.

The bottom line

Stable labour demand and a rising unemployment rate can both be true when more people join the labour force than employers immediately absorb. The RBA's September minutes point to exactly this combination, while warning that survey methodology changes make the latest figures harder to read. The Governor's view is that the labour market remains "a little tight", even with unemployment at 4.6 per cent, and the Board has said it will be attentive to the data in guiding its decisions.