Labour market balancing a ‘double-edged sword’: Janus Henderson

Yasmine Raso

Senior Journalist, Financial Newswire

5 August 2025

The overall growth of Australia’s labour market is expected to moderate, according to the latest analysis by Janus Henderson Investors, as the decline in both public and private hiring contends with “stemmed” migration levels and reduced supply.

Emma Lawson, Fixed Interest Strategist – Macroeconomics at Janus Henderson, said while the labour market had signalled its stability and delivered “remarkably solid” results over the past year, the last two data releases have shown a softer landing as the unemployment rises to 4.3 per cent – its highest point since 2021.

Lawson confirmed the manager expects the unemployment rate to increase, as the private sector shoulders the hiring burden from the fading public sector.

“The public sector, proxied through employment in the non-market sectors (education and training, healthcare and social assistance, and public administration and safety), has been the main driver of employment over the past year,” she said.

“The healthcare sector has been particularly strong since the advent of the pandemic. In total, the non-market sector’s share of employment has risen to 32 per cent, from 28 per cent pre-pandemic.

“This rising share coincided with a large increase in both State and Federal Government deficits, and corresponding rising debt levels. Post the respective budget updates, we can surmise that extensive additional hiring in the non-market sector is set to fade.

“There are some areas in which there may also be moderations in non-market sector employment. The private sector now needs to take up the hiring baton, a position it has been unwilling to take over the past six months.

“Private employment growth has been a moribund 0.9 per cent YoY, well below that of total employment growth. Forward indicators of private sector employment, such as the ANZ job ads and the NAB business survey are suggestive of still soft private hiring conditions ahead.

“We can expect employment growth to lose momentum due to the slowing in non-market sector employment, exposing the labour market to the underlying softness in the private sector.”

Lawson said the market is now faced with its “double-edged sword”, contending with hiring trends at the same time as slowing migration levels drive a moderation in overall labour market growth, as supply and demand both fall.

“The historical average increase in the labour market per month has been around 20.5k, post pandemic, that increased to 35k. As migration flows continue to normalise, we can expect the monthly new labour supply to also normalise,” Lawson said.

“As a result, the per month change in employment number needed to keep the unemployment rate stable is lower than it has been since 2022.

“So, while non-market sector employment fades and private employment remains soft, we can expect the unemployment rate to rise, but not to levels that would indicate a more troubling underlying economic environment.

“The RBA are also looking for a peak in the unemployment rate to 4.3 per cent. We see it a little higher and enough to warrant the RBA returning the cash rate to levels more akin to neutral over time.”