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The rate of unemployment in Australia is on the rise again. Official labour force data released on Thursday shows that in the month to September, Australia’s seasonally adjusted unemployment rate jumped from 4.3% to 4.5%.

That’s the highest rate since November 2021. The surprise jump strengthens the case for the Reserve Bank of Australia to cut the official cash rate in November.

Back in November last year, the seasonally adjusted rate of unemployment was 3.9%. It has now been above 4% for ten consecutive months, and has only been going in one direction: up.

What could this mean for interest rates?

In its recent decisions, the Reserve Bank’s monetary policy board has jumped at any signs of higher price inflation. But it has retained a favourable outlook on labour market conditions.

In its most recent September decision, the board stated:

labour market conditions have been broadly steady in recent months and remain a little tight.

Such an outlook does not seem an option in light of today’s unemployment numbers.

The Reserve Bank has a full employment mandate to achieve “the maximum level of employment consistent with low and stable inflation”.

The mandate doesn’t put a specific numerical rate on this full employment goal. However, the rate of unemployment is now well above any credible estimate of full employment.

Employment growth is slowing

The reason why the rate of unemployment is rising is not hard to spot. Employment growth is slowing.

In 2024, my calculations based on the official labour force data show an average of 32,600 extra people became employed each month, compared with an extra 33,900 looking for work.

With growth in employment and the labour force relatively balanced, the rate of unemployment remained stable.

So far in 2025, each month only an average of 12,900 extra people have moved into employment.

The number of people looking for work has responded to the weaker labour market conditions, also growing less each month than in 2024, by 22,100 on average.

But unemployment is rising because the increase in the number of people looking for work in 2025 has been much bigger than the increase in employment.

A cooling jobs market

No matter which statistic you look at, my analysis of the official labour force data reveals the signs of a weakening labour market are clear to see.

Monthly hours worked grew on average by 0.27% each month in 2024, but only 0.04% so far in 2025.

In 2024, the total stock of jobs rose by 351,600. In the first six months of 2025, it grew by just 44,100.

And the proportion of people who have jobs, but want to work more hours, has increased from 9.9% to 10.4% since the end of 2024.

Government spending

The reason employment growth is slowing is not what might have been expected – but is even more worrying.

Since about mid-2021, employment growth in Australia has been propped up by a fast pace of job creation in what is known as the non-market sector, which consists of:

• health care and social assistance
• education and training
• public administration and safety.

That growth has come about as the federal government has pushed for improvements in the quality of government services, and expanded the National Disability Insurance Scheme (NDIS) and childcare services.

It has been expected for some time that eventually, the rate of increase in government spending on services would slow. That would in turn cause growth in non-market employment and total employment to slacken.

What’s really driving the trend?

However, that is not what has caused the slower employment growth in 2025.

In fact, today’s data release shows that growth in total hours worked in the non-market sector has continued at pretty much the same pace as in previous years.

Instead, the drop-off in total hours worked has been due to employment in the market sector declining.

Private employers are responding to what they see as weaker economic conditions, by reducing the rate at which they are adding new jobs.

This is a further undeniable sign of a weakening labour market.

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