Small and medium businesses have contributed to a strong surge in part-time hiring, as ‘messy’ new jobs data fuels expectations of another interest rate rise.

Australia’s unemployment rate for August has edged up 0.1 per cent to 4.6 per cent, surprising economists who had expected it to remain steady. But rather than indicating a loss of jobs, there has been strong growth in part-time roles, and the headline figure is a result of more jobseekers entering the market.

For small and medium businesses, the shift towards part-time employment suggests owners are still fighting for growth opportunities despite global uncertainty and price pressures.

“This isn’t a sudden collapse in business confidence. It’s a direct result of a prolonged squeeze on margins, says Employment Hero APAC Managing Director James Keene. “It captures the quiet frustration feeling across Australia’s SME sector.”

Behind The Jobless Rate Rise Is A Boost In Part-Time Roles

The Australian Bureau of Statistics data for August reveals 6,000 full-time jobs were lost in August, in contrast to a significant spike of 46,000 new part-time roles.

The fact the unemployment rate rose in spite of this increase is due to the way the data is calculated. 28,000 people – such as students, stay-at-home parents or retirees – entered the market, expanding the pool of ‘official’ jobseekers. “This August, we recorded a higher proportion of people who were previously not in the labour force moving to being unemployed, compared to recent years,” says ABS Head of Labour Statistics Sean Crick. “The growth in the size of the labour force resulted in the participation rate increasing by 0.2 percentage points to 67.1 per cent.” The underemployment rate fell by 0.1 per cent to 6.2 per cent.

ANZ Chief Economist Shane Oliver describes the August figures as ‘messy’, pointing out that alongside jobs growth, hours worked are also higher, up 0.7 per cent, which is generally considered a positive sign. Westpac economist Ryan Wells reinforces the importance of looking for the story behind the data. He says there is a difference between jobs growth, running at 2.6 per cent in June, and employment growth, which is considerably lower. This is because a record number of people are holding multiple jobs.

“While a softer economy and sub-par employment growth would typically discourage some individuals in their search for work, cost-of-living pressures and interest rate rises are acting as a counterweight, encouraging more people into the labour market,” Wells says. “Slower-moving positive structural forces around rising female and older age participation are also contributing at the margin.”

Employment Hesitation Is Showing Up In Small Businesses

The increase in part-time employment may be acting as a safety valve in small and medium businesses that have battled high overhead costs all year. Instead of expanding full-time headcount during a time of high inflation and rising input costs, they are making do with part-time or flexible labour.

“We’ve seen quarterly headcount growth slow to just 0.6 per cent, pointing to a market where the cost of doing business is actively capping growth,” says Keene. “Business owners who stepped into the year hoping for a clearer path to recovery are instead stuck in limbo.”

Employment Hero’s August Jobs Report reveals SME employment is uneven between sectors and states, with eastern metropolitan centres struggling most, while South Australia enjoys the nation’s strongest growth. Tech firms are contracting while Admin and Office Support and Construction businesses expand.

“Even in a cooling market, SMEs are refusing to give up on future capability,” says Keene. “We continue to see employers direct their limited hiring budgets toward entry-level talent, with 18-to-24-year-olds holding up quarterly employment growth (+2.5 per cent) and leading nationwide wage growth (+2.1 per cent MoM).”

Borrowers Brace For Another Interest Rate Rise

While commentators may have been caught off guard by the August unemployment rate rise, there is consensus among big bank economists that the Reserve Bank will raise interest rates at its September meeting as part of its unrelenting bid to tame inflation.

Governor Michelle Bullock will take special note of the 4.6 per cent figure, after declaring in recent public remarks, “I think between 4.5 per cent and 5 per cent will probably take enough heat out of the labour market that it’ll ease pressure on inflation.”

The July CPI figure of 3.5 per cent was above the Reserve Bank of Australia’s target 2-3 per cent range, and the August data will not be released until the day after the interest rates announcement.

For small and medium businesses, all three datasets impact the bottom line. A higher unemployment rate means less competition for talent and potentially less pressure on wage bills. But higher interest rates mean increased borrowing costs and reduced spending power for their customers, while high inflation forces up input costs and eradicates margins.

“Make no mistake, until broader cost pressures ease and rate uncertainty subsides, SMEs will continue taking a highly defensive, wait-and-see stance on expanding their workforces,” says Keene.