ASX shares were advancing higher on Thursday morning, with the benchmark S&P/ASX 200 Index (ASX: XJO) up 0.5% points not too long ago.
That was until about 11:15 am – around fifteen minutes before the Australian Bureau of Statistics (ABS) released Australia's employment data for the month of July.
Since then, the index has gyrated. The proxy of the ASX share market has taken a turn and now trades around 0.3% higher at the time of writing.
Let's take a closer look.
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Unemployment rises despite strong job growth
In what seems like the ultimate paradox, ABS data showed Australia's unemployment rate rising to 4.2% in July despite the nation posting a huge number of jobs.
The ABS says this equates to roughly 24,000 new unemployed persons, bringing the total to 637,000, the highest in nearly three years.
Experts had projected a rate of 4.1%, so this came in ahead of expectations.
Basically, the Aussie labour market is running hot. For instance, the employment-to-population ratio increased to 64.3% in July, close to its historical high.
But underemployment, which tracks those employed but seeking more hours, fell to 6.3%.
Data also showed the economy added 58,200 jobs in July – nearly three times the expected 20,000 jobs. ASX shares have been strong this year, potentially reflecting this.
However, the ABS says the unemployment rate still edged up. It thinks this is due to more people entering the job market.
This boosted the participation rate to a record high of 67.1% in July. The participation rate is the number of working-age Australians seeking a job.
In other words, more jobs were created, but more people are also looking for work. See what I mean?
According to the ABS:
Although the unemployment rate increased by 0.1 percentage point in each of the past two months, the record high participation rate and near record high employment-to-population ratio shows that there continues to be a high number of people in jobs, and looking for and finding jobs.
While unemployment increased to 637,000 people in July, the highest it has been since November 2021, it remains around 70,000 people below its pre-pandemic level.
What does this mean for ASX shares?
This slight increase has caught the attention of both investors and economists, raising questions about the Reserve Bank of Australia's (RBA) future moves.
Unexpected rises in unemployment, combined with strong job creation, add complexity to the RBA's decision-making process.
The central bank closely monitors the labour market to gauge its decisions on interest rates.
We will find out what the RBA intends to do at its next policy meeting on August 20, where I'm sure the labour market – and the unemployment rate – will be a hot topic of discussion.
Foolish takeaway
Australia's unemployment rate rose to 4.2% in July, but the economy added nearly 60,000 jobs.
The strong job creation and record-high participation rate might suggest the economy is still generating opportunities. Only time will tell what this means for ASX shares.
