Economy could turn down the volume on entertainment, hospitality work

The number of people who lose their jobs, are unable to find work or see a cut in hours is expected to grow as interest rates push down on demand, with economists warning those in areas most exposed to changes in discretionary spending are at greatest risk.

Matt Cowgill, senior economist at employment website SEEK, said in previous slowdowns the biggest job losses have been in industries including arts and recreation, accommodation and food services and administration and support services, and this was likely to repeated in the downturn now developing.

"These are the industries most responsive [to changes in discretionary spending]," Mr Cowgill said.

"These are the industries where people are spending discretionary income [so] these are the ones that feel it the most."

Reserve Bank of Australia governor Philip Lowe said last week that recent interest rate rises were working to cramp consumer spending.

"People are trading down to cheaper items and, in some cases, smaller baskets," Dr Lowe said. "So consumption growth is weak, and that's largely because of what's going on with monetary policy [and] declining real incomes from inflation."

As households pull back on their spending, Mr Cowgill reckoned employers will cut back on staff, operating hours and recruitment, which will push the unemployment rate up.

He said jobs in health, agriculture and the public sector were typically among the most secure during economic slowdowns.

Commonwealth Bank chief economist Stephen Halmarick agreed that sectors most dependent on discretionary spending, including entertainment, hospitality and retail, were the most likely to experience a lift in unemployment.

But the Commonwealth Bank economist thought widespread job losses among existing employees were unlikely.

Instead, the lift in unemployment would be largely driven by new entrants to the labour market, particularly overseas migrants, who would find it increasingly tough to find work, Mr Halmarick said.

"Net overseas migration is increasing quite rapidly, so there is going to be more people in the labour market," Mr Halmarick said, including an extra 400,000 in the next year.

"For the unemployment rate to rise its not necessary for people to lose their jobs." he said.

There are no signs yet that the jobs market is losing its heat.

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The unemployment rate has been stuck in the 3.5 to 3.7 per cent range all year and markets expect figures due out on Thursday to show it held steady at 3.6 per cent in June.

But there are signs that demand for workers is softening.

Mr Cowgill said the number of applicants for each job ad, as measured by SEEK, was increasing "quite significantly".

"It's coming back up towards pre-COVID levels, which is a sign that supply and demand is coming better into balance," he said.

Nonetheless, any increase in unemployment is predicted to be gradual.

The RBA forecasts the unemployment rate to creep up to 4 per cent by the end of the year and just 4.2 per cent this time next year.

In a speech late last month, incoming RBA governor Michele Bullock said recent labour market gains as "remarkable".

"The share of the Australian population in employment has never been higher," Ms Bullock said, adding that the strong demand had helped many part-time workers transition into full-time jobs.

"We are at, or even perhaps above, estimates of full employment for the first time in decades," she said, meaning that people are able to quickly find work.

Ms Bullock said the benefits were shared across the country, with those on lower incomes and with lesser education gaining the most.

Unfortunately, she added, employment currently was "above what we would consider to be consistent with out inflation target [of 2 to 3 per cent]".

The RBA has forecast the unemployment rate to reach 4.5 per cent by mid-2025 as the economy slows, which would "still leave us below where it was pre-pandemic".

This level of unemployment, she said, would "give us the greatest chance of securing sustainable full employment into the future".