Australian labour market continues to defy the economic downturn

Australian Bureau of Statistics figures show the jobless rate held steady at 3.7 per cent for a second consecutive month in August, with full-time work up by 2800 positions and an extra 62,100 part-time jobs added.

The participation rate surged to a record-high 67 per cent last month and the employment to population ratio grew 0.1 of a percentage point to 64.5 per cent - both indicating conditions in the labour market remain tight.

ABS head of labour statistics Bjorn Jarvis said jobs growth continued to average 32,000 a month.

Treasurer Jim Chalmers said the sustained low unemployment rate was "a tremendous result".

"More Australians are in work than ever before, the participation rate is at a record high and we still have an unemployment rate near historic lows," Dr Chalmers said.

But, hinting that there may be some loosening at the edges, the underemployment rate increased marginally to 6.6 per cent and hours worked slipped 0.5 per cent lower.

The underutilisation rate, which combines unemployment and underemployment, lifted 0.1 per cent to reach 10.2 per cent.

ANZ head of Australian economics Adam Boyton said conditions in the labour market were softer than the addition of almost 65,000 jobs suggested.

"The vast bulk of jobs growth being part-time, and hours worked falling in the month, takes the gloss off the impressive headline jobs print," Mr Boyton said.

"Yes, the labour market is still very solid but slack is creeping in."

However, Mr Jarvis said that despite the small decline in August, hours worked were up 3.7 per cent from a year earlier, and are growing faster than employment.

"The strength in hours worked over the past year, relative to employment growth, shows the demand for labour is continuing to be met by people working more hours, to some extent," he said.

The ABS statistician added that the underutilisation rate, though marginally higher, was still well below pre-pandemic levels and, "before the pandemic, the last time we saw it this low was in September 2008".

EY chief economist Cherelle Murphy said the labour market "remains tight".

"Some employers are still finding it hard to find the labour they need...despite very strong migration," Mr Murphy said.

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The unemployment rate is tipped by the government and the Reserve Bank of Australia to go higher, with both forecasting it to reach 4.5 per cent in 2025.

The treasurer warned that "high interest rates, high but moderating inflation and continuing global uncertainty - particularly the slowdown in China - will inevitably weigh on our economy and our labour market in the year ahead".

But it has barely shifted this year, varying between 3.5 and 3.7 per cent since January, even as growth has dropped and there has been a big influx of workers and international students into the country.

Annual output growth slowed to 2.1 per cent in the June quarter as high inflation and interest rates have suppressed household spending and the government predicts a cumulative 715,000 increase in net overseas migration in the two years to mid-2024.

The Reserve Bank has expressed concern that sustained low unemployment could drive an unsustainable spike in wages, exacerbating inflation.

But pay gains have so far been moderate, leading some economists to speculate that the long-term sustainable jobless rate - also referred to as full employment - could be as low as 3.5 to 3.75 per cent.

"Although risks of a wages spillover remain, there is little evidence of this so far," Ms Murphy said, adding that the labour data were consistent with the cash rate staying at 4.1 per cent "for now".

KPMG senior economist Michael Malakellis said that will depend on wage growth remaining moderate and an improvement in productivity.

"Further RBA rate rises in the coming months cannot be completely discounted," Dr Malakellis warned.

The nation's productivity growth has slowed significantly in the past decade and fell by 3.6 per cent in the year to June.

The Productivity Commission said if the country had been able to sustain the 2.2 per cent productivity growth achieved during the 1990s the average a=worker would be earning an extra $25,000 a year.