Today’s labour force data continued to underline just how tight the Australian labour force is. At 3.4 per cent, seasonally adjusted unemployment rate is at the lowest it has been since 1974. There are now fewer unemployed people than there are jobs available in Australia.

However, looking beyond the raw unemployment rate, we may be seeing early signs that some heat is coming out of the labour market, as the total number of people employed dropped for the first time since October 2021. The reason the unemployment rate also dropped, was that the participation rate (the proportion of Australians currently in the job market) also declined. Participation has been at record high levels, so some levelling off is not surprising. Still a drop in employment could mean that businesses are starting to prepare their workforce make up in anticipation for leaner times ahead.

CreditorWatch BRI data for June 2022 forecasts that the small business default rate is due to climb to around 5.8 per cent. That is about 1 percentage point higher than where it sits today. Ironically, a tight labour market is driving up the cost of employing people, and this is feeding into the distress of some businesses, particularly in the food and beverage sector.

This is typically a labour-intensive market, and any movement in labour costs has an outsized impact. This is one of the reasons that this sector has the highest probability of default of all industries. At 7.1 per cent, this rates well above the average of all sectors, which is 4.8 per cent