Australia’s unemployment rate jumped to 4.5% in September, the highest in nearly four years. Economists say November and December rate cuts are now likely.
What’s happening: Australia’s unemployment rate rose to 4.5% in September 2025, up from 4.3% in August, according to the Australian Bureau of Statistics. The increase exceeded market expectations of 4.3%, reaching the highest level in nearly four years.
Why this matters: The unexpected unemployment rise has prompted economists to suggest the Reserve Bank of Australia may accelerate interest rate cuts, with November and December now back on the table. For SMEs, this could mean earlier relief on borrowing costs, but may also signal softening business conditions that affect hiring and cash flow decisions.
Australia’s labour market delivered an unwelcome surprise in September, with unemployment jumping to 4.5%, exceeding forecasts and reaching the highest level since late 2021. For small and medium enterprises navigating tight margins and ongoing cost pressures, the implications extend well beyond the headline figure.
The surprise jump
The Australian Bureau of Statistics reported the seasonally adjusted unemployment rate increased by 0.2 percentage points to 4.5% in September 2025. The market had expected the rate to rise modestly from August’s 4.2% (later revised to 4.3%) to 4.3%, with the participation rate holding steady.
Instead, the participation rate climbed back to 67.0%, alongside jobs growth that came in below market forecasts. The combination pushed unemployment to levels not seen in nearly four years. Even August’s figures were revised downward, with the fall in jobs of 5,400 adjusted to a loss of 11,900.
Employment did increase by 14,900 people in September, with full-time employment rising by 8,700 to 10,082,800 people and part-time employment increasing by 6,300 to 4,557,400 people. Monthly hours worked rose to 1,987 million hours. However, these gains weren’t sufficient to absorb the growing labour force.
Youth unemployment rose to 10.2%, whilst the employment to population ratio remained at 64.0%. The underemployment rate increased to 5.9%, reflecting more people working fewer hours than they would prefer.
What economists are saying
Oliver Hume Chief Economist Matt Bell characterised the result as putting significant decisions back on the Reserve Bank’s agenda.
“A surprise jump in the unemployment rate to 4.5% will give the RBA a lot to think about and probably has November and December rate cuts back on the table,” Bell said following the ABS release.
He emphasised that context matters. “We shouldn’t forget it’s still a low unemployment rate in historical terms, good for wage growth and household incomes, and while unexpected, a rise to 4.5% isn’t likely to dampen the recovery we’ve seen in new and established property markets to date.”
Bell noted that preliminary results for new land sales in the September quarter show that rate cuts delivered earlier this year have seen strong June quarter activity repeated. “We expect this to continue into the end of 2025, regardless of the November and December rate decisions.”
The unemployment rate now sits just above the RBA’s forecasts from August. “If possible, [this] puts even more emphasis on the September quarter inflation numbers due on 29th October as to whether we see the next cut on Melbourne Cup Day,” Bell said.
The Reserve Bank of Australia reduced its economic growth forecast for 2025 to 1.7% from 2.1% in August, saying that weaker than expected rises in public demand in early 2025 were unlikely to be offset through the rest of the year.
Commonwealth Bank of Australia economists forecast another rate cut in November to take the cash rate to 3.35%, with another rate cut in 2026 possible if the jobs market weakens more than expected.
The current cash rate sits at 3.60% following three cuts in 2025, in February, May and August.
The SME impact
For Australian small and medium enterprises, the unemployment data presents a complex picture. On one hand, earlier than expected rate cuts could provide relief on borrowing costs at a time when many businesses face persistent cash flow pressures. On the other, rising unemployment typically signals weakening business conditions.
Recent research has shown SMEs facing contradictory labour market dynamics. Whilst 56% of SMEs report moderate skills gaps and 13% consider it an acute crisis, rising unemployment suggests more candidates may become available.
However, the mismatch persists. SME owners consistently report that applicants lack essential soft skills like communication, time management and leadership, which 87% of business owners consider crucial. The challenge isn’t simply finding workers, it’s finding workers with the right capabilities.
The rising participation rate to 67.0% indicates more Australians are actively seeking work, potentially expanding the candidate pool for SMEs. Yet training costs remain prohibitive, with 54% of SMEs saying training expenses are too high and 64% unable to afford time away from business to train employees.
For SMEs in sectors like hospitality, retail and professional services, the softening labour market may ease some recruitment pressure. However, it also typically reflects declining consumer spending and business investment, the very conditions that squeeze SME revenues.
The property sector response offers some optimism. If rate cuts materialise in November and December as economists now suggest, sectors dependent on property transactions and construction activity may see sustained demand supporting employment and business activity.
Rate cut timing
The Reserve Bank lowered the official interest rate by 25 basis points to 3.60% in August, marking the third cut this year, following reductions in February and May.
Markets had widely anticipated a pause in September, with the next potential cut expected in early 2026. The September unemployment data has accelerated those expectations considerably.
Traders now see a high probability of another 25 basis point cut in November, with markets suggesting the cash rate could fall to around 3.35% by year end.
The September quarter inflation figures, due for release on 29 October, will prove critical. If inflation remains within the RBA’s 2 to 3% target band whilst unemployment continues rising, the case for accelerated rate cuts strengthens significantly.
For SME owners, the practical implications centre on timing. Businesses considering equipment purchases, property investments or expansion plans may benefit from waiting until November or December if rate cuts eventuate. Those with variable rate business loans could see repayment obligations decrease, improving cash flow.
However, the underlying driver of potential rate cuts, weakening economic conditions, means SMEs must balance optimism about lower borrowing costs against realistic assessments of demand for their products and services.
The September labour force data represents more than statistical movement. It signals a labour market losing momentum, with implications for SME hiring, investment decisions and cash flow management extending well into 2026. The question now is whether the Reserve Bank acts decisively, and whether lower rates can stimulate enough activity to prevent further softening.
For Australian SMEs, the message is clear: lower borrowing costs may be coming sooner than expected, but they’re arriving because the economic environment is cooling faster than forecast.
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