The warning signs hidden in Australia's jobs data

Australia's jobs data is back in focus, but falling vacancies, weak business conditions and rising underemployment may reveal a softer labour market than headline numbers suggest.

Next week, all eyes will be on Australia's jobs data with the release of the June labour force report.

If the unemployment rate remains at 4.4%, many headlines will declare the labour market is still strong. If it rises, attention will quickly turn to whether the Reserve Bank is less likely to raise interest rates.

But what if Australia's most-watched economic number is also its most misleading?

Think of it like driving a car using only the rear-view mirror.

Unemployment tells us what has already happened; it doesn't tell us what businesses are planning to do next. Employers rarely begin by making workers redundant.

They first stop hiring, reduce overtime, cut casual hours, delay investment and simply not replace staff who leave. Those changes can take months or years before they appear in the unemployment rate. Yet many of those forward-looking indicators are already showing signs of strain.

Official ABS data shows almost one in three Australian businesses reported lower revenue in June, while nearly half experienced higher operating costs.

More than one in four expect difficulty meeting their financial commitments over the coming month, and 15% have delayed or cancelled investment.

Official job vacancies have also fallen more than 30% from their 2022 peak, suggesting businesses are becoming more cautious about hiring.

Consumers are hardly painting the picture of a booming economy either.

Consumer confidence remains among the weakest readings in almost 50 years, while Australia recorded more than 14700 corporate external administrations in the past financial year, the highest annual number on record in raw terms.

So rather than focusing solely on next week's unemployment rate, the RBA should pay closer attention to what sits beneath the surface.

Was job growth driven by full-time or part-time positions? In May, almost 87% of new jobs created were part-time.

Did hours worked increase or fall? Is underemployment rising, suggesting more Australians have jobs but cannot secure the hours they need?

When the numbers come out next week, I wouldn't be surprised if the unemployment rate remains around current levels, but that's not the number I'll be watching.

The real test will be whether Australia is creating quality, full-time jobs, Australians are working more hours and if underemployment continues to rise.

If the headline remains strong while those underlying measures deteriorate, it suggests the labour market is considerably weaker than the unemployment rate implies.

For the sake of Australian households and businesses, I hope the Reserve Bank looks beyond the headline figure. Monetary policy shouldn't be driven by one lagging statistic when so many forward-looking indicators are telling a very different story.

What are the best and worst-performing sectors this week?

The best-performing sectors include Consumer Discretionary, up more than 2%, followed by Communication Services and Financials, both up more than 1%.

The worst-performing sectors include Consumer Staples, down more than 2%, followed by Information Technology and Real Estate, both down more than 1%.

The best-performing stocks in the ASX top 100 include AMP Limited, up more than 14%, followed by James Hardie Industries, up more than 7% and SEEK Limited, up more than 6%.

The worst-performing stocks include Paladin Energy, down more than 8%, followed by Capricorn Metals, down more than 6% and Xero Limited, down more than 5%.

What's next for the Australian stock market?

This week, the All Ordinaries Index delivered another quietly bullish performance, closing around 0.37% higher as of Thursday.

While that gain may seem modest, an old market saying explains why this week was more important than it first appears: "Professionals close the market." It's not where the market trades during the week that matters most, it's where the big money chooses to leave it at the close.

Last week, I highlighted 9050 and 8900 as the market's key battleground levels.

Since June 19, buyers have repeatedly tested 9050 but have been unable to secure a weekly close above it. This week followed the same pattern. The All Ords traded above 9050 before sellers stepped in, pushing the index back below resistance by Thursday's close. That's now four consecutive weeks where buyers have challenged this level without breaking it.

At first glance, many technical analysts would view that as bearish, but there's another side to the story.

Despite repeated selling, buyers haven't surrendered ground. For the past month, the market has consistently closed near 9050 rather than falling back towards 8900.

That tells me buying demand remains strong enough to absorb the selling pressure.

Based on technical analysis, the longer a market can hold beneath a major resistance level without retreating, the greater the probability it will eventually break through.

If that happens, the next move higher could be swift. That's why now is the time to prepare rather than react. Once this month-long battle finally produces a winner, investors may have very little time to position themselves.

There are also encouraging signs beneath the surface.

The XFL Index, which tracks Australia's 20 largest listed companies, has already broken to new highs while the All Ordinaries continues to lag. Large-cap stocks often lead the broader market, suggesting the All Ords may simply be in the final stages of catching up.

The professionals will cast the deciding vote again this week. If they can finally close the market above 9050, it could be the signal that the next leg of the bull market has begun.

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