Is Australia’s job market weakening despite steady unemployment?

Australia’s unemployment rate in August 2025 remained steady at 4.2%, a minor increase from 4.1% in August 2024 and higher than 3.7% in August 2023. While these figures suggest broad stability, closer analysis of the latest Labour Force Survey reveals subtle indicators of a softening job market. Employment declined by 5,400 roles, and fewer Australians are actively seeking work.

This reduction in both job numbers and workforce participation may foreshadow a change in hiring conditions as businesses head into 2026. For employers, it’s a crucial time to monitor economic signals and workforce sentiment closely.

Ben Wheeler, Queensland Managing Director at people2people, provided this analysis during a recent episode of the AU Market Update.

"There are signs of a softening market"

In his update, Wheeler emphasised that while the unemployment rate has not moved significantly in 2025, the drop in employment and participation are early warning signs. "If this trend continues, we will likely see an uptick in the unemployment numbers," he said.

This is particularly relevant for industries already feeling pressure from rising operational costs, evolving compliance standards, and shifting talent demands. Wheeler noted that many businesses are starting to look beyond headline statistics to assess the resilience of their teams and the attractiveness of their hiring offers.

A closer look at sector-specific data may help identify where softness is most evident. For example, industries such as retail, hospitality, and administrative services often feel the earliest effects of economic shifts. Employers in these fields should be especially proactive in reviewing staffing levels and forecasting needs.

Wheeler also encouraged businesses to assess their internal mobility strategies. When external hiring slows, having a strong focus on developing existing staff becomes even more vital. Upskilling and reskilling programmes can not only retain employees but also fill emerging skill gaps more cost-effectively than new hires.

Another factor influencing participation is growing uncertainty among job seekers. With high living costs and fluctuating economic headlines, many potential candidates may be delaying moves or opting out of the market temporarily. This reinforces the need for clear employer branding and communication around stability and career progression.

What can employers do to stay competitive and prepared?

Drawing from broader market trends, here are five practical strategies for employers looking to prepare for 2026:

• Invest in workforce retention: With fewer job seekers, holding onto experienced employees is more critical than ever.
  
  
• Review hiring strategies: Focus on long-term fits and upskilling rather than short-term placements.
  
  
• Stay alert to labour force data: Monthly employment surveys can reveal early shifts that help guide recruitment and budgeting decisions.
  
  
• Maintain candidate engagement: Streamline your recruitment process and keep candidates informed to reduce dropout.
  
  
• Build internal flexibility: Encourage cross-training and agile working practices to adapt to short-term demand changes.
  
  

As Wheeler highlighted, "Like all businesses, we're going to be keeping a close eye on this," referring to the unemployment and participation trends. These subtle movements in the job market may shape strategic decisions across hiring, retention, and budgeting as 2026 approaches.

Monitoring economic indicators isn’t just a task for economists — it’s a key part of workforce planning. Businesses that stay proactive and adaptable will be best positioned to manage change and take advantage of new opportunities.