Employment growth slowed sharply in June, unemployment rose to 4.3%, and total hours worked fell, signaling a softening labor market ahead, Westpac Banking (ASX:WBC, NZE:WBC) said in a Thursday report.

Employment rose by just 2,000 in June, well below Westpac's 30,000 forecast and market expectations, highlighting a recent soft patch despite steady growth in smoothed data, with job growth expected to slow to around 1.3% by year-end, the report said.

Despite employment remaining flat in June, total hours worked fell 0.9%, driven by a 1.3% decline in full-time hours, contributing to a rise in underemployment to 6%, a trend the Reserve Bank of Australia (RBA) will watch amid below-trend hours after cyclone disruptions.

The unemployment rate rose to 4.3% in June, its largest monthly increase in over two years after five months at 4.1%, driven mainly by a 0.9% jump in youth unemployment to 10.4%, while adult unemployment held steady, indicating the overall rate may climb to 4.4% by year-end, the report added.

June's unemployment rise was partly influenced by sample rotation, but signs of labor market softening persist, supporting expectations of an RBA rate cut in August.