Australia’s unemployment rate drops to 4%, a marginal improvement from April’s 4.1%

Australia’s unemployment rate dropped to 4% in May, marking a slight improvement from April’s 4.1% and aligning with economists' predictions. This decrease highlights the resilience of the Australian labour market despite ongoing economic challenges, including rising interest rates and persistent inflation. 

The Australian Bureau of Statistics (ABS) reported a net increase of 39,700 jobs in May, surpassing the expected 30,000. Full-time employment saw a significant rise, with 41,700 new positions, while part-time jobs decreased by approximately 2,000. 

"The latest jobs numbers show our labour market is an important source of strength in difficult times," said Treasurer Jim Chalmers. He emphasised that despite economic slowdowns due to higher interest rates, global uncertainties, and inflation, the labour market's resilience is evident. 

Since the Labour party took office two years ago, 880,000 jobs have been added, marking a record for any first-term government. 

Labour market figures are closely monitored by the Reserve Bank of Australia (RBA) as it balances the goals of reducing inflation and maintaining job growth post-COVID-19. Both the RBA and Treasury predict the unemployment rate to stay at 4% next month before rising to around 4.3% by June 2025. 

Belinda Allen, a senior economist at the Commonwealth Bank, highlighted the need for the country to generate approximately 40,000 additional jobs monthly to accommodate the expanding workforce. 

Investor reaction to the unemployment data was subdued, with the Australian dollar remaining around 66.5 US cents and stocks retaining most of their 0.5% morning gains. This response suggests investors do not anticipate significant changes in the RBA’s stance based on these figures. 

The labour force participation rate remained stable at 66.7%, and the total number of hours worked saw a minor decrease, shedding 9 million hours to just under 2 billion. Bjorn Jarvis, head of labour statistics at the ABS, noted a reduction of 9,000 in the number of unemployed individuals in May, partially offsetting April's increase of 33,000. 

"There are now almost 600,000 unemployed people," Jarvis said, noting this is still nearly 110,000 fewer than in March 2020, just before the pandemic hit. Regional Employment Trends Across Australia, Western Australia recorded the lowest unemployment rate in May at 3.6%, down from 3.9% in April. 

New South Wales also saw a decrease, dropping to 3.8% from 4%. Conversely, Victoria's unemployment rate increased to 4.4% from 4.2%, the highest in the country. Queensland’s rate dropped slightly to 4%, and the ACT remained steady at 3.8%. 

Harry Murphy Cruise, an economist at Moody's Analytics, remarked on the cooling labour market, noting a trend increase in unemployment from 3.9% to 4%. “Rather than an uptick of layoffs or redundancies, employers are instead tempering their hiring plans and shaving off the hours they offer to their employees," he said, reported The Guardian. 

Murphy Cruise forecasts the unemployment rate to reach 4.4% by the year's end and peak at 4.5% by mid-2025. Krishna Bhimavarapu, an economist at State Street Global Advisors, pointed out that the labor market is cooling faster than in previous cycles. 

“The annual growth in full-time non-seasonally adjusted employment is now 85.2% down from its peak in October 2022, greater than the average fall (59.5%) of the nine previous cycles,” he explained. 

Bhimavarapu suggested that the RBA should consider this trend in their upcoming policy discussions. Future Outlook The RBA board is set to meet on June 17-18, with expectations to keep the cash rate on hold at 4.35% for the fifth consecutive meeting. 

The central bank's approach will likely be influenced by these latest employment figures and the overall economic environment, balancing inflation control with the need to support job growth. 

Australia’s labour market shows robust performance amidst economic pressures, providing a source of strength and stability. However, as the economy navigates through high inflation and interest rates, the RBA’s future policy decisions will be crucial in maintaining this balance.