Australia Reports Surprise Drop in Unemployment Rate in May

Construction workers are seen in Sydney, Australia, on Dec. 1, 2021. AAP Image/Bianca De Marchi

The Australian economy has been surprised by a slight drop in the unemployment rate in May, which defies market expectations and is anticipated to have implications on the central bank’s July interest rate decision.

According to the latest labour force data from the Australian Bureau of Statistics (ABS), the jobless rate dipped by 0.1 percent to 3.6 percent in May, marking the 14^th month that the economic indicator had stayed below four percent.

This came on the back of an increase in employment of 76,000 people and a drop of 17,000 unemployed people.

The 76,000 jobs added in May were much higher than consensus forecasts of 17,500 and the monthly average of 39,000 over the past year.

“The strong growth in employment in May followed a small decrease in April, around Easter, when employment fell by more than it usually would over the holiday period,” ABS head of labour statistics Bjorn Jarvis said.

He also noted that this was the first time the number of employed people in Australia had reached over 14 million.

Other metrics also saw improvement during the month.

Specifically, the employment-to-population ratio climbed by 0.2 percent to 64.5 percent, reaching a record high.

The overall participation rate also went up by 0.1 percent to 66.9 percent. Women saw their participation rate rise by 0.2 percent to 62.7 percent, while the figure for men remained the same at 71.2 percent.

“A greater share of women in Australia are employed than ever before, with their employment to population ratio and participation rate both at record highs in May,” Jarvis said.

However, the underemployment rate, which measures the portion of the population working in low-paying or part-time jobs because they cannot get full-time positions, rose by 0.3 percent to 6.4 percent.

Response from the Government and Economists

Following the labour force data’s release, Treasurer Jim Chalmers called the May results a “remarkable achievement” as he pointed to the challenging global economic conditions.

“New Zealand in data today went into recession. Europe last week went into recession, and there are pressures coming at us from around the word,” he told the parliament.

“With everything coming at us from around the world, we still have unemployment with three in front of it. And that means we go into this period of significant global economic uncertainty from a position of relative strength.”

However, the treasurer expected that the jobless rate would trend up in the coming months due to higher interest rates and a weakened global economy.

Federal Treasurer Jim Chalmers speaks at Parliament House in Canberra, Australia, on July 28, 2022. Martin Ollman/Getty Images

Meanwhile, St George Bank chief economist Besa Deda said the May results indicated that the labour market still remained robust.

“We do think that the unemployment rate will gradually move higher, but the unemployment rate has, in recent months, continued to surprise,” she told ABC News.

Deda explained that the unemployment rate had been within a 3.4-3.7 percent range since October 2022, which was lower than the rate associated with full employment in the economy.

While the chief economist expected the labour force data to soften in the near future, she said it would likely take some time for the unemployment rate to rise as some economic indicators were still at very high levels.

“It does keep the pressure on the Reserve Bank to raise rates again, given that the labour market wage pressures do feed into the overall inflation story,” she said.

Similarly, ANZ Bank economists believed the latest unemployment data had raised the possibility of another interest rate hike in July.

“It also means we now see sufficient risks that the bank will need to increase rates beyond the 4.35 percent that we had seen as the peak for this cycle,” they said.

“As a result, we also look for a hike in August. That would bring that cash rate to 4.60 percent.”