Australia’s unemployment rate unexpectedly declined in May as employment recorded a strong rebound. The figures suggest that the country’s labour market remains resilient and may support expectations for another Reserve Bank of Australia rate hike.
According to data from the Australian Bureau of Statistics, employment increased by 40,300 people in May. This reversed April’s revised decline of 40,700 and exceeded economists’ forecasts for a gain of 31,200 jobs.
Australian Unemployment Rate Falls to 4.4%
Australia’s unemployment rate edged down to 4.4% in May, compared with 4.5% in April.
Economists had expected the unemployment rate to remain unchanged at 4.5%.
Full-time employment increased by 5,200 positions. Meanwhile, part-time employment rose by approximately 35,000, accounting for most of the overall jobs growth.
Employment Backlog Begins to Ease
Sean Crick, head of labour statistics at the ABS, said the increase in employment reflected an easing backlog of unemployed people waiting to begin new jobs.
In recent months, a higher proportion of unemployed Australians who were waiting to start work remained classified as unemployed during the following month. The latest figures suggest that some of this backlog has now started to clear.
Australia’s labour force participation rate remained unchanged at 66.7%. However, this was slightly below market expectations of 66.8%.
Labour Demand Shows Signs of Weakness
Despite the stronger employment figures, other labour market indicators pointed to softer demand.
Hours worked declined by 1.1% in May, following a 0.9% increase in April. The underemployment rate also rose slightly to 5.9%, up from 5.8% in the previous month.
Capital Economics analysts noted that May’s employment increase was the strongest in five months. However, it did not fully reverse April’s downwardly revised decline.
As a result, annual employment growth remained relatively weak at just 1.0%.
Jobs Report Keeps RBA Rate Hike Debate Alive
The latest Australian jobs report is unlikely to settle the debate over whether the Reserve Bank of Australia will raise interest rates again.
Capital Economics expects trimmed mean inflation to accelerate further during the quarter. Therefore, its analysts believe the RBA could deliver one final precautionary rate increase to ensure inflation is brought under control.
The Reserve Bank left its cash rate unchanged at 4.35% at its latest policy meeting after raising interest rates three times earlier in the year.
However, policymakers have continued to warn that inflation remains too high. They have also indicated that further monetary policy tightening may be necessary if price pressures remain persistent.
Australian Dollar Trades Flat
The Australian dollar showed little immediate reaction to the labour market data.
The AUD/USD exchange rate traded broadly flat, suggesting that currency traders remained cautious about the outlook for Australian interest rates.
Although the employment rebound was stronger than expected, the decline in hours worked and the rise in underemployment created a mixed picture for the Australian economy.
