The Australian labour market tightened further in May as employment came in well above expectations. Strong demand for labour was accompanied by a rise in the partcipation rate to a new record high. Today's report points to a 50bps RBA rate hike in July.
Labour Force Survey — May | By the numbers
- Employment surged higher by a net 60.6k in May, well above the consensus forecast for a 25k rise. April's increase was revised slightly higher to 4.4k from 4k.
- National unemployment rate remained at 3.9%, missing expectations for a fall to 3.8%. However, the underemployment rate printed with a 5-handle (5.7%) for the first time since 2008 and total underutilsation has fallen to a 40-year low (9.6%).
- Participation rate lifted from 66.4% to 66.7% in May, a new record high.
- Hours worked advanced by 0.9%m/m to be up by 2.1% over the year.
Labour Force Survey — May | The details
The Australian labour market continues to go from strength to strength. Today's report for May showed the national unemployment rate remained at 3.9%, it lowest since 1974. In a tightening labour market more and more Australians are finding work and working the hours they are looking for. As a result, the rate of underemployment has fallen below 6% for the first time since 2008 and total underutilisation in the labour market has declined to its lowest level since 1982.
After declining slightly over the past couple of months due to the disruptions from Omicron and the east coast floods and through the Easter holiday period, participation picked back up in May to rise to a new record high at 66.7%. Meanwhile, the share of Australians in work continues to rise, resetting to a new record high in May at 64.1%, 1.6ppts above its pre-Covid level.
May saw a resurgence in employment, posted at a net increase of 60.6k in the month. Employment had slowed in March and April, reflecting the impact of the floods in New South Wales and Queensland and reduced hiring during the Easter holiday period. In May, full time employment lifted by 69.4k while part time employment declined by 8.7k. So far in 2022, growth in full time employment has been incredibly strong (307k) as part time employment has declined (-99k). This likely reflects a couple of factors. Firstly, many part time workers have likely taken on additional hours amid very high levels of job vacancies, thus crossing the threshold defined by the ABS for being employed full time (35 or more hours in the survey week). Secondly, given those high vacancies, many Australians previously working part time have been able to find full time positions.
Total hours worked in the economy lifted by a strong 0.9% in May following on from April's 1.3% rebound from the east coast floods. This takes monthly hours to 4.9% above their pre-Covid level from March 2020. Reflecting the strength in the employment outcome, full time hours advanced by 1.4% in May to be 6.4% higher across the Covid period. Part time hours were down in the month (-1.5%) and are below their pre-Covid level (-2.6%).
Total hours worked would have recorded an even stronger rise in May but for the significant disruptions that continue to be posed by Omicron and, more recently, seasonal flu. The number of Australians working fewer hours than usual due to illness surpassed the peak seen during the Omicron wave rising to 780.5k in May (around 5.6% of the labour force). Increased illness at schools likely drove the large rise in the number of people taking time away from work for caregiving reasons in May to 352.4k (around 2.5% of the labour force).
Labour Force Survey — May | Insights
A strong report today confirmed that the Australian labour market continues to tighten. With the RBA noting in its decision to hike rates by 50bps at the June meeting that the labour market conditions were "contributing to the upward pressure on prices", another 50bps hike in July is surely on the cards. There are a couple of key points to note, however. Firstly, the rise in the partcipation rate to record highs creates a much better supply-demand balance than seen in many other labour markets around the world, which is likely to mean wages growth will not accelerate at an uncomfortable pace for policymakers. Secondly, hiring is settling towards a pace that the Australian economy can comfortably sustain as labour demand remains strong.
