The Australian labour market regained its momentum from earlier in the year, rebounding strongly from a slowdown over the Easter holiday period. Employment posted its strongest increase in 11 months (75.9k), rising through 14 million for the first time. This drove a fall in the unemployment rate to 3.6%, remaining around cycle lows as the participation rate elevated to a new record high (66.9%). The report increases the chance of an RBA rate hike in July.
Labour Force Survey — May | By the numbers
- Employment surged by 75.9k (on net) in April, blitzing expectations for a rise of 17.5k. This follows a 4k decline in April (revised from -4.3k).
- National unemployment fell back to 3.6% (or 3.55%), reversing the increase to 3.7% in April. The broader underemployment rate was 0.3ppt higher at 6.4%, resulting in total underutilisation increasing from 9.8% to 10% (11-month high).
- Labour force participation rate hit a record high in May at 66.9%, more than rebounding from April's decline to 66.7%. The employment to population ratio (share of working-aged Australians in work) is also back at record highs after rising to 64.5%.
- Hours worked were 1.8% lower on the month following a 2.7% acceleration in April. Year to date, hours worked have risen by 2.8%.
Labour Force Survey — May | The details
The Australian labour market has returned to the strong momentum seen in the first quarter of the year, confirming (as expected) the weak report in April was driven by seasonal effects around the Easter holiday period. Employment increased sharply by 75.9k in the month (full time 61.7k and part time 14.3k), its strongest rise in 11 months.
Over the 3 months to May, employment averaged an increase of 47.6k per month, the pace annualising at a robust 4.2%. The momentum in employment softened into the end of last year, but it has since reaccelerated. Annual growth in employment is running at 3.4%, outpacing growth in the working-age population (2.7%).
Total employment in Australia rose through 14 million for the first time, an increase of more than one million from its level on the eve of the pandemic. The Australian economy has been a powerhouse for employment in its recovery and subsequent expansion from the Covid recession. Real GDP to the March quarter was 7.4% above its pre-pandemic level, an expansion that has generated a 7.9% increase in employment to May-23.
Such was the strength of the employment outcome in May, the unemployment rate fell from 3.7% to 3.6% even as the participation rate lifted to a new record high at 66.9%. At this level, unemployment is around cycle lows and at its lowest levels since the mid 1970s. Meanwhile, rapid population growth post the pandemic has contributed to a larger labour force in Australia. The participation rate is 1.1ppts higher than in early 2020.
Where there has been some easing in the labour market is in the underemployment rate (including unemployed people and employed people wanting additional hours), now 6.4% compared to the cycle low of 5.9% in late 2022. Alongside this, underutilisation has lifted to 10% from the low of 9.3% last October. But, overall, both measures remain low by historical standards.
Hours worked pulled back in May (-1.8%) after the surprise increase in April (2.7%) when more than 5 million people were on annual leave over Easter. This month around 4 million people were back at work, but hours were reported to have fallen. Looking through the volatility, hours worked are up by 0.9% over the past two months.
Total hours worked in May were up 2.8% since the start of the year and up 10% overall on the pre-pandemic level from March 2020.
Labour Force Survey — May | Insights
There was good reason to be upbeat going into today's report given that the labour market had accelerated in the first quarter; the weak report in April came against the run of play and clearly looked to be related to the Easter holiday period. Given this and the RBA's recent hawkish turn, markets looked to be underpricing prospects for a July rate hike, assessed to be a 1 in 4 chance at yesterday's close. Expectations for a July hike will firm off the back of today's report. That said there are upcoming key events including a speech from RBA Deputy Governor Bullock (20/6) and the monthly CPI report for May (28/6) that will provide more of a guide.
