Australian employment unexpectedly fell by 2.5k in May, unable to follow on from its largest rise in 14 months in April (87.6k). The unemployment rate still remained at 4.1%, unchanged for the 5th month in succession as the participation rate eased to 67.0%. While underlying labour market conditions are solid, the RBA showed in May it is prepared to lower interest rates. Today's report has given markets no reason to think that the 25bps cut that is largely priced in for the meeting on 7-8 July will not be forthcoming.
By the numbers | May
- Employment posted a modest 2.5k decline in May (full time +38.7k/part time -41.1k), missing expectations for a 21.5k rise following April's 87.6k surge (revised from 89k).
- The national unemployment rate remained unchanged at 4.1%. Underemployment and underutilisation both fell by 0.1ppt to 5.9% and 9.9% respectively, reversing increases from last month.
- Labour force participation declined from 67.1% to 67.0%. The employment to population ratio eased from 64.3% to 64.2%. Both measures are near record highs.
- Hours worked advanced by 1.3% in the month, its strongest reported increase in 14 months - despite employment falling. Base effects accelerated annual growth from 1.1% to 3.1%.
The details | May
Another volatile outcome for employment has been reported in the Labour Force Survey (LFS). On this occasion, employment in May fell by 2.5k - full time employment rose by 38.7k but was offset by a 41.1k fall in part time employment. Although many will argue the LFS is volatile at the best of times, the current situation seems a little more extreme. Through the first 5 months of the year, the LFS has reported both the largest fall in employment since the pandemic (-54.2k in February) and the strongest rise in 14 months (87.6k in April), a time when the unemployment rate was 3.7% - significantly below its current level. Seasonality and a range of other factors (increased retirements and severe weather events) all appear to be contributing to higher volatility in the data.
Beneath the surface, labour market conditions are solid. Employment gains averaged 36.9k over the 3 months to May, a pace that has held the unemployment rate low and steady at 4.1%. Job vacancy data suggest labour demand is still robust and - barring any unexpected shocks - should be able to sustain employment growth around its current momentum.
The cleanest indicator of conditions currently is the unemployment rate - which is not always the case with the LFS. Although employment outcomes have swung significantly from one month to the next, the unemployment rate at 4.1% has not moved since the turn of the year. This is a historically low level for the unemployment rate. Additionally, the broader measures of spare capacity of underemployment (5.9%) and underutilisation (9.9%) are also low.
Low levels of spare capacity coincide with elevated levels of labour supply. Like employment, the participation rate has been volatile in 2025. In May, it eased from 67.1% to 67.0% - a level only just below the series high of 67.2% in January. The employment to population ratio - the share of working aged people in work - at 64.2% is also only fractionally below record highs.
Hours worked rose by 1.3% in May, the strongest rise in 14 months and an outcome that wouldn't have been out of place last month when employment surged. As it was hours worked lifted by just 0.2% in April. The catch-up effect as well as a low base (May 2024 hours fell by 0.7%) saw annual growth in hours worked accelerate from 1.1% to 3.1%, the fastest pace since August 2023.
In summary | May
Today's report was all over the place giving mixed signals on the key indicators. Despite volatility in the data, labour market conditions are solid overall. Unemployment is low and participation is high. The RBA is lowering rates on inflation progress, cutting twice this year at a quarterly interval. The case for the RBA to speed up its easing cycle with a July cut rests on the Board responding to Q1's weak GDP outcome.
