Australia's unemployment rate shot up from 4.3% in March to 4.5% in April, reaching its highest since late 2021 as employment fell by almost 19k in the month. These were both huge downside surprises, with markets going into the report anticipating a 17.5k rise in employment and a steady unemployment rate of 4.3%. The RBA was already marked at long odds to deliver a 4th consecutive hike in June, but markets were pricing in one additional hike to the cash rate by year-end. The May meeting minutes released earlier this week noted that while the Board was adamant that the labour market was tight, it was mindful that risks to the downside had increased following its tightening cycle. There may be signs of that coming to fruition.
Employment slipped by 18.6k in April, its worst result in 5 months, with both full (-10.7k) and part time employment (-7.9k) declining. That slowed the 3-month rolling average to just 11.2k. It is worth noting there are question marks over the data: the April survey was conducted during the Easter holiday period, and the ABS is also in the midst of an overhaul of the labour force series, but this was the sort of report that markets find hard to look past.
The unemployment rate climbed to 4.5% in April. That was its highest reading since December 2021 and a clear break above its levels since the start of the year. As a result, the 3-month average for unemployment is now 4.4%, tracking above RBA forecasts for 4.2% and 4.3% by mid-year and year-end respectively.
Notably, the higher unemployment rate reflected a weakening in labour demand, unable to be offset by a fall in labour force participation from 66.8% to 66.7%. The employment to population ratio - a measure of the share of people in work - rolled back to 63.7%, its lowest since mid 2022. With the unemployment rate lifting by 0.2ppt to 4.5%, total labour market spare capacity rose from 10.2% to 10.3% despite underemployment - that includes workers wanting more hours - actually falling from 5.9% to 5.8%.
Hours worked were surprisingly strong rising by 0.8% in April given that employment fell and the timing of the Easter holiday period. The positive volatility from base effects saw annual growth lift to 3.6% from 2.5% previously. Curiously, full time (0.8%) and part time (0.5%) hours rose, despite employment levels falling in both segments.
