Australia's Labour Force Survey for June is scheduled for release at 11:30am (AEST) today. Conditions in the labour market strengthened in May, with the unemployment rate close to a 50-year low as the participation rate increased to a record high. Employment re-accelerated after a recent slowdown and elevated levels of job vacancies indicate the momentum can continue. A strong report would further back calls for a third consecutive 50bps RBA rate hike in August.
As it stands | Labour Force Survey
Conditions in the Australian labour market continued to strengthen in May. Employment increased by 60.6k in the month to come in well above the consensus estimate (25k), re-accelerating after slowing in April (4.4k). This kept the national unemployment rate at the 48-year low of 3.9% as the participation rate elevated to a record high at 66.7%. Underemployment fell from 6.1% to 5.7%, reducing total underutilisation in the labour force to its lowest in 40 years at 9.6%.
The strong labour market continues to drive full time employment, increasing by a further 69.4k in May, taking its rise since the turn of the year to above 300k. Part time employment was down by 8.7k in May, extending the decline to 99k year to date. Rising hours worked and very high levels of job vacancies have supported this rotation away from the part time segment to full time employment.
Hours worked increased by 0.9% in May, rising to be almost 5% above pre-Covid levels. However, ongoing disruptions related to Omicron remained a headwind. The number of people away from work due to illness surpassed the previous peak in January, while caregiving-related absences also surged in the month.
Market expectations | Labour Force Survey
The market expects a 30k rise in employment in June, with estimates ranging between -10k and +45k. Employment underperformed expectations between March and April with hiring slowing down due to the east coast floods and over the Easter holiday period. May's resurgent outcome (60.6k) brought the 3-month average to 30k, the expected figure today. With job vacancies as high as they are and hours worked sharply above pre-Covid levels, I see the risks as being to the upside for employment in June. Such an outcome would help generate the expected decline in the unemployment rate from 3.9% to 3.8% (range: 3.7% to 4%).
What to watch | Labour Force Survey
All indications are that the labour market will tighten further through the back half of the year. Another strong report today would be consistent with that outlook and firm up expectations for another 50bps rate hike from the RBA in August. With these being the strongest labour market conditions in many years, wage pressures are building. I, therefore, continue to watch the participation rate closely, encouraged by the rise to a record high in May. This is a vastly different situation to many other countries where participation has fallen over the pandemic. I expect this to be one key that will prevent the degree of acceleration in wage pressures seen in the US and UK in particular.
