Australia's Labour Force Survey for May is scheduled for release at 11:30am (AEST) today. Coming off a month of weakness in April, labour market activity is expected to have rebounded in May. The employment outcome could be stronger than markets have factored in, which could have implications for the next RBA meeting.
As it stands | Labour Force Survey
A weak labour force report for April surprised markets that were anticipating a continuation of the strong momentum seen during the first quarter of the year. Seasonal effects associated with the Easter holiday period were the likely cause. Employment fell for the first time since December, down 4.3k in the month (vs 25k exp) driven by a decline in full time employment (-27.1k) as part time employment increased (22.8k).
The fall in employment pushed the unemployment rate up to 3.7% from 3.5% in March, occurring alongside an easing in the participation rate from 66.8% to 66.7%. Despite the rise in unemployment, the broader underemployment measure (including employed people wanting additional hours) ticked down from 6.2% to 6.1%. These offsetting movements in unemployment and underemployment left total labour force underutilisation unchanged at 9.8%, around historic lows in Australia.
Hours worked were reported to have surged by 2.6% in April, a surprising outturn given that 5.1 million people were taking annual leave during the reference weeks for the survey, which covered the full Easter holiday period. The timing of Easter in 2023 was similar to 2015; back then, 5.2 million people took annual leave, with no growth in hours worked in that particular month.
Market expectations | Labour Force Survey
Employment is forecast to rebound by 15k in the month on the median estimate (Bloomberg survey) around a range from -10k to 45k. The high-frequency ABS payrolls index lifted by 0.5% for the month to mid-May, consistent with a rebound in employment coming out of the Easter holiday period. Prior to Easter, the momentum in employment had reaccelerated to rise by 116.6k through the first quarter of the year, the strongest quarterly increase since the middle of 2022. Given these factors, the risks look tilted to the upside of the consensus expectation for employment in May.
An expected rebound in employment is seen holding the unemployment rate in check at 3.7%, with the participation likely to see an uplift after the holiday period amidst ongoing rapid population growth.
What to watch | Labour Force Survey
Despite the weak report for April and genuine questions around seasonal effects during Easter, the RBA continued to hike interest rates last week. A data-dependent RBA retains a tightening bias and if today's report shows a strong rebound in the labour market in May, markets are likely to respond by pushing up pricing for a 25bps hike in July.
