Australia unemployment unexpectedly increased in April as employers cut jobs — led by full-time roles — reinforcing the case for the Reserve Bank to stand pat at next month’s policy meeting.
The currency and government bond yields declined as the jobless rate climbed to 3.7% from an almost 50-year low of 3.5%, Thursday’s data showed. The economy shed 4,300 positions following two bumper months of hiring, compared with a forecast 25,000 gain,
The weaker result following relatively contained wage gains suggest the RBA’s 11 interest-rate hikes over the past year are weighing on the corporate sector at a time when surging migration is also set to swell the labor force. That strengthens the argument for the bank to hold its cash rate at 3.85% on June 6.
“We had expected a softer outcome today largely as payback to the recent strong and outsized prints,” said Su-Lin Ong, chief economist at Royal Bank of Canada. “I’m not sure this makes the RBA relax that much on the labor market, wages and inflation front, but it might buy them a bit of breathing room to assess further incoming data.”
Employment is an important piece of the policy puzzle for Governor Philip Lowe as he tries to assess the economic impact of the RBA’s aggressive tightening to date. Lowe wants to hold onto employment gains made since the pandemic while returning inflation to the 2-3% target from 7% now.
Ong said Australia’s jobs market remains “healthy and tight” with key metrics in trend terms – unemployment, the participation rate and underemployment – all historically strong, “though it is likely past its best and peak tightness.”
The governor has said the board will closely monitor figures on the economy and inflation when deciding further policy moves. Figures out this month painted a mixed picture with a still-resilient corporate sector but signs of a squeeze among households.
Goldman Sachs Group Inc. expects the bank to raise rates by another quarter-percentage point while many others, including Commonwealth Bank of Australia, say the RBA’s tightening cycle is done. Overnight-indexed swaps also imply the terminal rate has been reached.
What Bloomberg Economics Says...
“The labor market outcome adds weight to our forecast for the RBA to remain on pause in June. Looking further ahead, we expect the RBA to reverse course and cut rates in 4Q23 against the backdrop of higher unemployment.”
— James McIntyre, economist
For full note, click here
Employment strength has been a key factor in the RBA’s confidence that Australia can avoid a recession. The central bank is forecasting unemployment will rise to 4% by year’s end as rising borrowing costs drag on economic activity.
Bloomberg Economics estimates that jobs growth will need to average 2.3% a year, or more than 29,000 roles per month, to prevent unemployment rising further — a tough ask at a time when the economy is forecast to slow.
Thursday’s jobs report also showed:
- The participation rate fell to 66.7% from an upwardly revised 66.8% in March
- Underemployment fell to 6.1% and underutilization rose to 9.8%
- Full-time roles tumbled by 27,100, while part-time climbed by 22,800
- The employment to population ratio fell to 64.2%.
--With assistance from Tomoko Sato.
(Adds comments from economists.)
