SYDNEY: Australian employment blew past expectations in May, while the jobless rate edged lower and participation rate climbed to a fresh record high, an extraordinarily strong report that would pile pressure on the central bank to raise rates further.
Figures from the Australian Bureau of Statistics (ABS) on Thursday showed net employment rose by 75,900 in May from April, when they fell by a revised 4,000, a result likely due to the Easter holiday.
Market forecasts had been for a rise of 15,000. The jobless rate edged back to near 50-year lows at 3.6%, when analysts had expected a steady 3.7%, and the participation rate climbed to a fresh record high of 66.9% from 66.7%, thanks to a greater share of women entering the labour force.
Full-time employment rebounded 61,700 from April when it fell by a revised 28,600.
The broad strength of the report added to the case that the Reserve Bank of Australia (RBA) has more work to do to tame inflation, with markets moving to price in an almost split chance of another quarter-point hike in July, with rates almost certain to hit 4.6% by November.
The bond yield curve, which was already inverted to signal risks of a recession, inverted further after the jobs report, with the spread between ten-year and three-year government bond yields turning negative.
“The labour market remains very tight, which will contribute to stronger wage growth over 2023,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
The prospect of stronger wage growth underscores the RBA’s warning that more interest rate hikes may be required to curb inflation, even after tightening by 400 basis points to an 11-year high of 4.1%, including a surprise rise earlier this month.
“The RBA has maintained a hawkish tone following the June rate rise, expressing concerns over the persistence of underlying inflation.
These data will do nothing to allay those concerns,“ Langcake said.
Job advertisements were mostly steady in May after three months of declines and remained 52% above pre-COVID levels.
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RBA Governor Philip Lowe, who had been keen to preserve the labour market’s strong gains, warned this month that the central bank is willing to sacrifice jobs to bring inflation back to target by mid-2025.
The hawkish turn led many economists to revise up the chance of a recession this year and unemployment rate expectations in coming years, with some predicting it could reach as high as 5%.
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