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Unemployment rate holds at 3.9%

4 minute read

A stronger than expected increase in employment was recorded in May. 

Australia’s unemployment rate remained at 3.9 per cent in May, according to the latest figures from the Australian Bureau of Statistics (ABS).

Employment rose by 60,600 during the month, the seventh consecutive increase since lockdown restrictions were eased late last year and well-above market expectations for a rise of 25,000.

“Average employment growth over the past three months (30,000) continues to be stronger than the pre-pandemic trend of around 20,000 people per month,” said ABS head of labour statistics, Bjorn Jarvis.


The strong lift in employment saw the participation rate increase by 0.3 per cent to a new record high of 66.7 per cent.

Underemployment fell by 0.4 percentage points to 5.7 per cent, bringing the underutilisation rate down to its lowest level in over 40 years at 9.6 per cent.

“The tight labour market evident in the fall in both unemployment at its lowest since 1974 and labour underutilisation falling to its lowest since 1982 point to an acceleration in wages growth ahead,” commented AMP Capital chief economist, Shane Oliver.

“This is consistent with numerous business surveys and anecdotal evidence. The rise in the minimum wage and minimum award wages may give wages growth a push along but it was probably going to pick up anyway.”

The ABS also reported that hours worked increased by 0.9 per cent. However, the number of people working fewer hours than usual due to illness was nearly double the usual May average due to both COVID-19 and influenza.

May’s employment uptick followed a smaller increase of 4,000 seen in April that coincided with Easter, school holidays and the impacts of flooding and Omicron-related disruptions.

Commonwealth Bank (CBA) senior economist Belinda Allen noted that it was important to remember that employment data is a lagging indicator.

“The unemployment rate should drift a little lower over coming months due to elevated levels of job vacancies. Higher interest rates are expected to slow consumer spending and impact the labour market,” she predicted.

“But today’s data is a timely reminder that the Australian economy is operating with capacity constraints. Prices and wages are rising as a result. The aim of higher interest rates is to free up capacity by slowing demand.”

CBA reiterated its expectations for a hike of 50 basis points (bps) by the Reserve Bank (RBA) next month, bringing the cash rate to 1.35 per cent.

Similarly, Dr Oliver said that the RBA’s increasing concern about inflation and the need to prevent inflation expectations from going higher would result in a 50-bp hike in July.

“While the move by the Fed to hike by 0.75 per cent at its June meeting suggests a risk that the RBA may do the same as it faces similar pressures to the US, we lean to the view that that will be avoided in Australia given that the RBA meets monthly. Whereas the Fed meets six weekly and so the RBA does not need to hike as much as the Fed at each meeting to achieve the same over a three-month period, and inflation and wages pressures are a bit less in Australia than they are in the US,” he said.

Looking ahead, AMP Capital expects unemployment will fall to around 3.5 per cent over the next three to six months.

Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.