Australia’s seasonally adjusted unemployment rate has remained unchanged at 4.1 per cent in May, according to the latest labour force data released by the Australian Bureau of Statistics (ABS) on Thursday.
ABS head of labour statistics, Sean Crick, said that while employment fell by 2,000 people over the month, total employment was still 2.3 per cent higher compared to May 2024, and stronger than the pre-pandemic, 10-year average annual growth of 1.7 per cent.
“This fall in employment, combined with a drop in unemployment of 3,000 people, meant that the unemployment rate remained steady at 4.1 per cent for May,” Crick said.
The employment-to-population ratio dipped slightly, down 0.1 percentage points to 64.2 per cent, while the participation rate also edged lower by 0.1 percentage points to 67.0 per cent.
“Despite the slight fall in the employment-to-population ratio this month, the female employment-to-population ratio rose 0.1 percentage points to a record high of 60.9 per cent,” Crick said.
Hours worked increased 1.3 per cent in May, following lower levels in the previous two months coinciding with the Easter holiday period and severe weather disruptions.
The underemployment rate, which measures those employed but wanting more hours, dropped by 0.1 percentage points to 5.9 per cent in May. This was 0.8 percentage points lower than a year earlier and 2.8 percentage points below the level seen in March 2020, prior to the onset of the COVID-19 pandemic.
The broader under-utilisation rate, which combines unemployment and underemployment, fell by 0.2 percentage points to 9.9 per cent, now sitting 4.0 percentage points below its March 2020 level.
Meanwhile, underlying trend data shows the labour market has remained relatively stable. The trend unemployment rate has been unchanged at 4.1 per cent for the past three months, while trend employment grew by around 28,000 people (+0.2 per cent) in May, maintaining a 2.3 per cent rise over the past 12 months.
ANZ’s economists noted that the labour market appears to be tracking a little better than the RBA expected in its May Statement on Monetary Policy (SMP).
“The unemployment rate has averaged 4.07 per cent over the June quarter so far versus the RBA’s forecast of 4.2 per cent; while (for example) zero increase in employment in June would see the yearly increase to the June quarter at 2.3 per cent, versus the RBA’s forecast of 2.1 per cent,” economist Aaron Luk and head of economics Adam Boyton said.
“These aren’t large differences, but they do show a better near-term labour market picture than the RBA’s starting point in the May SMP.”
ANZ’s view remains a July rate hold at 3.85 per cent, though the economists noted that a cut would certainly not come as a surprise.
Westpac’s economist, Ryan Wells, said this jobs reading is very much “business as usual” for the RBA.
Wells highlighted that headline measures of labour market spare capacity have remained largely unchanged since December 2023, at levels the RBA still views as tighter than consistent with full employment, even as wages growth has eased from 4.3 per cent to 3.4 per cent and underlying inflation has fallen back within target at 2.9 per cent.
“While the RBA are more open to the possibility that the labour market may not be as tight as its models imply, we are unlikely to see an about turn on their assessment just yet,” the economist said.
“We still think the RBA will continue to be patient with their policy approach, opting to reduce the cash rate by another 25 bps in August rather than July.
“Given the latest reading on the labour market, and that June quarter inflation is shaping up a bit firmer than the RBA’s forecast, the board are unlikely to rush into a rate cut.”
VanEck’s head of investments and capital markets, Russel Chesler, agreed, noting that broader metrics – which take the labour print into account alongside retail sales and property prices – do not indicate a weakening economy.
“For further cuts to occur without risking inflation to spike, the RBA would need to see a range of measures falling,” Chesler said.
“The market is currently predicting three rate cuts this year, which would see the RBA cash rate reduced to 3.10 per cent. In our view, the market is getting ahead of itself,” he added.
“Based on current economic data, we do not think any more than two cuts by the end of the year is justified, and only one rate cut is actually warranted.”
Using the US as a point of reference, Chesler said after the Fed held rates overnight (based on expectations of higher inflation and weak economic growth), the market is now predicting two rate cuts in the US for the remainder of the year.
“To us, this seems a more sensible approach,” he added.
State Street Global Advisors’ APAC economist, Krishna Bhimavarapu, had a more optimistic reading of the data, concluding that it may not be sufficient to alter the dovish turn made by the RBA.
“The strong labour market is not translating into strong growth (yet). Absent any surprise in inflation data next week, the RBA could very well consider a July rate cut,” Bhimavarapu said.
Ahead of the latest print, the ASX 30 Day Interbank Cash Rate Futures July 2025 contract was trading at 96.32, indicating an 86 per cent expectation of an interest rate decrease to 3.60 per cent at the next RBA board meeting.
