Australia’s surprise jump in unemployment has strengthened the case for the Reserve Bank of Australia (RBA) to hold rates in June, although economists remain divided on whether the weakness signals a broader slowdown in the labour market.
Australia’s unemployment rate rose to 4.5 per cent in April, with analysts broadly agreeing the jump strengthens the case for the central bank to hold rates in June.
Despite this, the rise in unemployment came as a surprise, with consensus expectations for 15,000 jobs to be created and the jobless rate to hold steady at 4.3 per cent.
Australian Bureau of Statistics (ABS) data showed seasonally adjusted employment fell by 19,000 during the month, while unemployment rose by 33,000, with increases in both full-time and part-time job seekers.
The number of unemployed people seeking full-time work rose by 11,000, while part-time job seekers rose by 22,000.
“Compared to what we usually see in April, more people remained unemployed this month,” said Sean Crick, ABS head of labour statistics.
“Both full-time and part-time employment fell, by 11,000 and 8,000 people respectively.”
Crick noted that a drop in female employment drove the overall fall, with full-time down 19,000 people, and part-time down 13,000 people. According to the ABS, this marks the first fall in female employment since August 2025.
On the other hand, male employment rose by 8,000 people for full-time and 5,000 for part-time. The underemployment rate also fell 0.1 percentage points to 5.8 per cent for the month.
The ABS also found that despite the fall in employment, hours worked rose by 15.8 million. This meant that hours worked per person rose by 0.9 per cent in April.
Meanwhile, it reported that trend employment and hours worked grew by 0.2 and 0.3 per cent respectively.
“The 2.7 per cent annual increase in hours worked grew faster than employment, which was up 1.3 per cent annually,” Crick said. “The underemployment rate remained at 5.9 per cent in April while the underutilisation rate remained at 10.2 per cent.”
The road ahead for the RBA
The wobbly results come after a steady March labour market reading which saw Australia’s unemployment rate remain at 4.3 per cent.
While the consensus was that the jobs would stay put again in April, State Street APAC economist Krishna Bhimavarapu said the surprise jump signals the labour market narrative may be shifting faster than expected.
“It validates the RBA’s inclination to hold in June and raises the bar significantly for a change,” Bhimavarapu said.
“Even if the Iran conflict ends soon as we expect, the bigger near-term story remains the emerging inflation shock.”
He added that State Street’s high-frequency tracker is already pointing to a sharp pickup over the next three months, with a view of unemployment drifting to 4.8 per cent by year-end. If that were to occur, he said it could open the door to a shift toward easing.
At present, the official cash rate sits at 4.35 per cent after the RBA’s May meeting. The central bank is scheduled to hold its next interest rate meeting on 15-16 June.
Meanwhile, Betashares chief economist David Bassanese said the surprise fall in employment would come as “welcome news” for the central bank, reinforcing its case for a rate hold in June.
“Consistent with the drop in employment, the unemployment rate jumped from 4.3 per cent to 4.5 per cent – a level the RBA would likely view as leaving the labour market better balanced. The RBA has long characterised the labour market as a ‘little tight.’ Based on April’s numbers, this appears no longer the case.”
He said his base case is that the RBA holds rates steady at its June policy meeting, with the case for further tightening expected to ease by the time of the August meeting.
This hinges on the expectation that the Iran war – which has sent the Brent crude price above US$100 for some time – will have ended and oil prices declined in line with oil futures pricing.
At the same time, Bassanese noted that several questions remain, including whether the recent labour market weakness is a one-off or the start of a softer trend, although he acknowledged there are tentative signs it may indeed be weakening.
He pointed to the recently released minutes of the RBA’s May policy meeting, in which the central bank noted a softening in hiring intentions among the businesses it surveys.
“My expectation is that Australia only needs to experience a “growth recession” rather than an outright recession this year – namely a period of positive but below-trend economic growth that eases capacity constraints and helps bring down inflation,” he said.
In addition to questions around the ongoing war and disruption to the Strait of Hormuz, Bassanese said Federal Budget changes to negative gearing and the capital gains tax risk adding downward pressure on asset prices and economic sentiment in the coming months.
Despite coming in higher than consensus, VanEck head of investments and capital markets Russell Chesler said the rise in unemployment was “not surprising” given the current mix of higher fuel costs, persistent inflation and elevated interest rates.
However, he also said questions remain over whether this reflects a longer-term trend, pointing to Seek job ads rising 0.2 per cent in April as evidence that hiring intentions remain resilient.
Pointing to the recently released RBA minutes, he said markets have interpreted them as signalling a reassessment of the path for future rate rises, with expectations now for just one additional hike around November.
“This aligns more closely with our view that a terminal rate of 4.95 per cent is overly aggressive, it is more likely to be the current 4.35 per cent or possibly 4.65 per cent.”
However, he cautioned that “we are not yet out of the woods”, noting inflation is set to peak above 5 per cent and that the Budget’s additional $18 billion in spending represents another inflationary pressure.
For investors, he said the current environment favours ‘HALO’ companies, meaning those with heavy assets and low obsolescence, a segment that has attracted growing investor interest in recent times.
