Quick Bites | Australian Labour Force Growing

In Australia, May’s labour force survey showed a +39,700 increase in employment, with the unemployment rate falling -7 basis points (bps) to 4.0%. The outcome was broadly in line with expectations, and the market reaction was mildly positive, illustrating the resilience of the economy to higher rates and the ability of the jobs market to absorb huge numbers of migrants over the past 18 months. 

Looking ahead, we expect Australia’s labour market to gradually soften over the year as labour supply outstrips demand. The unemployment rate is likely to edge up closer to 4.5% by year-end.  

The Australian Bureau of Statistics (ABS) noted the strong gain in employment reflected an unusually large number of people starting jobs in May after being classified as either unemployed or not in the labour force but “waiting to start employment” in April – likely reflecting post-pandemic changes to seasonal factors around holiday periods. 

Employment growth is tracking below population growth

Source: Goldman Sachs

The slight fall in unemployment was driven by an increase in total employment, while the participation rate (66.8%) remained unchanged from the prior month. The underemployment rate also rose +5bps to 6.71%.

Hours worked fell -0.5% month on month (MoM), although the ABS noted “some of the reduction in hours in May reflected more employed people than usual working reduced hours because they were sick. Similar to May 2023, around 4.2% of people worked fewer hours because they were sick, compared with the pre-pandemic average for May of 3.5%.”

Unemployment is trending higher

Source: Goldman Sachs

The data is unlikely to materially alter market expectations for the Reserve Bank of Australia (RBA) to leave the cash rate on hold at 4.35% until May 2025. The RBA has been surprised by the continuing strength of the labour market. While the jobless rate has edged slightly higher from the 3.5% lows reached in late 2022, unemployment remains very low by historical standards and employment continues to rise.