Australian unemployment drops sharply

Picture: Getty Images
  • Australia’s unemployment rate tumbled to a six-month low last month, largely reflecting a decline in labour force participation.
  • Employment increased by 12,000, below the 19,000 level expected. Full-time jobs were shed, reversing the gain seen in April.
  • Australian labour market underutilisation remained elevated, contributing to weak wage pressures at present.

Australia’s unemployment rate tumbled in May as workers left the labour market.

According to the Australian Bureau of Statistics (ABS), employment rose by 12,000 in seasonally adjusted terms, missing forecasts for an increase of 19,000.

April’s jobs increase — originally reported as a gain of 22,600 — was revised down to 18,400.

At 12.5183 million, employment now stands at the highest level on record.

Continuing the recent pattern, the split between full and part-time employment growth was the exact opposite to a month earlier.

Full-time employment decreased 20,600 to 8,521,400 while part-time employment increased 32,600 to 3,996,900.

Reflecting those trends, the ABS said that total hours worked fell by a large 24.2 million hours, or 1.4%, to 1.7388 billion hours, reversing the strength seen in April.

By state and territory, the largest increase in employment was in Victoria at 22,100, followed by Queensland and New South Wales at 5,000 and 2,800 respectively.

The largest decline was seen in Western Australia where employment fell by 1,900.

Over the past year, full-time employment increased by 178,800, slightly faster than the 125,100 lift in part-time employment over the same period. Combined, total employment increased by 303,900, continuing to slow from the levels seen throughout much of 2017.

Despite the monthly employment miss, the unemployment rate fell to 5.4%, down from 5.6% in April. It now sits at a six-month low.

Markets had been expecting an unchanged reading in May.

The decline in the unemployment rate reflected a decline in labour force participation which fell from an upwardly-revised 65.7% to 65.5%. The size of Australia’s labour force — measuring those people in employment or activity looking for work — fell by 14,800 workers to 13.233 million.

The small increase in employment and decline in labour force participation saw the number of unemployed workers fall by 26,800 to 714,600.

Australia’s employment to population ratio — the amount of working-age Australians with a job — fell by less than 0.1 percentage points to 61.9%. Over the past year, the ratio has increased by 0.5 percentage points.

By state, unemployment fell everywhere bar Tasmania where it jumped to 6.6%. New South Wales, as has been the case for quite some time, retained the title as the state with the lowest unemployment rate across the country at 4.9%.


Despite the abrupt plunge in the headline unemployment rate, the news on broader levels of labour market slack weren’t anywhere near as impressive.

Australia’s labour force underemployment rate — measuring those workers with a job but who would like to work more hours — increased by 0.1 percentage points to 8.5% in seasonally adjusted terms.

Combined with the unemployed workers, that left Australia’s underutilisation rate steady at 13.9%.

The large amount of unemployed and underemployed Australians means there is still ample supply of available workers for many firms and industries, contributing to the weak wage outcomes seen in recent years.

Based on the latest quarterly figures, there has been little progress in lowering the number of underutilised workers currently in the labour force.

While a noisy jobs report from statistical perspective, outside of the sharp drop in unemployment, the news was pretty disappointing.

Employment growth continues to slow, with the decline in unemployment largely reflecting that more Australians left the labour force.

Hours worked were also weak, as were the quarterly underutilisation measures.

As such, while the headline unemployment rate looks great, the internals of the report were not.

“The latest set of employment data was a mixed bag for the Australian economy,” said Callam Pickering, APAC Economist at global jobs site Indeed.

“Employment growth has averaged 12,400 per month in 2018 so far. This is well below the average of 34,000 people per month last year.

“Conditions in the labour market have cooled and at this stage we will be lucky to see employment growth of more than 150,000 people this year.

Pickering also described the quarterly underutilisation readings as “of greater concern”, suggesting this indicates a “high degree of labour market slack across the economy”.

“The economy still has a long way to go before we can safely say that our labour market and economy is in a healthy place,” he said.

“While economic growth was strong in the March quarter, something remains rotten in the labour market.

“Wage growth continues to disappoint and is showing little sign of recovery. This will continue to weigh on household spending and house prices and hamper the recovery.”

As such, he thinks as long as the current labour market trends prevail, the RBA will leave interest rates unchanged.

“Such a high degree of labour market slack is not conducive to higher wages or inflation and until that changes the RBA won’t be in any hurry to hike,” he says.

“Increasingly, we consider it unlikely that rates will be hiked before 2020.”

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