- Australia’s unemployment rate edged up to 5% in March, reversing the decline to an eight-year low in February.
- The increase came despite a surge in full time employment during the month. Australia’s workforce grew faster than employment, explaining the lift in unemployment.
- Over 300,000 jobs were created in total over the past year, the largest increase since late 2018. Almost all of them were full time positions.
- Broader measures of labour market underutilisation increased, pointing to a continuation of sluggish wage growth despite strong hiring.
- Despite the modest increase in unemployment, the details of the March report are unlikely to prompt the RBA to deliver a near-term interest rate cut.
Australia’s unemployment rate edged higher in March despite another solid increase in employment.
According to the Australian Bureau of Statistics (ABS), the unemployment rate rose to 5.0% after seasonal adjustments, up 0.1 percentage points from February.
The result was in line with market expectations, reversing the decline seen in February to the lowest level in eight years.
The lift in the unemployment rate came despite employment growing by 25,700 during the month, close to double the 15,000 increase expected.
Full time employment surged by 48,300, more than offsetting a 22,600 decline in part time workers. The substantial increase in full time workers saw total hours worked increase by 13.2 million hours to 1.7854 billion hours.
The strongest increase in hiring occurred in Queensland at 10,400, outpacing gains of 10,000 and 8,500 respectively in Victoria and South Australia. Employment fell by 2,600 and 1,800 respectively in New South Wales and Tasmania, the largest declines of any state during March.
Despite the decline in employment during the month, New South Wales retained the title as the state with the lowest unemployment rate in the country at 4.3%, below Victoria at 4.6%.
Across the remaining states, unemployment levels ranged from 5.9% in South Australia to as high as 6.7% in Tasmania. Queensland, at 6.1%, saw its unemployment rate lift sharply from 5.4% in February, a result likely influenced by inclement weather during month.
Over the past year, full time employment nationally grew by 289,800, substantially faster than the 14,900 lift in part time employment over the same period. Combined, total employment rose by 304,700 from March 2018, or 2.44%.
The increase in both total and percentage terms over the past year was the fastest since late last year. Hiring appears to be accelerating, bucking the trends seen in some leading labour market indicators such as job ads that suggest hiring should be slowing.
Reflective of strong jobs growth, particularly in full-time workers, total hours worked also increased by 3% over the year.
A lift in labour force participation to 65.7%, up from 65.6% in February, explained the lift in unemployment, reflecting that the size of Australia’s labour market grew faster than employment growth during the month.
It grew by 42,800 people, more than the 25,700 increase in jobs created. The labour force includes those Australians with a job or who are actively seeking work.
With the size of the workforce growing faster than employment, the total number of unemployed Australians rose by 17,100 to 680,000.
Australia’s employment to population ratio — measuring the proportion of working age Australians in employment — held steady at 62.3%, near the highest levels in a decade. The participation rate also remains near the highest level on record.
While the detail of the March report were strong, broader measures of labour market slack increased, casting renewed doubt about the prospects for a meaningful lift in wage pressures in the period ahead.
Australia’s underemployment rate — measuring the proportion of the workforce that have a job but would like to work more hours — edged up to 8.2% after seasonal adjustments, an increase of 0.1 percentage points from February.
Labour market underutilisation — the broadest measure of labour market slack that includes both unemployed and underemployed workers — rose by an even larger 0.2 percentage points to 13.2%.
This measure has an inverse relationship with wage growth, meaning the increase in March points to a continuation of sluggish wage pressures ahead.
There’s plenty of hiring going on but little prospect of large wage increases, at least at this point.
Despite the disappointing news for wages, and the modest uptick in unemployment, Callam Pickering, APAC economist at global job site Indeed, described the latest jobs report as “solid”.
“A solid set of employment figures, dominated by full-time roles, suggests that households and businesses may have to wait a little longer for rate cuts,” he said
“From the perspective of policymakers, particularly the Reserve Bank, this will be viewed as a positive report.”
As for whether or not the RBA will cut interest rates, Marcel Thieliant, Senior Economist at Capital Economics, said the March report failed to answer which indicator is giving the best signal on the current strength of the economy — unemployment or GDP.
“The renewed increase in the unemployment rate in March doesn’t resolve the tension between weak activity and healthy labour market data,” he said.
“The RBA predicted in February that the unemployment would remain at 5% until year-end so the March data won’t convince the Board that lower interest rates are needed.”
While uncertainty as to what economic indicator is right, if any, remains, Thieliant still expects that weaker economic growth will eventually lead to a slowdown in hiring and higher unemployment.
“We expect GDP growth to remain below trend for a while yet as the full effects of the housing downturn have yet to be felt,” he said.
“We think that employment growth will fall below 2% in the second half of the year and we expect the unemployment rate to creep towards 5.3% by year-end.
“As such, we reiterate our forecast that the RBA will cut interest rates in August.”
Pickering, too, also see unemployment drifting higher in the months ahead.
“We cannot ignore that these labour market indicators lag economic growth. Growth slowed rapidly over the second half of 2018 and may not yet be reflected in these employment figures. So we shouldn’t be surprised if employment growth was to slow over the next six months. We also shouldn’t be surprised if the unemployment rate drifts up a little as well,” he said.
“That general belief is one of the key reasons why many economists, and the market more generally, believe that the Reserve Bank will cut rates soon.
“May or June may be off the table, owing to today’s strong employment figures, but a rate cut later this year still appears more likely than not.”
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