Australia’s unemployment rate plummeted to 3.5% in June, the lowest rate in 48 years.
The Australian Bureau of Statistics revealed 88,000 more people were employed in June and unemployment fell by 54,000, pushing the unemployment rate down by 0.4%
As a result, there were almost the same number of unemployed people in June 2022 (494,000 people) as there were vacant jobs (480,000).
What are the implications of these data?
These stellar labour market figures will likely add to pressure on the Reserve Bank to continue interest rate rises in 2022.
Already a number of commentators are expecting a 0.75% rate rise next month.
In May, the RBA had forecast unemployment to gradually decline to 3.6% by mid-2023, an unemployment outlook that they saw as consistent with trimmed mean inflation only moving back to the top of the target band in 2024.
In an economic report to clients,Taylor Nugent, Economist at NAB explained:
"Since then, job vacancies for May showed a further surge in the number of vacant jobs, with the number of unemployed people per vacancy falling further to a record low of 1.0.
Even though employment is a lagging indicator, labour demand indicators remain strong, while labour supply remains constrained.
The RBA’s assessment in the June post-meeting statement was that the labour market is tighter than it has been for some time and today’s data show a labour market that is tighter still."
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Of course, the tighter labour market will feed fears of wage and inflation expectations lifting and the RBA noted in July that while “medium-term inflation expectations remain well anchored”, it was “important that this remains the case ”.
Accordingly, the policy debate at the August RBA meeting will likely be between a 50 vs. 75bp hike, and a 100bp hike cannot be ruled out given how other central banks are weighing these risks.
Markets currently price a 44% chance of a 75bp hike in August.
Mr Nugent further commented:
"There is also the real risk the RBA sees the need to further front load the hiking cycle and also sees the need to move to an explicitly restrictive stance that would allow the Bank to forecast a rise in the unemployment rate.
NAB expects the RBA to raise rates by 50bp at its August meeting and further rate rises to take the cash rate target to 2.6% by early 2023.
Today’s data suggest upside risks to these forecasts."
Other details
- The participation rate rose to 66.8% to a new record high, building on the sharp increase last month.
- Participation is now 0.9ppt above pre-pandemic levels.
- Despite the strength in the labour market, hours worked fell slightly in June but this measure tends to be volatile.
- The underemployment rate rose three-tenths to 6.1%. The increase in the month, however, was off a post-GFC low after sharp declines recently and the level remains consistent with a labour market that is materially tighter than pre-pandemic.
