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By Michael Yardney

Lowest unemployment rate since 1974. What now for interest rates? [7 Charts]

Australia can finally boast its lowest unemployment rate since 1974 after the unemployment rate dropped to 3.9 per cent in April.

ABS statistics showed an additional 4000 jobs were added last month, tipping unemployment below 4 per cent for the first time in 48 years.

Despite the still-declining unemployment rate, employment growth disappointed up only 4,000 in April against expectations for a 30,000 gain.


Unemployment rate

Underemployment also fell

Underemployment – which measures those with jobs but who want to work more hours – fell from 6.3 per cent to 6.1 per cent.

Full-time employment climbed by 92,400, while part-time jobs declined by 88,4000 in the month.

The participation rate dropped by 0.1 percentage point to 66.3 per cent, but was still around historical highs achieved in February.

The unemployment rate for males fell by 0.2 percentage points to 4 per cent, its lowest level since October 2008

For females, it remained at 3.7 per cent for the second month, which is the lowest it has been since May 1974.

unemployment rate

Higher interest rates ahead

The most immediate impact of this welcome news on unemployment will be confirmation to the Reserve Bank that the economy can withstand further increases in interest rates.

The next increase is likely a fortnight after the next government takes office, following the Bank’s June board meeting on Tuesday June 7.

Only if it gets clear evidence that wages aren’t climbing as it expects is it likely to consider changing course.

Another modest wage rise - real wages crash to record low

Despite the falling unemployment figures, the latest data on wages growth remained relatively subdued at around pre-covid levels.

The annual pace lifted to 2.4% over the last year from 2.3% and is well up on the low of 1.4% in the second half of 2020.

However, wages have not kept up with the rise in demand or the rising cost of living.

Of course these figures are an indication of what happened in the first quarter of this year and the RBA is counting on an improvement in wages growth since then.


Wages Growth
Dr Andrew Wilson commented on these figures:
"The RBA has predicted recently that annual wage growth will rise to 3.75% with the current March quarter result at just 2.4% clearly still a long way short of that benchmark.
The RBA will be looking for its shaky predictions of strong wage growth to be realised sooner rather than later to justify its outlook for a series of near-term interest rate rises that will clearly produce more pain for consumers and economic headwinds for the economy."
With regards to what happens next for interest rates Dr Wilson said...
The RBA has predicted that the unemployment rate would fall to 3.5% by early next year with strong competition for workers placing significant upward pressure on wages.
The latest March quarter Wages Index however was clearly disappointing, reporting another modest result with a record falling real wages despite the new record low jobless rates recorded so far this year.
The prospects of a flattening labour market, steep decline real wages and the impost of higher interest rate on the economy may have the RBA rethinking its current interest rate strategy.

More details:

  • Despite the continuing disruptions from COVID, hours worked rose 1.3% month on month in April to a new record high.

unemployment rate

  • Underutilisation declined in April. The unemployment rate edged lower, remaining at 3.9% in rounded terms, while the underemployment rate declined by 2 tenths to a new post-GFC low of 6.1%.

unemployment rate

  •  Employment outcomes were mixed by state.

unemployment by state

  • Coronavirus affected the number of hours worked and the impacts were larger outside of NSW, VIC and QLD.
participation rate
Source of charts: NAB 

About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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