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Australia’s unemployment rate rose to 5.2% in April, leaving it at the highest level since August 2018. Broader measures of labour market underutilisation also spiked, pointing to the potential for weaker wage pressures ahead.

Full-time employment fell modestly while part-time employment surged. Over the year, the opposite trends were seen.

Total employment jumped by 322,900 over the past 12 months, or 2.58%, the fastest increase since June 2018.

The increase in unemployment reflects that labour market participation rose to the highest level on record as a percentage of Australia’s working age population.

With the labour force increasing faster than employment over recent months, the lift in unemployment increases the risk that the RBA may cut official interest rates in the months ahead.

Australia’s unemployment rate rose unexpectedly in April, increasing pressure on the RBA to cut official interest rates.

According to the Australian Bureau of Statistics (ABS), unemployment jumped to 5.2% after seasonal adjustments, well above the 5.0% level expected. Unemployment stood at 5.1% in March, upwardly revised from the 5.0% rate originally reported.

The unemployment rate now sits at the highest level since August 2018, moving further away from the eight-year low of 4.94% set in February this year.

By state, unemployment increased in all locations except for Queensland where it fell from 6.1% to 5.9% in seasonally adjusted terms. In New South Wales and Victoria, Australia’s most populous states, unemployment rose to 4.5% and 4.9% respectively, up from 4.3% and 4.6% in March.

ABS

In a worrying sign for wage growth in the period ahead, broader measures of labour market slack also increased during the month.

The underemployment rate — measuring those people who have a job but would like to work more hours as a percentage of the workforce — jumped 0.3 percentage points to 8.5% in seasonally adjusted terms.

Combined with the increase in unemployment, the underutilisation rate rose by an even larger 0.4 percentage points to 13.7%.

In the post GFC era, the underutilisation rate has demonstrated a far stronger inverse relationship to annual wage growth than unemployment. The steep increase suggests progress in lifting wage growth over the past few years may start to reverse in the period ahead.

Despite the increase in the national unemployment rate and broader measures of labour market slack, actual hiring in April remained strong.

After seasonal adjustments, the ABS said employment rose by 28,400 from March, near double the 15,000 increase expected.

Full-time employment fell by 6,300, masked by a large lift of 34,700 in part-time workers.

Over the past year, full-time employment still rose by an impressive 248,100, which is near quadruple the 74,800 increase in part time employment over the same period.

A total of 322,900 jobs were created over the past 12 months, or 2.58%. Not since June last year has employment been this strong in both numeric and percentage terms.

By location, employment rose in all states except for Victoria in April where it fell by 7,600 after seasonal adjustments. The largest increase was seen in New South Wales at 25,100, followed by Western Australia and Queensland at 6,400 and 5,400 respectively.

The ABS said total hours worked increased by 2.5 million hours from March after seasonal adjustments.

Helping to explain why the unemployment rate increased despite another strong month of hiring, labour force participation rose to 65.8%, higher than the 65.7% level expected. This measures the number of working age Australians who either have a job or who are actively seeking work.

Never before have so many Australians, as a proportion of the working age population, been actively involved with the workforce.

A record high — that’s undoubtedly good news.

Unfortunately, the pace of hiring has not been able to keep up with the increase in the labour force, resulting in higher unemployment.

In April, the labour force increased by 49,600 people, faster than the 28,400 lift in employment. That saw unemployment rise by 21,200 to 703,900.

You have to go back to June last year to see a greater number of Australians out of work.

Despite pockets of good news in the latest jobs update, the lift in national unemployment and underutilisation rates should concern the Reserve Bank of Australia (RBA) at a time when underlying inflationary pressures in Australia already sit near record lows.

Unless the pool of available workers gets smaller, employers are unlikely to deliver larger pay increases, something that will almost certainly be required to help support household spending and inflationary pressures in the years ahead.

The RBA acknowledged that at its May monetary policy meeting, noting there is “still spare capacity in the economy” and that a “further improvement in the labour market was likely to be needed for inflation to be consistent with the target”.

Right now, that’s not happening fast enough to prevent unemployment from creeping higher, adding to the pressure on the RBA to stimulate the economy through lowering borrowing costs.

“If the Reserve Bank wants a justification for cutting rates then they can find it in the latest labour force data,” said Callam Pickering, APAC economist at global job site Indeed.

“Two immediate numbers jump out: the unemployment rate increasing to 5.2%, from just 4.9% two months ago, and the underutilisation rate increasing to 13.7%.

“Now the increase in labour market slack was mostly driven by higher participation – a rare case when higher unemployment may be interpreted in a positive light. That provides an easy out for the Reserve Bank if they prefer to wait.

“Yet a trend does appear to be emerging, which is bringing the labour market in line with other economic indicators.”

In Pickering’s opinion, “a rate cut appears more likely than not over the next three months”.

He’s not the only economist who shares that view.

“The RBA has said that a lack of improvement in the labour market would warrant a cut, such that today’s deterioration is likely to be of great concern to them,” said Kaixin Owyong, markets economist at the National Australia Bank (NAB).

“We now place a 50/50 chance of a cut in June.”

Regardless of the timing, NAB is forecasting the RBA will cut Australia’s cash rate to 1% by the end of the year, mirroring the view from Marcel Thieliant at Capital Economics.

“The employment components of the PMIs and the NAB Business Survey both weakened sharply in April and suggest that jobs growth will moderate towards 1% over the coming months,” he said.

“That’s consistent with our view that the unemployment rate will climb to 5.3% by year-end, forcing the RBA to lower interest rates to 1.0%.”

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