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Loosening jobs market eases pressure on Reserve Bank

Treasurer talks up his third budget

Source: Jim Chalmers

Economists say a jump in the jobless rate shows “cracks are emerging” after the Reserve Bank’s relentless focus on lifting interest rates to quell inflation.

The unemployment rate rose 0.2 percentage points to 4.1 per cent last month, up from 3.9 per cent in March, a figure that was revised upwards as well.

About 38,000 jobs were added to the economy over the month and the number of unemployed increased by about 30,000, according to the Australian Bureau of Statistics.

ABS head of labour statistics Bjorn Jarvis said the increase in the number of unemployed reflected more people without jobs available and looking for work, as well as more than usual waiting to start a new job.

Thursday’s figures were higher than forecasts, which expected the unemployment rate to lift to 3.9 per cent.

Treasurer Jim Chalmers said the latest data was proof the Australian economy was feeling the effects of interest rate hikes, but noted the “remarkable” achievement of new jobs continuing to be created.

“These new numbers show we are still creating new jobs even as the unemployment rate has ticked up and the labour market is softening,” he said.

“It shows again what’s been clear for some time now that a weaker global and domestic economy and the rate rises already in the system are having an impact.

“It’s a remarkable fact that, amid all the uncertainty, the Albanese Labor government has still overseen the creation of 820,000 new jobs, by far the most of any first-term government.”

Despite the mixed results of a jump in jobs and a jump in the number of unemployed, Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said the data was indicative of a gradually weakening jobs market.

Together with Wednesday’s weaker-than-expected wage figures, he said it was broadly consistent with the RBA’s expectations of slackening in the jobs market in response to higher interest rates.

He said the May numbers would be affected by workers waiting to start a new role in April, and now getting to work.

“These workers will flow into employment next month, putting some downward pressure on the unemployment rate,” he said.

RSM Australia economist Devika Shivadekar said the jump in the jobless rate showed an emerging shift in the labour market.

“Conversations with our clients have highlighted that skill mismatch remains the biggest issue for businesses when it comes to hiring, likely contributing to the underlying tightness,” Shivadekar said.

“This suggests that while finding employees for specialised roles still remains challenging, the gig economy labour market may have loosened considerably following increased population growth, offsetting tightness in the overall jobs market.”

Shivadekar said the problem was “no longer that of finding labour, but that of finding the right labour”.

“For the RBA, this means there is still a need to remain cautious. As we progress through the year, seasonal fluctuations in the labour market should ideally fade, with the unemployment rate gradually increasing to the RBA’s target level of 4.3 per cent.

“Until this trend is confirmed, there is sufficient reason to stay on hold.”

Her view was echoed by Moody’s Analytics economist Harry Murphy Cruise, who said the labour market remained strong.

“But the market is no doubt softening and will continue to do so from here,” he said.

“Cracks are emerging in the Aussie labour market. For more than four years, jobs have been a shield for Aussie families, refusing to baulk at pressures from the pandemic, war, inflation and interest rates. But those pressures are starting to take a toll.”

Moody’s Analytics expected 200,000 jobs to be created this year, but that will be outweighed by the growth in Australia’s labour supply. That will signal a further jump in the jobless rate.

“With labour supply winning the race over new job creation, unemployment is on track to hit 4.35 per cent by December and 4.5 per cent by the middle of next year,” Murphy Cruise said.

The ABS’s April jobs update follows a prolonged run of below-average unemployment and robust jobs growth, which has maintained pressure on the Reserve Bank as it tries to tame inflation.

The employment market is expected to weaken further, with updated Treasury forecasts from this week’s federal budget showing it at 4.5 per cent in the next financial year.

It’s expected to stabilise there – still lower than pre-pandemic levels – for a couple of years.

-with AAP

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