Jobs growth surprised on the upside in May with employment rising by 115,000 as any fears of the lingering impact of the ending of JobKeeper disappeared, according to the Labour Force data from the Australian Bureau of Statistics.
Full time jobs dominated with anther 97,500 reported which helped boost hours worked in the month.
Employment and the health of the labour market is now well above pre-Covid levels on many measures – but not wages.
As RBA Governor Philip Lowe made clear in a speech in Toowoomba on Thursday, strong wages and inflation growth remain elusive despite being the central bank’s priority.
Economists say the strong jobs data will keep the RBA to the target month of April (and not November) 2024 for keeping the cash rate around 0.10%.
That implies sometime after that month for the first chance of a rate rise (although the AMP’s chief economist, Shane Oliver and several others reckon there will be a rate rise in late 2023).
in his speech on Thursday, Dr Lowe warned that there was little sign of the stronger wage growth needed for a lasting increase in inflation needed to raise rates.
He also said It was also too early to pull back the RBA’s support for the economy through its bond buying (The Quantitative Easing program of $100 billion aimed at the 10-year bond).
Dr Lowe made it clear that the RBA would continue its purchases beyond the second round of quantitative easing currently due to expire in September.
“The RBA’s bond purchase program is one of the factors underpinning the accommodative conditions necessary for our economic recovery,” the governor said. “The key consideration in our decision here is how the RBA can best support the ongoing recovery of the economy.”
That means whatever the bank decides about April or November 2024, the longer-term support will remain to help maintain growth and demand.
According to the ABS May report on Thursday a range of measures reached levels much better than early 2020 – from hours worked, the ratio of employment to population (a a new high), labour force participation and a jobless rate of 5.1% which is back at February, 2020 levels.
Employment is now up 8.1% from its May low last year partly reflecting the base effect of the plunge in jobs seen a year ago in the depths of the pandemic and is also up 1% from its pre-coronavirus level in February last year.
The fall in unemployment to its pre-coronavirus level of 5.1% from 5.5% came despite a rise in the labour force participation rate to 66.2%, which is also above its pre-coronavirus level.
Underemployment also improved for another month – down 0.4% to 7.4%, which saw the labour underutilisation rate fall to 12.5%, with both now well below pre-coronavirus levels – especially for women.
Total hours worked rose by 1.4% and they are up 13% on a year ago and the ratio of employment to population rose to 62.8%, which is a record high
Bjorn Jarvis, the head of labour statistics at the ABS, said in a statement with the release that May was the seventh consecutive monthly fall in the unemployment rate.
“The unemployment rate fell to 5.1 per cent, which was below March 2020 (5.3 per cent) and back to the level in February 2020 (5.1 per cent). The declining unemployment rate continues to align with the strong increases in job vacancies“ Mr Jarvis said.
“The number of unemployed people fell by 53,000 in May, down to 701,000. The number of unemployed people has fallen by around 303,000 since the peak of 1 million unemployed people in July 2020.”
“The youth unemployment rate increased by 0.1 percentage points but remained low, at 10.7 per cent. The last time we saw a youth unemployment rate as low as in April and May 2021 was in January 2009.”
In his speech made in Toowoomba before the ABS release, Reserve Bank Governor Philip Lowe was not as upbeat about the health of the jobs market as one might think.
He acknowledged the strength of the jobs market and the appearance of vacancies in some areas, but went on to say that “The labour market is uneven, though.
“Many people are still struggling to find work, while, at the same time, some firms are reporting that they are finding it difficult to find workers.
“Many of these reports come from businesses in regional Australia, including those in the agricultural, hospitality, mining and construction sectors.
“And in nationwide business surveys, many firms are now saying that finding suitable labour is a major constraint on output
“Notwithstanding these signs of a tightening labour market, wages growth and inflation remain subdued and there have not been upside surprises.
“The Wage Price Index increased by just 1½ per cent over the past year, with wages growth slow in the private and public sectors.
“And it is noteworthy that even in those pockets where firms are finding it hardest to hire workers, wage increases are mostly modest. There are some exceptions to this, but they are fairly isolated.”
So despite the cheering from Canberra and a flock of economists about the strong jobs growth, its wages, and inflation which remain top of the pile for the RBA and they remain weak (despite Dr Lowe forecasting the CPI to rise to an annual rate around 3.5% in the June quarter. That’s up from the May forecast of 3.25%).
