Australia’s tight labour market ‘sustaining fragile economy’: RSM
The employment-to-population ratio and labour force participation rate remain above pre-pandemic levels, ABS data has revealed.
The unemployment rate fell by 0.1 percentage points to 4.0 per cent in May, according to data released by the Australian Bureau of Statistics.
ABS head of labour statistics Bjorn Jarvis said with employment rising by around 40,000 people and the number of unemployed falling by 9,000 people, the unemployment rate fell to 4 per cent.
“In April we saw more unemployed people than usual waiting to start work. Some of the fall in unemployment and rise in employment in May reflects these people starting or returning to their jobs,” Jarvis said.
“While the total number of unemployed people fell by 9,000 in May, this followed a 33,000 increase in April. Unemployment was around 24,000 people more than in March, an average increase of around 12,000 people each month.”
However, while Jarvis said there are now almost 600,000 unemployed people, this is still nearly 110,000 fewer people than in March 2020, just before the pandemic.
RSM Australia economist Devika Shivadekar said while not too much emphasis should be placed on the monthly fluctuations in employment figures, the labour market is still showing signs of underlying tightness.
"This is evident from the employment-to-population ratio and the labour force participation rate, both of which are still above their pre-pandemic levels,” said Shivadekar.
"Additionally, the underutilisation rate, a crucial metric that highlights the untapped capacity within the labour market, has remained stable. This measure includes individuals who are without a job, yet are available and actively seeking employment."
Shivadekar said Australia’s tight labour market is “sustaining an otherwise fragile Australian economy” which means the Reserve Bank of Australia is unlikely to tamper with policy rates at next week’s board meeting.
"The RBA is expected to maintain its current stance of cautious non-action at next week’s meeting,” she said. "The RBA is likely to be quietly pleased with today's employment data, as it aligns well with their forecasts. They are intent on maintaining the recent gains in the labour market, and the stability in employment figures provides crucial support for an otherwise fragile economy.”
CreditorWatch chief economist Anneke Thompson said the labour market is presenting a conundrum to the RBA with the labour market remaining tight by historic standards despite unemployment rising.
“Still, pressure on wage increases appears to have waned, especially after that Fair Work Commission’s Minimum Wage Review, which at 3.75 per cent is below the current rate of inflation and broadly welcomed by economists concerned about wage rises and their impact on inflation,” Thompson said.
“However, a continuing healthy labour market, as well as upcoming tax cuts, will make the RBA very cautious about cutting the cash rate too soon. It is likely that the RBA will wait until the full impacts of tax cuts flow through to retail trade, labour force and savings data, which won’t happen until late 2024 and into early 2025.”
Thompson said while the labour market remains strong, CreditorWatch data shows that business conditions are continuing to weaken, particularly among small businesses.
“Business liquidation rates are now well above pre-Covid levels, at 0.72 per cent on a rolling annual basis, and the ATO is now in full tax debt recovery mode, with notices of disclosure sent to 26,574 Australian businesses with outstanding tax debts greater than $100,000, as at April 2024,” said Thompson.
“Business-to-business trade payment defaults were also at record levels in April 2024. Clearly, many businesses are experiencing cash flow problems – particularly in the construction and food and beverage sectors – and this is likely to lead to further weakening in the labour force over the remainder of 2024.”
