Australia's unemployment rate at 50-year low, dips below 4%

Highlights

• The latest ABS data reveals that the unemployment rate has dipped further to 3.9% in April 2022, the lowest rate since August 1974.
• Hours worked improved in April, majorly driven by a rebound in the flood-affected areas of Queensland and New South Wales.
• Labour market contraction could prompt a more aggressive approach by the RBA toward monetary policy tightening.

The tightening Australian labour market has found one more reason to rejoice. The latest labour force data by the Australian Bureau of Statistics (ABS) reveals that the unemployment rate has dipped further in April 2022. The unemployment rate in Australia now stands at a strikingly low level of 3.9%, lower than the 4% threshold.

The April data follows a series of labour market tightening conditions that started becoming visible in late 2021. As the economy emerged from the Delta variant-induced lockdowns, businesses sprung back to life, and job requirements reached an all-time high. Despite minor disruptions caused by the Omicron variant earlier this year, labour demand continued to remain strong.

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The unemployment rate of 3.9% is the lowest rate since August 1974, when the survey was quarterly. The ABS also pointed out that the revised employment rate for March 2022 matched April’s rate of 3.9%. The fall in the jobless rate is among the few factors providing some relief to the economy as inflationary pressures soar. As the election day comes closer, a strong labour market could be the current government’s last resort to redeem itself among a bevvy of challenging market conditions.

Key findings from the ABS unemployment release

1. Unemployment rate lower among females: The unemployment rate was lower among the female workforce compared to the male workforce. In April 2022, the unemployment rate for males fell by 0.2 percentage points to 4%. This is the lowest level in the series for males since October 2008.

Meanwhile, the unemployment rate for females remained at a lower level of 3.7% for the second consecutive month. In the female category, this is the lowest rate seen since May 1974. However, the employment-to-population rate was higher among males at 67.9%, compared to 59.8% among females.

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2. Higher hours worked reflect a rebound from floods: In April 2022, an additional 4,000 people joined the workforce, and the employment-to-population ratio remained at an all-time high of 63.8% for the third month. The addition of workers was accompanied by a rise in the hours worked, which rose by 1.3% in April.

People working fewer hours due to bad weather or plant breakdown decreased during the month, making a bounce back from the adversity caused by floods. Both flood-affected areas of Queensland and New South Wales recorded a drop in the underemployment rate.

3. Omicron aftereffects still lingering on: The number of people working fewer hours due to illness, injury or sick leave rose to its second-highest level in April. Thus, Omicron-related disruptions continue to plague the Australian labour market.

In the series, New South Wales, Victoria, and Queensland showed an increase in April after consecutive falls seen in February and March. Moreover, the reduction in hours worked due to health-related concerns continued to rise since January in other states. Those working fewer hours in April due to illnesses were double in number compared to the pre-pandemic levels.

 Fewer Australians taking COVID-19 precautions

What does this mean for interest rates?

The Reserve Bank of Australia’s (RBA) unforeseen rate hike of 25 basis points in the May monetary policy meeting is likely to be succeeded by more rate hikes. With wages and labour market data being released by the ABS, the central bank now has all the necessary information to contemplate its next monetary policy move.

Wages rose by 0.7% during the March 2022 quarter, reflecting the tightening labour market conditions. The latest labour market data suggests that wages could rise further in the coming months. Additionally, the supply shortage of workers is likely to prompt incentives and bonuses from the employers, which can add upward pressure to wages.

As wage growth accelerates, experts predict that the Reserve Bank will raise the interest rates by bigger proportions. Westpac, one of the big four banks, has forecasted that the RBA will raise interest rates by 40 basis points in its June policy meeting. However, some forecasters also suggest that the RBA would take a more cautious approach and raise rates by 25 basis points again.

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