Jobs boom in May leads to tightest labour market in 40 years

The latest job figures will add to pressure on wages growth, after employment surged by 61,000 in May and left the jobless rate at a near 50-year low of 3.9 per cent.

Unemployment was steady at 3.9 per cent in May. Picture: David Crosling/NCA NewsWire

The tightest labour market in 40 years will add to the upward pressure on wages growth in the month ahead, after employment increased by 61,000 in May and left the jobless rate at 3.9 per cent.

Economists said the new figures reinforced expectations the Reserve Bank board would hike rates by a further half a percentage point when it next meets on July 5.

A steady headline unemployment rate for the third straight month – which is the lowest since 1974 – masked a very strong jobs report from the Australian Bureau of Statistics.

The number of full-time jobs jumped by 69,400, while part-time jobs fell by 8700, according to the seasonally adjusted figures.

The consensus forecasts among economists was for an ­additional 25,000 jobs in May, and for the jobless rate to tick lower to 3.8 per cent.

Barrenjoey chief economist Jo Masters said the strong jobs numbers would be “a catch-22 for the RBA”. “On one hand, the solid ­result will put more upward pressure on inflation and wages growth,” she said. “On the other hand, a record-low unemployment rate, strong employment growth, (a) record employment population ratio and building ­momentum in wages growth will be an important support for consumers over the challenging ­period ahead.”

The key jobless measure would have dropped were it not for an influx of people into the workforce, as the participation rate jumped to a record high of 66.7 per cent, from 66.4 per cent in April.

ANZ senior economist Catherine Birch said the jobless rate would drop to 3.3 per cent by the end of the year, and that “the continued downward trajectory in ­underemployment signals further wage pressures to come”.

“Yesterday’s decision by the Fair Work Commission to ­increase the minimum wage by 5.2 per cent and award wages by at least 4.6 per cent will also support an acceleration in wage growth in the second half of the year,” Ms Birch said.

The rate of underemployment – which measures those with jobs but who couldn’t get the hours they wanted – dropped sharply, from 6.1 per cent to 5.7 per cent, the lowest level since August 2008.

The under-utilisation rate – a measure of labour market tightness which combines the unemployment and underemployment rates – fell 0.3 percentage points to 9.6 per cent and the lowest level since April 1982. Citi economist Faraz Syed said the data “suggest that the Australian labour market is in a sweet spot”.

“The even lower 3.7 per cent full-time unemployment rate and further declines in underemployment suggest that the RBA’s view of ongoing labour market strength can’t be challenged in the near term,” Mr Syed said.

ABS head of labour statistics Bjorn Jarvis said the average pace of employment growth of 30,000 people over the past three months remained above the pre-Covid monthly trend of 20,000.

“The increase in May 2022 was the seventh consecutive increase in employment, following the easing of lockdown restrictions in late 2021,” Mr Jarvis said.

“In addition to the continuing trend of increasing employment, we have continued to see relatively stronger growth in hours worked. This is something we also saw this time last year, before the Delta outbreak.”

The ongoing Omicron outbreak meant worker absenteeism remained high in May, with the number of people working fewer hours than usual due to illness increasing to about 781,000.

Originally published as Jobs boom in May leads to tightest labour market in 40 years