Australia’s unemployment rate falls in surprise move

Australia’s unemployment rate has fallen – defying predictions and in a sign the labour market is strong.

Australia’s unemployment figure has fallen from 3.7 per cent to 3.6 per cent – defying expectations it would remain steady.

In a sign Australia’s labour market is remaining strong in the wake of a broader economic slowdown, new figures from the Australian Bureau of Statistics reveal employment in May increased by around 76,000 people, and the number of unemployed people decreased by 17,000 people.

Most of the extra positions – around 61,700 – were full-time roles, the ABS said.

The figures came as a shock to economists, some of whom were expecting just 15,000 jobs to be added over the month, and unemployment to remain steady.

The increase in employment in May also marked the first time the number of employed people in Australia reached 14 million.

The participation rate also increased to 66.9 per cent, meaning more people were looking for work.

Australia’s unemployment rate has dropped to 3.6 per cent. Picture: NCA NewsWire/Tertius Pickard

Bjorn Jarvis, ABS head of labour statistics, said the strong growth in employment in May, followed a small decrease around Easter when employment fell more than what it usually would.

“Looking over the past two months, the employment increases average out to around 36,000 extra employed people each month. This is still around the average over the past year of 39,000 people a month,” he said.

The fall in unemployment indicates the economy is still running hot, with markets interpreting the figures as increasing the chance the Reserve Bank could raise the cash rate again in July.

Yesterday, 75 per cent of investors expected no change to the official cash rate of 4.10 per cent when the board meets on July 4.

St George chief economist Besa Deda said the figures were a sign the labour market continued to remain “incredibly tight”, but warned the unemployment rate would gradually move higher in coming months.

“But the unemployment rate has in recent months continued to surprise in terms of reflecting the strength of the labour market,” she told ABC News.

“There are signs that the labour market is set to loosen, but we have to keep in mind that job ads and job vacancies are still at an incredibly high level and that’s why the rise in the unemployment rate might still be very gradual and is still to materialise.

“It does keep the pressure on the Reserve Bank to raise rates again, given that the labour market and wage pressure do feed into the overall inflation story.”

She said the bank was forecasting unemployment to return to above the four per cent mark by the end of this year, and into the five per cent range by the end of next year.

The figures will be closely watched by the Reserve Bank ahead of it’s next meeting on July 4. Picture: NCA NewsWire / Damian Shaw

Earlier, NAB chief economist Alan Oster conceded the country’s economy was going through a “really big slowdown” that “will feel recessionary”.

He told ABC News earlier the bank had lowered it growth expectations, in part because of predictions unemployment would rise slightly over the remainder of the year, coinciding with other factors.

“So we’re basically saying no growth in the rest of the year, unemployment goes up a little bit, but it’s exactly what the Reserve Bank is trying to do,” he said earlier.

“It’s trying to essentially take money out of households and get them to spend less, and therefore hopefully get inflation down a bit quicker.”