Lowest since 1974: Australia’s unemployment rate drops to 3.5pc

Another hefty rise in interest rates is likely within weeks after almost 90,000 jobs were created last month, squashing the unemployment rate to a near 50-year low of 3.5 per cent.

Tom Dusevic and Tricia Rivera

5 min read

9:07PMJuly 14, 2022.

Updated 10:24PMJuly 14, 2022

Leading hand Aaron Stewart at work on the roof of a JR Construction home in Tarragindi, Brisbane, where tradies are in very short supply. Picture: Lyndon Mechielsen

Another hefty rise in official interest rates is likely within weeks after almost 90,000 jobs were created last month, squashing the unemployment rate to a near 50-year low of 3.5 per cent and firing up demands on the Albanese government from business groups to address worker scarcity.

The Australian Bureau of Statistics reported on Thursday the number of unemployed people had plunged from one million at the peak of the Covid-19 economic crisis two years ago to below 500,000, with an advertised job vacancy for every one of these potential workers.

Before the pandemic, there were 3.1 unemployed people per advertised vacant job.

ABS head of labour statistics Bjorn Jarvis said it was the lowest unemployment rate since August 1974, when the level was 2.7 per cent and the survey was quarterly.

“The large fall in the unemployment rate this month reflects more people than usual entering employment and also lower than usual numbers of employed people becoming unemployed,” Mr Jarvis said.

“Together, these flows reflect an increasingly tight labour market, with high demand for engaging and retaining workers, as well as ongoing labour shortages.”

Amid surging global inflation, Jim Chalmers is attending the G20 finance ministers and central bank governors meeting in Bali with RBA governor Philip Lowe from Friday to Saturday.

“As the recovery from the impacts of the pandemic continues, many countries are simultaneously dealing with rising inflation amid slowing economic growth, tightening financial conditions and geopolitical challenges,” the Treasurer said.

Global supply snarls, inflationary pressures, and a “white-hot” labour market mean the Reserve Bank is likely to stick with the 50-basis-point rate hikes it instigated in June and July.

Economists expect the RBA to lift its cash rate from 1.35 per cent to 1.85 per cent, still short of a “neutral” setting, at its August 2 board meeting, which will zero in on inflation data for the June quarter to be released at the end of this month.

As well, there are growing fears 9 per cent-plus US inflation will plunge the world’s largest economy into a policy-induced recession, with the Federal Reserve expected to lift rates even faster than it had already planned.

Unemployment rate drops to 3.5 per cent, a warning of what's to come

The Fed last month raised its interest rate target by 0.75 percentage points, the largest increase since 1994, to 1.75 per cent, signalling further increases of at least as much in coming meetings of its policy committee if inflation does not abate.

Ahead of the G20 meetings, this weekend, IMF managing director Kristalina Georgieva said the Washington-based body would be downgrading its global growth forecasts when they were released later this month.

“It is going to be a tough 2022 and possibly an even tougher 2023, with increased risk of recession,” Dr Georgieva said.

Australian policymakers believe a recession here can be avoided, but Dr Lowe acknowledges that the RBA’s room for manoeuvre was narrow.

With strong employment growth for both men and women, the ABS said the employment-to-population ratio increased to 64.4 per cent in June, the highest level recorded in the labour force series.

In May, there were 480,000 job vacancies, just short of the 494,000 unemployed people.

Westpac senior economist Justin Smirk said while Australia may not yet be at full employment, “we must be getting close”.

“In a normal cycle, the number of unemployed per vacancy ranges from three to five – one is an unheard of level of labour market tightness,” Mr Smirk said.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the nation’s skills shortage had “gone from bad to worse”. “Businesses are facing enormous pressures to recruit and retain local workers, but the reality is they’re running out of options,” Mr McKellar said.

‘Unprecedented’: Unemployment rate makes ‘dramatic’ fall to 3.5 per cent

“We are now heading into uncharted waters. A failure to act on Australia’s labour and skills crisis threatens to hold back our economic recovery.”

Master Builders Queensland chief executive Paul Bidwell said demand for new construction and the aftermath of the state’s flood saw the industry in a shortfall for labour across the sector.

“We know just in southeast Queensland alone there’s about 50,000 insurance claims that were property related that will require some level of building repair, whether it’s a little bit or a lot.” Mr Bidwell said

‘There’s an extraordinary call on skilled trade and that’s plumbers, roofers, plasterers, glaziers, tilers, carpenters – it’s almost across the board and they just can’t get enough.” he said

Mr Bidwell said job vacancies in construction had grown significantly in the past five years. In May 2017, the sector reported fewer than 15,000 vacancies, whereas in May 2022 the number of spots was up to almost 40,000.

“Every state and territory has a very buoyant construction industry. It’s not as if there are people sitting around anywhere … looking for work,” he said.

JR Construction owner Jansen Wong has felt the pinch for skilled labour so much that he has changed his business model and reduced his build from 12 houses a year to nine or 10.

“We have conceded that it is never going to get better,” Mr Wong said. “I also don’t think a lot of the youth today sort of grow up and go ‘I want to be a roofer and I want to be a bricklayer’, so there’s definitely shortfalls in those trades and I think it’s going to get worse.”

The Albanese government is holding a jobs summit in early September, with the focus on skills shortages, training, migration and pay-setting arrangements.

ACTU assistant secretary Liam O’Brien said “the recovery from the pandemic is not being shared across the economy”.

“All the variables that workers have been told would drive wage growth are now in alignment, but we are still seeing real wage cuts stretching into the distance,” Mr O’Brien said.

“The reality is that wage growth is being held back by our bargaining system, which is broken. With a functioning bargaining system (in place,) low unemployment, productivity growing and profits and bonuses at all-time records would translate into wage growth for working people.”

The ABS said June recorded the eighth consecutive monthly increase in employment following the easing of restrictions in late 2021. Employment is now almost 600,000, or 5 per cent, above its pre-pandemic level,

Rich Insight principal Chris Richardson said the labour force results “are magnificent numbers” for Australia. Economists were expecting a rise of around 30,000 jobs and the jobless rate easing to 3.8 per cent from 3.9 in May.

CBA economist Stephen Wu said given where the RBA is in its tightening cycle, which began in May from a cash-rate floor of 0.1 per cent, “we expect the unemployment rate to have effectively reached its trough in the cycle”.

“Rising interest rates will work to slow demand in the economy, but it will take some time before the labour market softens.”