Unemployment drops to 3.6pc as jobs growth booms in May

The drop in the key jobless measure signals the Reserve Bank may have more work to do to cool the economy and tame inflation.

The unemployment rate is expected to trend higher over the coming 18 months as rate hikes slow the economy. Picture: Luis Enrique Ascui/NCA NewsWire

The labour market roared back to life in May, as the strongest jobs growth in almost a year pushed the unemployment rate down to 3.6 per cent and signalled the Reserve Bank has more work to do to cool the economy and tame inflation.

Despite growing fears Australia could follow New Zealand into recession later this year, the number of employed Australians surged by 75,900 in the month, according to the Australian Bureau of Statistics – multiples of the 18,000 consensus forecast among economists as employment pushed above 14 million for the first time.

The number of full-time jobs climbed by 61,700, and part-time jobs by 14,300, the seasonally adjusted figures showed.

Jim Chalmers in parliament said the latest jobs numbers were “very welcome news”, and unemployment at 3.6 per cent was “a remarkable achievement for the economy and for the Australian people”.

“We go into this period of significant global economic uncertainty from a position of relative strength,” the Treasurer said.

There are now about one million more Australians in work than before the pandemic, as the employment-to-population ratio climbed to a record 64.5 per cent.

The share of the total labour force in work, the participation rate, also hit a new high of 66.9 per cent.

Capital Economics head of Asia-Pacific Marcel Thieliant said the labour market was “firing on all cylinders”, and that the latest numbers supported his view that the RBA would push the cash rate from 4.1 per cent to 4.85 per cent by September.

ABS head of labour statistics Bjorn Jarvis said the latest figures followed a soft April, but left the average increase in employed people over the past two months at 36,000, adding there was little sign of a slowdown in the trajectory of jobs growth.

“Looking across the range of indicators – strong growth in hours worked, the elevated employment-to-population ratio and participation rate, along with the low unemployment and underemployment rates – they all point to a continuing tight labour market,” Mr Jarvis said.

Economists, however, warned that a predicted sharp economic slowdown through this year would send the jobless rate higher over coming months.

The RBA forecasts unemployment will climb to 4 per cent by December, and to 4.4 per cent by the end of 2024.

CBA head of Australian economics Gareth Aird said “in time the unemployment rate will lift given below-trend economic growth”.

“But it is simply just taking more time than would be expected given the slowdown in the economy,” Mr Aird said.

The ABS data showed underemployment – the proportion of workers with jobs but who were trying to get additional hours – lifted from 6.2 per cent to 6.4 per cent.

But youth unemployment dropped sharply to 7.6 per cent to reach its lowest since the record 7.1 per cent rate achieved in June last year.

The ABS noted there was a greater share of employed women in Australia than ever before, as the female employment to population ratio and participation rate reached new highs in May. Across the country, the jobless rate in NSW plunged from 3.4 per cent to a nation-leading 3 per cent in May. Victoria’s unemployment rate dropped 0.2 percentage points to 3.7 per cent, but it inched higher to 3.9 per cent in Queensland.

The highest jobless rate was in Tasmania, at 4.2 per cent, the ABS data showed.