By Rachel Clun and Shane Wright
There are signs the job market is cracking under the pressure of the Reserve Bank’s aggressive interest rate hikes, with unemployment rising to 4.1 per cent in April and wages growth starting to ease.
In a development that forced financial markets to wind back expectations of further interest rate pain, the Australian Bureau of Statistics reported a 0.2 percentage point increase in the jobless rate last month while upwardly revising the March unemployment level.
The unemployment rate rose to 4.1 per cent in April.Credit: Louie Douvis
The jobless rate was 4.1 per cent in January but this was attributed to many people taking time away from work before re-entering the jobs market. Unemployment was at 3.7 per cent in February.
There was a 38,500 increase in the number of people holding down a job, but a 30,000 rise in the number of people looking for work.
The Reserve Bank and Treasury have forecast unemployment to reach 4 per cent by June.
Two days after delivering his third budget, Treasurer Jim Chalmers said the jobs market had been resilient over Labor’s first two years in office.
“These new numbers show we are still creating new jobs, even as the unemployment rate has ticked up and the labour market is softening,” he said.
Shadow treasurer Angus Taylor said the increase in unemployment showed how tough economic conditions were at the moment.
“Australians’ standard of living has been smashed under Labor’s economic mismanagement. Unfortunately, the budget this week has proven the government has no plans to restore it,” Taylor said.
Economists said the labour market was slowing in line with the central bank’s expectations off the back of near 50-year lows in unemployment after the pandemic and amid ongoing local and global economic volatility.
Moody’s Analytics economist Harry Murphy Cruise said cracks were beginning to show in the jobs market.
“For more than four years, jobs have been a shield for Aussie families, refusing to baulk at pressures from the pandemic, war, inflation and interest rates. But those pressures are starting to take a toll,” he said.
“To be clear, the labour market is still strong … But the market is no doubt softening and will continue to do so from here.”
Deutsche Bank’s chief economist for Australia, Phil O’Donaghoe, said the job report was a better indicator about the state of the economy than this week’s budget.
“This week’s labour market updates show clear cracks in Australia’s labour market,” he said.
“If that picture is sustained over coming months, we think the upshot for the RBA’s near-term policy deliberations will be more important than anything in the federal budget.”
AMP deputy chief economist Diana Mousina said the job data was a mixed bag, noting that the ABS reported there were more people who were unemployed but waiting to start a job than normal, which meant the jobless rate could fall again next month.
But she said other indicators, including the under-utilisation rate (up 10.7 per cent, from a post-pandemic low of 9.4 per cent) and rising youth unemployment (up 9.7 per cent, from 7.2 per cent in July 2022) continued to weaken at a faster pace than the unemployment rate.
“While the labour market has certainly held up a lot better than expected over the past year, it is still weakening, which is consistent with the Reserve Bank of Australia keeping interest rates unchanged,” Mousina said.
Separate figures from the bureau this week showed annual wage growth had slowed for the first time since December 2020, easing slightly to 4.1 per cent in the year to March from 4.2 per cent in the 12 months to December.
Both the private and public sector wage increases for the first three months of the year were their smallest since March 2022. The proportion of jobs that recorded a zero to 2 per cent annual increase rose slightly compared to the December quarter, the first time that has risen since the June quarter of 2021.
HSBC chief economist for Australia and New Zealand Paul Bloxham said the loosening jobs market combined with wage growth passing its peak created a “Goldilocks” situation.
“The impressive element is that this jobs market loosening – which is much needed to get inflation to ease – has occurred while labour demand has remained resilient,” he said.
“Making the picture even prettier, yesterday’s wages print suggests that wages growth is passing its peak.
“The two data prints together suggest less likelihood the RBA will need to lift its cash rate again.”
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