Unemployment falls slightly in Australia, fueling fears of a near-term interest rate hike.
The Australian Bureau of Statistics (ABS) released its latest jobs report on Thursday, revealing that unemployment Down Under fell to 4.4% for the month of May, compared with 4.5% in April, on a seasonally-adjusted basis.
The latest figures came after a surprise increase in April, compared with 4.3% in March, giving market players hope that the jobs market was beginning to soften.
But in May, an additional 18,300 people found jobs. That's good news for job seekers, but bad news for investors and borrowers hoping the Reserve Bank of Australia's (RBA) aggressive rate-hiking campaign is starting to meaningfully slow the economy and ease inflationary pressures.
The participation rate rose to 66.7% in May, up from 66.6% in April.
By state, Tasmania had the highest levels of unemployment at 5.3%, followed by Victoria at 4.9% and Western Australia at 4.6%. Queensland had the lowest levels of unemployment at 3.7%, followed by South Australia at 4.2% and New South Wales at 4.3%.
The labour market is one of several key data points the Reserve Bank of Australia (RBA) considers when determining interest rates, a decision being closely watched by mortgage holders and investors feeling the impact of higher borrowing costs and increased costs of living.
The RBA delivered three back-to-back interest rate hikes earlier this year, bringing the official cash rate (OCR) to 4.35%. However, policymakers left rates unchanged in June, saying they wanted additional time to gauge how previous increases were affecting economic activity before deciding on their next move.
With unemployment falling and inflation still running above target, the case for lower interest rates remains weak. The latest consumer price index (CPI) revealed that inflation is still above the RBA's target inflationary range of 2% to 3%. The central bank has repeatedly signalled it will not begin easing monetary policy until inflation is back within the target band.
The latest figures have done little to settle the debate over the RBA's next move, with market participants divided on what the data means for the interest rate outlook.
"Typically, the employment and inflation numbers go in opposite directions to each other. But that's not happening at the moment," Cara Julian, founder and mortgage broker at Melbourne-based Brava Finance, told Australian Broker. "The key data for the RBA is obviously the CPI and also the employment. But the data is not reacting as they would have anticipated. I suppose that's why everybody is so uncertain about what's going to happen.
"It doesn't make me feel any more confident that there would be a clear path moving forward for decisions for the RBA," Julian continued. "I think there's just a lot of other factors that are having to come into play now to be able to make those decisions."
Gordon MacVicar, owner and broker at Coolum Beach and Noosaville Mortgage Choice, added that: "Unless there's a really sharp decrease in unemployment, I don't think it's going to have a material effect on the interest rates.
"I think what the RBA is going to be looking at are those three rate increases," he added. "They're going to need another three, four months for those increases to have their full effect. And, hopefully, they're going to cause deflation in the consumer space."
The RBA is scheduled to next meet on 10 to 11 of August.
