Business & Economy

Australia May employment tops forecasts, defying economic slowdown

Businessmen use their phones as they stand in the central business district (CBD) of Sydney in Australia

SYDNEY (Reuters) – Australian employment outpaced expectations in May as firms took on more full-time workers, while the jobless rate dipped in a sign the labour market remains resilient even as the economy slowed to a standstill.

The report is unlikely to move the needle much on rate cuts, with markets expecting the easing cycle to start only in the second quarter of next year. The Australian dollar perked up to an intraday high of $0.6665 but soon settled where it was before at $0.6651.

Net employment rose 39,700 in May from April, data from the Australian Bureau of Statistics showed on Thursday. Market forecasts had been for a gain of 30,000. Full-time employment jumped 41,700 following a couple of soft months.

The jobless rate eased back to 4.0%, from 4.1%, in line with estimates, as more people started or returned to their jobs after a break in April, the ABS noted.

The participation rate held at an historically high 66.8%, while hours worked dipped 0.5% in the month due to a large number of workers taking time off because they were sick.

“Financial markets have given up much hope of rate cuts in Australia this year, so today’s decent labour report won’t have caused too much of a stir,” said Robert Carnell, regional head of research, Asia-Pacific, at ING.

“In short, having hit a soft-patch at the end of 2023, the Australian labour market is currently ticking along at a modest pace. It wouldn’t take a lot to tip it into a weaker trajectory, but equally, there is also some potential for upside and the net picture is more positive than negative.”

The Reserve Bank of Australia meets next week and is widely expected to hold interest rates at 4.35% for a fifth straight meeting. It had expected the jobless rate to gradually rise to 4.2% by the end of the year and is keen to avoid a deeper economic downturn by raising interest rates too far.

The resilient labour market would be a comfort for policymakers who are keen to preserve the jobs gains even as the broader economy came to a virtual halt in the first quarter, growing a meagre 0.1% as consumers reined in spending.

Interest rates are already at a 12-year high but there are signs that inflation is proving hard to tame, with a monthly reading unexpectedly picking up to a five-month high of 3.6% in April after a surprisingly strong first quarter report.

Markets imply less than a 50% chance of a cut in December, having already moved earlier in the day after a slowdown in U.S. inflation revived hopes for an easing in policy there.

They are fully priced for a 25-basis point cut in April next year.

VanEck Head of Investments & Capital Markets Russel Chesler said the report solidified his position that any reduction in the cash rate is a long way off.

“Persistent services inflation is the monkey on Australia’s back. Shaking this off has been difficult due to the strength of the labour market … We don’t see a rate cut happening until 2025 – and possibly not until mid-year.”

(Reporting by Stella Qiu and Wayne Cole; Editing by Shri Navaratnam and Jacqueline wong)

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