An unexpected drop in the unemployment rate to 5.1 per cent in May and a massive rise in employment is a sign the economy is “roaring back” from recession, Treasurer Josh Frydenberg says.
The sharp drop in the unemployment rate from 5.5 per cent in April, and back to its pre-pandemic level, came as a much larger than expected 115,200 people joined the workforce in May.
Full-time workers jumped by 97,500, while those in part-time jobs increased by 17,700, the Australian Bureau of Statistics said.
However, such strength has fuelled talk among economists that the Reserve Bank of Australia may need to raise interest rates before its long-held view that conditions to increase won’t be in place until 2024.
Economists had expected the jobless rate to hold at 5.5 per cent with a more modest 30,000 increase in employment.
“The Australian economy is roaring back, bigger, stronger and leading the world,” Mr Frydenberg told reporters in Canberra on Thursday.
“We saw unemployment fall for the seventh consecutive month … smashing market expectations.”
He admitted the result was even ahead of his own budget expectations, released only last month.
BIS Oxford Economics senior economist Sean Langcake said the labour market has weathered the withdrawal of the JobKeeper wage subsidy in March very well.
“There are no signs of lingering effects in today’s data,” he said.
He said with the labour market remaining well ahead of the RBA’s expectations, wage pressures are likely to emerge sooner than it expects.
“We expect the RBA will need to bring forward their plans for a rate hike into 2023,” he said.
Australian Bureau of Statistics head of labour statistics Bjorn Jarvis said the number of unemployed people has fallen by around 303,000 since the peak of one million in July 2020.
“The declining unemployment rate continues to align with the strong increases in job vacancies,” he said.
Speaking before the release of the jobs figures, RBA governor Philip Lowe said while some businesses are finding it hard to hire workers, wage increases have been modest.
In his first public appearance since March, Dr Lowe told an audience in Toowoomba that while the labour market was tightening, wages growth and inflation remains subdued.
“It is noteworthy that even in those pockets where firms are finding it hardest to hire workers, wage increases are mostly modest,” Dr Lowe told the Australian Farm Institute conference.
“There are some exceptions to this, but they are fairly isolated.”
The RBA wants to see inflation sustainably within the two to three per cent target before it considers raising the cash rate from its record low 0.1 per cent.
This, it says, will need wage growth to double from its current low rate of 1.5 per cent and the unemployment rate substantially lower – at least with a four in front, and possibly a three – events it does not expect until 2024 at the earliest.
Dr Lowe said he expected the consumer price index to spike to about 3.5 per cent in the June quarter due to the unwinding of some pandemic-related price reductions.
“There have also been price increases for some items due to pandemic-related interruptions to supply. But beyond this, inflation pressures remain subdued and are likely to remain so,” Dr Lowe said.