Australia: historic dip in unemployment to 3.5%

Australia's unemployment rate fell to a historic low of 3.5% in June—down from 3.9% the previous month—a new record since 1978, when the Australian Bureau of Statistics (ABS) began recording the data on a monthly basis.

Until then, the unemployment survey had been conducted on a quarterly basis, and according to the relevant ABS official, Bjorn Jarvis, the 3.5% «is the lowest rate … since August 1974, when unemployment stood at 2.7%.».

Mr. Jarvis also noted that the unemployment rate among women, which stood at 3.4% in June 2022 (-0.4% from the previous month), is the lowest since February 1974, and the 3.6% (-0.41 percentage points) for men is the lowest since May 1976.

The unemployment rate fell in all states and territories, except for Western Australia (+0.3 to 3.4%).

Specifically, in Victoria, it decreased by 0.5% to 3.2%, in New South Wales by 0.7% to 3.3%, in the Australian Capital Territory by 0.2% to 3.1%, in South Australia by 0.3% to 4.3%, in Tasmania by 0.2% to 4.3%, in the Northern Territory by 0.31 TP3T to 3.71 TP3T, and in Queensland by 0.11 TP3T to 41 TP3T.

«The sharp drop in the unemployment rate this month indicates that more people than usual found jobs and that fewer people than usual became unemployed,» explained Mr. Jarvis.

The number of employed people rose by approximately 88,000 (compared to expectations of 30,000) to 13,599,300, a figure 597,100 higher than in March 2020, when the pandemic began, while the number of unemployed people actively seeking work fell by 54,000 to 493,900 (-0.4%).

«Taken together, these trends reflect an increasingly ‘tight’ labor market, with high demand for hiring and retaining staff, as well as ongoing labor shortages», according to the ABS official, who noted that the recent decline in unemployment coincided with a large increase in job openings (480,000 in May 2022). As a result, the number of unemployed (493,900 in June) remained virtually unchanged.

«This is roughly equivalent to one unemployed person per job opening (1 to 1), compared to three times as many unemployed people before the start of the pandemic (3 to 1),» Mr. Jarvis emphasized to highlight the «tightness» in the labor market, which has affected all business sectors in Australia that are urgently seeking staff.

The increase in employment in June marked the eighth consecutive rise since the easing of restrictions and lockdowns in late 2021.

«Employment growth continues to follow a logical, consistent trend. The average monthly increase over the last three months was around 51,000 people (who found work) and nearly 52,000 since November 2021,» Mr. Jarvis explained. «The growth continues to be notably stronger than it was before the pandemic, when the trend was around 20,000 people per month.».

The employment-to-population ratio reached 64.4%, the highest rate since records began. The rate was particularly high among women, as well as among young people.

Labor force participation also rose to 66.8%, a historic high, and was 0.9% higher than in March 2020.

However, hours worked recorded a slight decrease of 0.1%. This is related to the increased number of COVID-19 and flu cases in June, resulting in «the number of people working reduced hours due to illness remaining high,» according to the ABS.

«About 780,000 people worked fewer hours than usual due to their own illness in June 2022, nearly twice as many as we’re seeing at the start of winter.».

Underemployment fell by 0.3% to 6.1%, although among young people it rose by 1.2% to 13.9%.

Underutilization (which combines unemployment and underemployment) remained at 9.6%, a 40-year low, which shows just how «tight» the labor market is, with many companies being forced to scale back their operations because they cannot find staff.

Some companies are offering significant pay raises to attract employees, but in doing so, they are often diverting resources that could be used for investment and putting their future growth «on hold,» especially at a time when borrowing is becoming increasingly expensive.

The labor shortage, as well as the high cost of living—with inflation continuing to rise—has led many retirees to return to work even if only for a few hours each week.

Economists note, however, that retirees will not solve the root cause of the labor shortage.

In addition, many analysts agree that low unemployment is much more likely to «lead to» yet another significant increase in the Reserve Bank of Australia’s (RBA) interest rate in August.

«The labor market is now tighter than the RBA had anticipated at any point in 2022, which represents an upside risk to (the Bank’s officials‘) projections for wages and inflation,’ as BIS Oxford Economics analyst Sean Langcake explained to ABC.

Currently, the RBA’s interest rate, which stood at a historic low of 0.1% in early May, has already risen to 1.35% following three consecutive hikes (+0.25%, +0.5%, +0.5%), in an effort to «curb» inflation. If it rises another 0.5%, it will reach 1.85%, with borrowers once again having to find several extra dollars each month to make their loan payments.

NAB economist Taylor Nugent offered a more «pessimistic» forecast on SBS. The discussion at the RBA officials« meeting in August, he said, »will likely be (for a hike) 0.5% or 0.75%, and a 1% hike cannot be ruled out, given that other central banks (around the world) are factoring in these (inflationary) risks.”.