Labour market 'appears to be tracking a little better than the RBA expected'
Australia’s job market stood its ground in May, with the seasonally adjusted unemployment rate staying at 4.1% for the third consecutive month, matching market expectations.
While the number of unemployed people edged lower by 2,600 to 618,300, this stability masked some underlying shifts: those seeking full-time work fell notably, while part-time jobseekers rose.
Employment overall dipped by 2,500 – missing forecasts of a 25,000 gain – due to a sharp drop in part-time positions, even as full-time roles surged to a record high of 10.1 million.
Commonwealth Bank economists called the latest jobs data print “a good news story”.
They said: “A steady unemployment rate, and still limited signs of unsustainable wages growth continues to suggest the non‑accelerating rate of inflation (NAIRU) is around current levels.”
Discussing what it means for interest rates, CBA analysts said: “We continue to acknowledge the balance of risks have shifted towards a July cut given the dovish nature of the May (Reserve Bank of Australia) board meeting.
“Our base case though remains August after the full quarterly CPI (consumer price index).”
However, market sentiment is starting to shift; previously at 85%, the markets are now pricing in just a 75% chance of a July rate cut.
No compelling case to cut
ANZ analysts reckon the labour market “appears to be tracking a little better than the RBA expected in its May Statement on Monetary Policy”.
Employment growth is also outpacing RBA estimates, albeit modestly. However, ANZ cautioned that these differences are not “large” and do not present a compelling case for a rate move in July.
ANZ expects the RBA to keep the cash rate at 3.85% in July, but noted that a rate cut “would certainly not surprise”.
Speaking on the broader Australian economy today, NAB economists said the economy is “gaining momentum more slowly than expected six months ago”, with private sector growth and household consumption showing a softer trend.
Despite this, the labour market “has remained resilient and forward indicators remain healthy”.
NAB expects the unemployment rate to rise to 4.4% by late 2025, stabilizing around 4.25% by the end of 2026.
The current inflation outlook “will allow the RBA the scope to normalise policy”, NAB added, indicating the potential for rate cuts as risks to growth and labour market stability linger.
The RBA’s next cash rate announcement is due on 8 July.
