Australia’s May employment tops forecasts, defying economic slowdown By Reuters

SYDNEY (Reuters) – Employment in Australia beat expectations in May as firms took on more full-time workers, while the jobless rate fell in a sign the labor market remains resilient even as the economy slowed to a halt.

The report is unlikely to move rates much lower, with markets expecting the easing cycle to begin only in the second quarter of next year. The Australian dollar rose to an intraday high of $0.6665, but soon settled back to where it was earlier at $0.6651.

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

The unemployment 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 remained at a historically high 66.8%, while hours worked fell 0.5% on the month due to a large number of workers taking time off because they were sick.

“Financial markets have given up much hope of a rate cut in Australia this year, so today’s good jobs report will not have caused too much turmoil,” said Robert Carnell, regional head of research, Asia-Pacific, at ING.

“In short, hitting a slight plateau at the end of 2023, the Australian labor market is currently moving forward at a modest pace. It wouldn’t take much to turn it onto a weaker trajectory, but also, there some upside potential too 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 consecutive meeting. It had expected the unemployment rate to rise gradually to 4.2% by the end of the year and is keen to avoid a deeper economic downturn by raising interest rates sharply.

The resilient labor market would be a comfort to policymakers keen to preserve job gains, even as the broader economy came to a virtual halt in the first quarter, growing 0.1% as consumers curbed spending.

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

Markets are implying a less than 50% chance of a December cut, having moved earlier in the day as a slowdown in US inflation revived hopes for policy easing there.

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

VanEck’s Head of Investments and Capital Markets Russel Chesler said the report reinforces his view that any cut in the cash rate is a long way off.

“Continued services inflation is the monkey on Australia’s back. Letting go of that has been difficult because of the strength of the labor market… We don’t see a rate cut happening until 2025 – and probably not until in the middle of the year.”