© Reuters. A worker pushes a cart loaded with goods near a construction site in Sydney’s Central Business District (CBD) in Australia, March 15, 2018. REUTERS / David Gray
By Wayne Cole
SYDNEY (Reuters) – Employment in Australia recovered sharply in May, while the unemployment rate was at its lowest level in 50 years as more people went in search of work, an encouraging sign that the economy can withstand the higher interest rates needed to curbing rapid inflation.
Data from the Australian Bureau of Statistics on Thursday show that net employment increased by 60,600 in May compared to April, when it increased by only 4,000. That far exceeded market forecasts of 25,000 growth and brought gains for this year to a whopping 386,100.
The unemployment rate remained at 3.9% in May, when analysts demanded a drop to 3.8%, but only because the participation rate unexpectedly jumped to a record 66.7%.
There were also clear signs that the labor market was becoming increasingly strained as underemployment fell to its lowest level since 2008 and promised to increase wages over time.
The under-utilization rate, which contributes to unemployment under-employment, has fallen to its lowest level since 1982 at 9.6%.
The labor market has been one of the strongest sectors of the economy in recent months and a key reason why the Reserve Bank of Australia (RBA) felt confident enough to raise interest rates this month by an excessive 50 basis points to 0.85%.
In a rare appearance on television this week, RBA Governor Philip Lowe underlined the importance of a low unemployment rate.
“There’s a big backlog of construction work that needs to be done and the number of vacancies is extremely high, so people can be sure there will be jobs and in that environment people will continue to spend,” Lowe said.
This encouraged market expectations of a further increase in interest rates by half a point in July, August and September, with rates seen to reach a staggering 3.5% by the end of the year.
The urgency for the action was emphasized by the US Federal Reserve, which on Wednesday raised rates by 75 basis points in the largest increase since 1994.
However, the prospect of sharply higher borrowing costs combined with high inflation in two decades has already led to a drop in consumer confidence to the lowest levels in the recession.
Australian households owe a record 2 trillion Australian dollars ($ 1.4 trillion) in mortgage debt and face an additional repayment of hundreds of dollars.
“We believe the RBA will benefit a lot from its past and future interest rate increases,” said Harry Ottley, an economist at CBA.
“We would expect that these bad figures on consumer sentiment and rising interest rates will reduce consumption in the second half of 2022.”
(1 dollar = 1.4249 Australian dollars)