Australia posted a surprise drop in employment in May, according to official figures, raising the possibility of further monetary policy easing by the Reserve Bank of Australia (RBA).
Data released by the Australian Bureau of Statistics (ABS) on Thursday showed a net loss of 2,500 jobs, driven entirely by a fall in part-time roles. Full-time employment increased by 38,700, while part-time positions declined by 41,100.
The jobless rate remained at 4.1%, with the participation rate slightly decreasing from 67.1% to 67%. Although unemployment remains historically low, it has edged higher over the year, following a pandemic-era low of 3.4%.
Economist Callam Pickering of Indeed Inc. described the figures as “somewhat disappointing” but said forward indicators of labour demand are intact.
He noted that while the labour data matters, broader economic and geopolitical concerns are likely to weigh more heavily on the RBA’s considerations at its July meeting. As reported by Bloomberg, Pickering expects the central bank to reduce interest rates in July, with a second cut possible by September.
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Financial markets are currently pricing in an 80% chance that the RBA will cut its cash rate to 3.6% from 3.85% on 8 July, according to Bloomberg. Traders are also factoring in two additional reductions by year-end, following two cuts already delivered by the central bank this year.
Since the RBA’s May decision to lower borrowing costs while signalling a cautious approach to further tightening, economic indicators have remained subdued. Geopolitical instability has increased, with Bloomberg reporting a rise in oil prices after Israeli strikes on Iranian nuclear facilities were met with retaliation. These developments compound existing pressures linked to US trade policy, slower growth in China, and the continued fallout from the war in Ukraine.
Treasurer Jim Chalmers described the global landscape as “a pretty dangerous place,” warning that Australia, despite its position, is not immune to external shocks.
Bloomberg Economics analysts said the latest jobs figures suggest a labour market that remains resilient, but predicted that unemployment would rise through the second half of 2025. They forecast this trend would push the RBA toward further easing in 2025 and 2026.
ABS data also showed annual employment growth at 2.3%, outpacing the 2.1% population growth for those aged 15 and over. Underemployment fell to 5.9%, and the under-utilisation rate declined to 9.9% from 10.1%.
Commonwealth Bank economist Harry Ottley pointed out that approximately 80% of job gains over the past two years occurred in non-market sectors such as healthcare, education, and public administration. However, Ottley flagged signs of contraction, with a quarterly decline in those areas for the first time since early 2021 and a sharp drop in annual growth from 8.3% to 4.8% over two quarters.
He noted that the current mix of global uncertainty and subdued economic activity could act as a constraint on future employment growth.
Do you think recent employment trends signal a turning point for Australia’s economy? Leave a comment with your view.
