Australia’s unemployment rate has fallen to its lowest level in 48 years, but the surprise drop could spell bad news for mortgage holders and house hunters.
The unemployment rate fell to 3.5% in June, down 0.4 percentage points from May. This is a result much better than what economists expected and which greatly exceeds the forecasts of the Reserve Bank of Australia (RBA).
The RBA did not expect the unemployment rate to fall to around 3.5% until June 2023, and economists said that would increase pressure on the central bank to aggressively raise rates.
The official exchange rate — which influences how banks set their interest rates — I. The RBA has raised the rate every month since and with the measures aimed at bringing down inflation from itswithin its target range of 2-3%.
“As a result, the policy debate at the August RBA meeting is likely to be between a 50 vs. 75 basis point (bps) hike, and a 100 basis point hike cannot be ruled out given how other central banks assess these risks,” said NAB economist Taylor Nugent.
AMP chief economist Shane Oliver said he expects another rate hike at the RBA meeting next month.
“I think the Reserve Bank will remain under pressure to raise rates again at its August meeting,” he told ABC News on Thursday.
“We expect a 0.5% upside, but I wouldn’t rule out a 0.75% upside at this meeting.”
What the unemployment figures showed
The number of unemployed in June fell by 54,300 – to 493,900 people.
There were almost as many vacancies in June – 480,000 – as there were unemployed. Before the coronavirus pandemic, there were 3.1 unemployed people per job offer.
Employment rose sharply by 88,400 people, shattering expectations of a rise of 30,000 people.
Turnout fell from 66.7% to 66.8%, a record high and 0.9% above pre-pandemic levels.
Australian Bureau of Statistics labor data chief Bjorn Jarvis said the June figure was the lowest unemployment rate since August 1974, when it was 2.7 per cent and the survey was quarterly.
Deutsche Bank economist Phil O’Donaghoe said it was one of the best labor market reports in Australian history.
“You can never get carried away with a number, whether positive or negative, but really it’s just an extraordinarily strong impression, really adding to a very, very robust demand here in Australia,” he told Ausbiz Television.
CommSec senior economist Ryan Felsman called it a “staggering low” and a “remarkable” number, a sign of an “incredibly tight” labor market, while economist Alice Cho, of the Nomura Financial Services, called it an “incredibly strong” report.
The Reserve Bank of Australia currently has a cash rate of 1.35%. Source: AAP
The unemployment rate fell for both men and women, by 0.4 percentage points in both cases. The unemployment rate of 3.4% for women was the lowest since February 1974, while the unemployment rate of 3.6% for men was the lowest since May 1976.
Total hours worked fell slightly, which economists said was likely due to high numbers of COVID-19 and flu cases. Absenteeism due to illness was at the second highest level on record.
Full-time jobs have now risen for eight consecutive months and Mr Oliver said he expects the unemployment rate to fall further, to around 3.2% over the next three to six months.
“Thereafter, it is likely to start rising again, reflecting the lagged impact of higher interest rates and lower real incomes on economic growth and hence labor demand,” Mr. Oliver wrote in a research note.
But he said that while a 48-year low in the unemployment rate was obviously good news, the comparison with 1974 “doesn’t necessarily bode well, because after that we slipped into a bad bout of stagflation.”
“Of course, many circumstances are different today, but the experience of the 1970s highlights the need for the RBA to act quickly.”