A Closer Look
Australia's unemployment rate rose slightly to 3.8% in March, with employment falling by 7,000 and unemployment increasing by 21,000. This small drop in employment led to a 0.1 percentage point increase in the unemployment rate, up from 3.7% in February.
However, a closer look at the data reveals a more nuanced picture. The "trend" unemployment rate, a less volatile measure, remained steady at 3.9% for the fifth consecutive month, indicating underlying strength in the economy.
Callam Pickering, APAC senior economist at Indeed, stated, "Despite a small drop in employment, Australia's labour market remains incredibly tight."
The Reserve Bank of Australia (RBA) also published its latest quarterly Bulletin, which included a special section on how the RBA assesses "full employment." The RBA officials consider various indicators to understand the labor market's tightness. These indicators suggest that while conditions have eased compared to the "very tight" period in late 2022, the labor market remains tight.
The RBA Bulletin presented a graphic comparing the latest observations of key labor market indicators with observations from the peak tightness in October 2022 and more typical outcomes since 2000. The graphic highlights that the easing in the labor market since late 2022 is most evident in leading indicators, such as firms' employment intentions.
ANZ senior economist Blair Chapman believes the labor market "resumed easing" in March. However, he notes that it could still be running "slightly hotter" than the RBA's forecasts from a few months ago. This suggests that unemployment may need to increase faster in the coming months for the RBA to meet its inflation target.
The relative tightness in the labor market, coupled with high inflation and cost-of-living pressures, creates challenges for many businesses. Dr. Corbin Barry, a Sydney dentist, has faced difficulties in recruiting and retaining support staff. He has also observed patients cutting back on dental treatment due to the high inflation environment.
Gareth Aird, head of Australian economics at Commonwealth Bank, believes the labor market is loosening at a "moderate" pace, which contrasts with the "very weak" economic activity growth. He expects unemployment to continue rising this year, reaching 4.5% by December.
EY senior economist Paula Gadsby anticipates the March unemployment data to provide a clearer picture of underlying labor market conditions. She notes that seasonal patterns impacted the data in the first two months of the year.
Overall, the Australian labor market remains tight, although there are signs of easing. The coming months will be crucial in determining the pace of unemployment increase and its impact on inflation.