The labour market has defied expectations with unemployment falling to its lowest level in a year.
The surprise drop prompted economists to suggest that the unemployment rate may have peaked for the time being, reducing the chance of a further interest rate cut in June.
The unemployment rate fell unexpectedly to 4.9 per cent in April after an additional 10,500 Australians found jobs, official data found.
The fall in the jobless rate, as measured by the Australian Bureau of Statistics (ABS), caught economists by surprise.
AAP’s survey of 15 economists on Wednesday revealed a median forecast for the unemployment rate to rise to 5.3 per cent, from 5.2 per cent in March.
Commonwealth Bank chief economist Michael Blythe said that although the ABS data didn’t necessarily mean further rate cuts were off the table, it gave the Reserve Bank of Australia (RBA) more reason to remain on hold.
“There is still plenty of scope to move there if necessary, but numbers like this suggest there is no particular rush to cut again,” he said.
The RBA cut the cash rate by a much larger-than-expected 50 basis points to 3.75 per cent on May 4, citing weaker inflation and slower than expected economic growth.
JP Morgan economist Ben Jarman said a cut was still possible in June.
He said worries about Greek government debt and its effect on the euro zone and wider world markets, rather than the local unemployment rate, were likely to be the major driving factor behind the RBA’s next interest rate decision.
“The market reaction seems to say people are taking this (unemployment) result with a grain of salt,” Mr Jarman said.
“It’s going to come down to a judgment call for them (the central bank) and what the global news flow and markets look like as they enter that (monthly RBA board) meeting because we know things can change pretty quickly.”
HSBC chief economist Paul Bloxham said the labour data suggested Australia’s unemployment rate had peaked for the time being.
“Employment growth looks as though it has been trending upwards since the beginning of this year, which is a pretty solid story.”
However, Mr Jarman said the unemployment data was not as strong as the headline figure suggested.
Full-time employment fell by 10,500 but was offset by a sharp rise in part-time employment, which rose 26,000.
“That’s consistent with caution,” Mr Jarman said.
“Firms aren’t content to take the plunge on a full-time hire.”
The total labour force shrunk during the month and the participation rate, the percentage of people over 15 either working or looking for work fell to 65.2 per cent, from 65.4 per cent in March.
