Australia’s headline unemployment rate increased slightly to 3.8 per cent in March, after employment fell by 7,000 people and unemployment rose by 21,000 people.
The small drop in employment led to the unemployment rate lifting 0.1 percentage points, up from 3.7 per cent in February.
However, a less noisy measure of unemployment gives a clearer picture of where the labour market’s sitting.
Data shows the ‘trend’ unemployment rate remained steady in March — at 3.9 per cent — for the fifth month in a row, reflecting some underlying strength in the economy.
“Despite a small drop in employment, Australia’s labour market remains incredibly tight,” said Callam Pickering, APAC senior economist at global job site Indeed.
On Thursday, coinciding with the release of the March unemployment data, the Reserve Bank also published its latest edition of its quarterly Bulletin.
It had a special section that explained how the RBA assesses “full employment.”
It said RBA officials look at a range of indicators to understand how “tight” the labour market is and, together, those indicators suggested conditions were still tight in the labour market but had eased relative to when things were “very tight” in late 2022.
That message was displayed in the below graphic.
The graphic compared the latest observation of key labour market indicators (blue dots) with observations of recent extreme labour market tightness from October 2022 (orange dots) and more typical labour market outcomes since the year 2000 (grey bars).
“The easing in the labour market since late 2022 is most evident in measures that tend to be leading indicators, such as firms’ employment intentions,” the RBA Bulletin said.
Labour market easing, but cost-of-living pressures still biting
On Thursday, ANZ senior economist Blair Chapman said it looked like the labour market had “resumed easing” in March.
But he said it could still be running “slightly hotter” than the RBA was forecasting a few months ago, and unemployment may have to increase faster in coming months for the RBA to meet its inflation target.
And that relative tightness in the labour market, coupled with high inflation and cost-of-living pressures, means conditions remain tricky for many businesses.
Dr Corbin Barry, a Sydney dentist, says he’s been finding it hard to recruit support staff who will stick around for the long term.
At the start of the year, Dr Barry had six employees at his newly-opened inner Sydney dental clinic — but now he’s down to four.
“When I hired everyone at the practice, I was optimistic about what the future held for us as a small business,” he said.
“What I found is that it’s really hard getting people [patients] through the door because of the [cost-of-living] crisis at the moment.”
Dr Barry said he’d noticed more patients were cutting back on dental treatment – treating it as a “discretionary” service during this high inflation environment.
Another challenge was giving his staff enough hours at work, and a sense of career progression.
“Even if they’re working full time hours with me, I do find that they’ll work an additional Saturday [elsewhere], for example, doing temporary work, to try and ensure that they can keep up with cost-of-living pressures,” he said.
“When I wake up, my stress is, can I pay the staff this week? And how can I make sure that I can do that for the long term? Not ‘what holiday am I going on in July?’,” he said.
Wage growth to moderate
Gareth Aird, head of Australian economics at Commonwealth Bank, said the labour market was clearly loosening.
But he said it was only loosening at a “moderate” pace, which was at odds with the “very weak” growth in economic activity.
However, he said he expected unemployment to keep rising this year, and tipped the unemployment rate to hit 4.5 per cent by December.
“According to Seek, the number of applicants per job ad continues to march higher,” he said in a note on Thursday.
“Applicants per job ad are up by 67.7 per cent over the year. Indeed, applications per job ad are a little over 50 per cent higher than pre-pandemic levels.
“This is a sign that the labour market has become increasingly competitive,” he said.
Mr Aird said the increase in labour market competitiveness was weighing on growth in advertised salaries.
“According to Seek, advertised salaries rose by 0.2 per cent in February (the same as January) … these are the slowest monthly rates of growth since December 2021,” he said.
“Again, this is consistent with a loosening labour market. And it will also help to moderate the pace of wages growth in 2024, which will assist with the disinflation process.”
EY senior economist Paula Gadsby said she expected the March unemployment data to provide the beginnings of a clearer read on underlying labour market conditions.
She said shifts in seasonal patterns impacted the data in the first two months of this year.
“The labour market remained in good shape in March with the unemployment rate below 4 per cent, the employment-to-population ratio remaining close to record high levels, and an increase in hours worked,” she said.
“A gradual easing in the strength of the labour market is still expected as higher interest rates continue to flow through the economy,” she said.
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