Workforce participation rate is highest since 1978

Australia’s labour market strengthened again in May with 60,600 new jobs being created. While there was a small rise in the number of unemployed people (by 7,800), the unemployment rate remained flat at 3.9 percent.

The underlying strength of the economy and the labour market continues to drag workers into the labour market, with the participation rate increasing to 66.7 percent – the highest level in the current ABS series going back to February 1978.

Western Australia remains the tightest labour market in the country with unemployment sitting at 3.1 percent – reflecting both the strength of the local economy as well as the continuing impact closed borders has had on the state’s labour market.

Importantly hours worked also increased by 17 million hours, even with over 780,000 workers indicating they worked fewer hours than normal due to illness, and some 312,000 people working zero hours – more than double the usual level recorded in a given month.

The key question now is whether the labour market strength is going to be maintained in this upcoming period of higher interest rates, higher labour costs and higher inflation. The combination of all these factors is likely to result in a slowing economy in the near term resulting in a rise in the unemployment rate over the second half of 2022 to return to low 4 percent levels by the end of the year.

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