BCEC Monthly Labour Market Update – April 2025

• Almost 90,000 additional jobs generated last month, according to April Labour Force Survey estimates.
• Female participation rate rebounds 0.5ppt, returns to record high of 63.4 per cent.
• Real wages up by 0.9 per cent in the year to the March quarter; recent bargaining agreements point to acceleration of nominal wage rises.

Big jump in jobs in April unlikely to preclude further cut in interest rates

Estimates from the labour force survey undertaken in April show an increase in employment of 89,000 jobs from the previous month. Around two-thirds of that increase was in full-time jobs (59,500).  Women accounted for the majority of additional employment (up 65,300 jobs), and of the growth in full-time positions (+42,200 jobs).

Despite the surge in employment, the national unemployment rate continues to hover between 4.0 per cent and 4.1 per cent, with the headline rate remaining at 4.1 per cent after rounding.

The Reserve Bank of Australia Board will hand down their next decision on interest rates on Tuesday, 20^th May.  This time around, market speculation is not about whether or not the RBA will cut rates, but about the size of that cut.

The April figures dispel suggestions the labour market was cooling after February saw a surprise 56,300 drop in employment, with only 36,400 of those jobs regained in March. In last month’s MLMU we noted, somewhat sceptically, that achieving Treasury’s employment projections for 2024-25 would require 70,000 new jobs each month from April to June – perhaps we judged too soon!

A large part of these swings in the job numbers can be attributed to statistical variation rather than underlying changes in employment, and particularly volatility in estimates of the female participation.  February’s estimated drop in jobs was accompanied by a 0.6ppt fall in the female participation rate (from 63.4% to 62.8%), and April’s surge in jobs with the reversal of those participation rate estimates.

Employment is growing at a firm pace whether one looks over the past quarter (0.5%) or over the past 12 months (2.7%). We don’t think the surge in jobs will cause the RBA to hold off on a rate cut.  Recent benign inflation figures and future risks to the global economy from Donald Trump’s erratic tariff stance pretty much lock that in. However, April’s very strong result will increase the odds of a standard 0.25 basis point cut in the cash rate, rather than a more aggressive move.

The wage dilemma

Following the Labor Party’s resounding victory in the recent Federal election, Treasurer Jim Chalmers has placed increasing productivity firmly at the top of the priority list for economic reform in this term of government.  Productivity growth is the key to achieving real wage growth without adding upward pressure on inflation and interest rates.

The recently released Wage Price Index (WPI) for the March Quarter highlights the delicate balancing act the government faces in terms of growing the purchasing power of workers’ pay packets. The latest WPI shows a nominal rise in wages of 3.4 per cent over the year to the March quarter. This translates to a real wage increase of 1.0 per cent over the year, in line with the government’s rhetoric about getting real wages moving again.

However, recent real wage increases can be largely attributed to nominal wages catching up on purchasing power lost amid the spike in inflation over 2022 and 2023, at the same time that inflation is coming back down. Based on the WPI, real wages are in fact 0.9 per cent lower than when the Albanese government came to office (Q2 2022). In the March quarter itself, real wage growth stagnated again, with wages and prices both rising by 0.9 per cent.

Data for the December quarter show a jump to in wage increases negotiated in enterprise bargaining agreements concluded in that quarter, from 3.6 per cent in the previous quarter to 4.8 per cent.  This points to some upward pressure on nominal wages and, with inflation now heading into the RBA’s 2-3 per cent target, would also mean real wage increases.

On the one hand, that would be a positive for the government’s aims to stimulate real wage growth and for workers, but, if not matched by productivity growth, could also rekindle inflation and keep pressure on interest rates.  Unfortunately, the world is currently turning its back on one of the key sources of productivity growth – greater international trade and integration.