BCEC Monthly Labour Market Update – May 2025

• Unemployment rate steady at 4.1 per cent as labour market holds on to prior month’s surge in employment.
• Female employment-to-population ratio reaches all time high of 60.9 per cent.
• Despite the inflationary threat from oil prices, global uncertainty should add to the case for further interest rate cuts.

Unemployment rate series sets a new record … for doing nothing

In stark contrast to the external trade and geopolitical environment, the Australian labour market is displaying remarkable stability. The headline unemployment rate remained at 4.1 per cent in seasonally adjusted terms. It’s hard to tell the seasonally adjusted series from the trend series of late: May 2025 marked the fifth month in a row with the headline unemployment rate at 4.1 per cent.

For the trivia-minded, that’s the first time the estimate has remained unchanged for five consecutive months since the series began almost 50 years ago, in February 1978. Over the past 12 months it has deviated within a tight band ranging between just 3.9 to 4.2 per cent.

All indications are of sustained tightness in the labour market. Total employment fell very marginally (down 2,500 people), but that was off the back of a jump of almost 90,000 jobs in April. Vacancies advertised on-line fell 2.8 per cent, following a 3.8 per cent increase in the previous month. The participation rate fell by 0.1ppt to 67 per cent, but again that can be seen as something of a ‘correction’ following a jump from 66.7 per cent to 67.1 per cent in April.

Further, the stagnation in employment numbers was the net result of a modest rise in full-time positions being offset by a fall in part-time positions. Total hours worked in the economy increased by 1.3 per cent, and measures of labour underutilisation fell. The easing in the participation rate helped to hold the unemployment rate steady in the absence of any net jobs growth for the month.

A good indicator of spare capacity in the labour market – or, rather, the lack of it – is the employment-to-population ratio.

Probably a more noteworthy record for this month was the ratio for women climbing to a record high of 60.9 per cent. Historically, the share of men in employment declined to 66 per cent of the working age population as at 2017. The trend has since reversed with the ratio now standing at 67.7 per cent. But there has been a far stronger growth in female employment, with the share of working age women in employment having increased by a full 5 percentage points since 2017. The main trend pushing us to this new high is the growing employment-population ratio for women in couple households.

Stability threatened by global uncertainty

As was widely anticipated, the Reserve Bank announced a 25 basis point cut in the target cash rate to 3.85 per cent following their meeting in May, the second reduction in the current easing cycle after the 25 basis point cut in February.

While acknowledging the labour market remains tight and expressing concern over rising unit labour costs, the RBA’s Statement on Monetary Policy confidently asserted that ‘…underlying inflation has returned to the 2–3 per cent range’. A further readout of monthly inflation a week later put the trimmed mean at 2.8 per cent for the 12 months to April. While that is within the band, it marked a slight up-tick from the 2.7 per cent recorded for March.

In other key observations, the RBA noted a deteriorating outlook for the global economy, highlighting the potential for trade policy developments – notably US tariffs and other countries’ responses – to curtail global economic growth.

The mounting conflict between Israel and Iran has sparked concerns that surging oil prices could reignite inflation, and may threaten future interest rate cuts. As we put this issue of the MLMU together, tensions in the Middle East have escalated to the point of direct military engagement within Iran by the United States.

Higher international oil prices will undoubtedly feed through into domestic prices, and quite possibly flow through broadly enough to increase the RBA’s preferred ‘trimmed mean’ measure of underlying inflation that excludes volatile items.

However, the logic behind monetary policy is to keep domestic demand in line with supply capacity. It makes little sense to increase interest rates in response to a purely external supply-side shock that is unrelated to domestic demand.

The Board meets again on 7-8 July. They will get a partial reading on inflation through the monthly CPI figure for May in the coming week, but the important June quarter CPI is not released until the end of July. In our view, the escalating global uncertainty and prospect of an associated downturn in the Australian economy should add to the case for a further easing of monetary policy, not detract from it.