BCEC Monthly Labour Market Update – May 2026

• National unemployment rate edges back down from 4.5 to 4.4 per cent.
• Solid jobs growth, all in the form of higher female part-time employment.
• Inflation remains stubbornly above the Reserve Bank’s comfort zone.

A waiting game on interest rates

After increasing 0.2 points to 4.5 per cent in April, the headline unemployment rate eased back to 4.4 per cent. The number of Australians in work grew by a solid 40,300 in the month, with virtually all that growth in female part-time employment, up by an estimated 39,500. When the figures are driven by swings for one particular state or subgroup within the survey sample, it always raises the likelihood that statistical noise is at play.

Indeed, April’s increase in the unemployment rate was largely a result of a 47,600 fall in female employment, which was reversed in May. The male unemployment rate has remained at 4.6 per cent for four consecutive months, while recent changes in the national rate have been the result of the unemployment rate for women jumping to 4.4 per cent in April and falling to 4.1 per cent in May.

This month’s results mean the labour market is almost certain to be softer over the June quarter than the Reserve Bank had forecast in their May Statement on Monetary Policy. So, for those hoping another interest rate rise can be avoided, the labour market is playing its part. Inflation is not. Released the day before the May labour force figures, the latest CPI data show the inflation rate moderating from 4.4 per cent to 4.2 per cent for the year to May, but critical measures of underlying inflation increased, including the trimmed mean rising from 3.4 per cent to 3.6 per cent.

That’s well above the Reserve Bank’s 2-3 per cent target rate for inflation.

The labour force and inflation figures for June will be released before the RBA make their next call on the cash rate on the 11th of August. Any further increase in underlying inflation in June would likely lock in a fourth rate rise for this cycle. The RBA cut rates aggressively in 2025, only to have to increase them again this year as inflation re-emerged. They’ll be wary of now tightening monetary policy too far only to find themselves having to cut rates again as the economy tanks. There are signs the housing market is finally cooling, and further signs in the coming month that the first three rate hikes are starting to bite may help to keep rates on hold, but the June CPI figure will be critical.

At the state level, recent MLMUs have commented on a surge in the employment numbers for the ACT since the beginning of this year. That continued into May, albeit with the trend rate of jobs growth easing from 4.5 to 3.9 per cent p.a., still well above the national rate of 1.7 per cent p.a. In what we hope will be largely statistical volatility, WA saw a sharp drop in employment in May of 15,000 workers, or 0.9 per cent. That pushed WA’s unemployment rate up from the lowest in the country, at 4.2 per cent, to 4.6 per cent – and it would have been higher save for a 0.5ppt drop in the state’s participation rate.

Lost in transition

The ABS has been undertaking something of an overhaul of the way data are released from the Labour Force Survey. Quarterly estimates of employment by industry from the survey have been temporarily suspended. The MLMU regularly drew on those figures to monitor key developments and sectoral shifts in the economy.

A particular interest in those figures was to assess the progress of the Federal Government’s vision of Australia becoming a ‘green superpower’ under the Future Made in Australia policy. This vision saw Australia maximising manufacturing and downstream processing opportunities as result of falling energy prices in the transition to renewables and a net zero economy.

This month, we’ve derived comparable employment-by-industry estimates from the ABS Labour Account. The latest scorecard is not encouraging. The fastest growing industry over the year to Q1 2026 was Electricity, Gas, Water, and Waste services, which saw employment increase by 5.2 per cent. The more detailed industry breakdown shows strong growth in ‘electricity supply’, and employment in ‘gas supply’ plummeting by around one-third over the year.

So that part of the transition is happening – labour and capital are flowing into electricity supply. However, electricity prices continue to rise. In the CPI, the ABS estimate the electricity prices rose by 3.6 per cent in the year to May, excluding the impact of government subsidies to households. More concerningly, manufacturing saw the largest decline in employment of all the major industry groups, down 2.4 per cent or around 20,000 workers over the year.