THE chance of a Reserve Bank interest rate cut in May has been thrown into doubt after Australia’s unemployment rate unexpectedly plummeted to 6.1 per cent.
The fall was driven by a surprisingly strong gain in jobs, taking economists by surprise amid expectations unemployment would have remained steady at 6.3 per cent in March.
The total number of people with jobs rose 37,700 to 11.72 million in March, more than double the amount economists expected, with most of those gains in full time work, official figures on Thursday showed.
The economy added 31,500 full-time jobs last month and 6,100 part time, taking unemployment back to levels not seen since December 2014.
February’s unemployment rate was downwardly revised to 6.2 per cent, the Australian Bureau of Statistics said.
The figures propelled the Australian dollar towards 78 US cents and dented market expectations for a rate cut by the RBA in May. Financial markets had priced in a 73 per cent chance of a rate cut in May before the jobs data, but that dropped to 57 per cent within minutes of the figures being released.
National Australia Bank had forecast a cut in May, along with the majority of Australian economists, but that’s now been thrown into doubt, senior economist David de Garis said.
Recent economic data including Thursday’s jobs report and recent retail sales numbers suggested the economy was doing a little better than expected, he said.
“On the basis of the data, there’s not a strong case for easing,” Mr de Garis said.
“A May cut is looking less likely.” However JP Morgan economist Tom Kennedy said while the figures would provide food for thought at the RBA’s next meeting, a May cut was still likely.
“Today’s numbers would suggest the weakness in the labour market of the past few months was potentially a little overstated,” Mr Kennedy said.
“But we’re still of the view that the RBA will need to lower the cash rate a little further to support the economy.” Unemployment would likely continue drifting higher this year, Mr Kennedy said, reaching 6.5 per cent.
STATE BY STATE UNEMPLOYMENT RATES IN MARCH
* NSW — 6.0pct, down from 6.2pct in Feb
* Vic — 6.2pct, up from 6.0pct
* Qld — 6.6pct, flat
* SA — 6.4pct, down from 6.8pct
* WA — 5.5pct, down from 5.7pct
* Tas — 6.6pct, up from 6.5pct
Source: Australian Bureau of Statistics (seasonally adjusted)