Unemployment up, but it’s a good news story

There are more jobs, but even more job seekers. Flickr/Victor1558

The rise in Australia’s jobless rate for May was “a good news story”, economists said, as the largest increase in full-time jobs in 18 months was offset by an even bigger increase in the number of people looking for work.

In a surprise for analysts, the number of jobs increased by 38,900, with an addition of 46,100 full-time positions but a loss of 7,200 part-time spots. The dollar added more than half a cent to 99.5 US cents on the news.

The unemployment rate rose to 5.1% from 5% in April, according to the Australian Bureau of Statistics.

Mark Wooden, a Professorial Fellow at the Melbourne Institute, said the “encouraged worker effect” was a healthy sign for the economy.

“These figures are predominantly a good news story, even though the unemployment rate has gone up from 5.0% to 5.1% - that’s because the participation rate has gone up, which is an indication that more people are looking for work, and that means they’re more confident about the labour market,” he said.

The number of people who said they were looking for work rose from 65.2% to 65.5%, in the steepest monthly rise since February 2009.

Although economists had expected an increase in unemployment, they had not tipped the net addition of new jobs.

The result was “surprising, given the trend,” said Steve Keen, Associate Professor at the School of Economics and Finance at University of Western Sydney. “But we have also been continually told by the Reserve Bank of Australia and the like that we’re in the middle of the biggest capital expenditure boom in history, and it has coincided with the highest terms of trade in our history. So it is also a case of ‘finally!’

He added: "I don’t expect this means we’ve ‘turned the corner’ and are now headed towards a boom, so I think [the Reserve Bank] will find circumstances force them to continue cutting rates after a lull.”

Professor Wooden said the unemployment rate was likely to continue to hover around 5% for some time. The increase in jobs was “a stunning development, but only if you consider what the press was saying throughout May. It was all doom and gloom.”

The coincidence of increased jobs, low inflation and successive rate cuts was rare, he said. “I don’t know how often we’ve had this in our history, but I don’t think it’s very common.”

John Quiggin, a Professor of Economics at the University of Queensland, said strong hiring suggested employers had not been spooked by the carbon tax. “That is exactly what any sensible economic analysis would predict. The doomsayers who have suggested that the tax is going to wreck the economy should be held to account for their silly claims.”

Although full-time employment increased, the number of hours worked fell slightly by 4.7 million to 1,627.2 million in May, from 1,633.9 million in April.

The economy defied anxiety among economic forecasters by expanding at an annual pace of 4.3% in the first quarter. It was the fastest rate of increase since before the global financial crisis.