40k new jobs means August rate rise likely, economist says

Seasonally adjusted unemployment fell to 4.4 per cent last month, which one economist believes strengthens the case for further monetary tightening.

Newly released data from the Australian Bureau of Statistics (ABS) shows that the seasonally adjusted unemployment rate fell to 4.4 per cent in May. Full-time employment grew by 5,000, and part-time employment by 35,000. The underemployment rate rose 0.1 percentage points to 5.9 per cent last month.

Sean Crick, ABS head of labour statistics, said: “Over the past few months, we have recorded higher proportions of unemployed people waiting to start jobs who then remained unemployed in the following month.

“The backlog of people waiting to start a job has eased in May, contributing to the 40,000 rise in employment and 18,000 fall in unemployed persons.”

Further, trend employment and hours worked both grew by 0.1 per cent in May. “Trend employment has grown at a monthly rate of 0.1 per cent since January 2025,” Crick said. “The underemployment rate fell marginally to 5.8 per cent in May while the underutilisation rate remained at 10.2 per cent.”

Speaking following the release of the data, BDO chief economist Anders Magnusson said the labour force data strengthens the case for further monetary tightening, given the labour market added over 40,000 jobs and proved “more resilient than the Reserve Bank would like”, following yesterday’s stronger-than-expected underlying inflation result.

An August rate rise, he predicted, “now looks increasingly likely”.

“Yesterday’s CPI data showed underlying inflation increasing even as headline inflation eased. That result suggested that rising energy, transport, and production costs are now being passed through more broadly across the economy, creating more persistent inflation pressures,” Magnusson said.

“Against this backdrop, another strong labour market result is likely to concern policymakers. While the 4.4 per cent May unemployment rate aligns with the RBA’s forecast of reaching 4.2 per cent in June, it still represents a decrease from April at a time the RBA needs to see it increase. While economic growth is slowing and household budgets remain under pressure, employment demand remains sufficiently robust for the RBA to be concerned about capacity constraints.”

The Reserve Bank, Magnusson continued, is now facing the combination it has been trying to avoid: broader inflation pressures alongside a labour market that remains too tight to ease them.

“As long as businesses continue to compete for workers while passing on higher costs, the path back to the inflation target becomes more difficult,” he said.

“Today’s figures significantly strengthen the case for an August rate rise.”

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Jerome Doraisamy

Jerome Doraisamy is the managing editor of Momentum Media’s professional services suite, encompassing Lawyers Weekly, HR Leader, Accountants Daily, and Accounting Times. He has worked as a journalist and podcast host at Momentum Media since February 2018. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of the Minds Count Foundation.