Labour market stable: unemployment remains at 4.1%
The monthly unemployment rate has trended between 4.0% and 4.1% since March 2024 despite labour force participation reaching an all-time high in 2025, coupled with strong growth in the number of jobs being created.
The latest labour force data, released on Thursday, shows the participation rate dropped to 67% from 67.1% the previous month.
Employment also fell, down 2,500 after a considerable gain of 87,600 in April, while the number of unemployed people also dropped slightly on a seasonally adjusted basis.
The drop in employment defied the market's expectations of a 20,000 rise in employed people.
Nonetheless, such conditions are indicators of what's called a 'tight' jobs market – when employment growth is robust and positions can be difficult to fill.
While good for workers, the Reserve Bank of Australia (RBA) is wary of such conditions where workers may feel too comfortable, resulting in spending that may threaten to push up inflation.
However, in last month's Statement on Monetary Policy, the RBA's baseline forecast was that a weaker global outlook would push the unemployment rate higher.
Earlier on Thursday, the US Federal Reserve held its base rates steady given ongoing uncertainty over the impact of trade tariffs on inflation.
The hold came despite criticism from US President Donald Trump, who called the Fed chairman "stupid" before the decision was handed down.
US Fed officials downgraded their estimates for economic growth this year and lifted their forecasts for both unemployment and inflation in the US.
Despite the Fed's caution, it is still expected to make two more rate cuts in 2025.
The RBA's Monetary Policy board will no doubt be checking the May jobs figures and next week's monthly Consumer Price Index indicator, although monthly data is not its preferred economic measure.
The board is next due to meet on 7-8 July amid a more uncertain global outlook, given escalating tensions in the Middle East.
Westpac chief economist Luci Ellis said last week that she is not expecting another interest rate cut in July.
She noted the board has described itself as having "a preference to move cautiously and predictably" which, she said, is code for not wanting to do back-to-back cuts.
Westpac is tipping two 25-basis point cuts in August and November, with another two 25 basis point cuts added in early 2026 (February and May).
However, the latter two could be earlier, Dr Ellis said, if inflation and the labour market weaken more than expected in late 2025.
Westpac economists are expecting the cash rate to bottom out at 2.85% – a full percentage point below its current rate of 3.85%.
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