Signal and noise in the April unemployment rate
Unemployment has picked up, but the labour market remains tight with the RBA raising its estimate of the NAIRU.
Unemployment is off its lows as jobs growth has failed to keep pace with the supply of labour, although April's increase was slightly overstated by more people than usual waiting to start work. The labour market remains tight with the RBA recently revising up its estimate of the NAIRU.
Yesterday’s labour force survey showed that the unemployment rate unexpectedly rose from an upwardly-revised 3.9% in March to 4.1% in April, which matched the rate seen in January and was up from the 3.5% low reached over 2022-23.
The ABS said that April’s figures were influenced by more people than usual waiting to start a job, who were counted as either unemployed or "not in the labour force" in the month (the working-age population = employment + unemployment + not in the labour force).
Constructing an alternative measure of the unemployment rate that adds people who are waiting to start a job to the number who are already working, it increased by 0.1pp in April, rising from 3.6% in March to 3.7% in April. This suggests that half the 0.2pp increase in the published unemployment rate was signal and half was noise.
From a bigger picture perspective, both the published and alternative measures of the unemployment rate are up about ½pp from their respective lows, where strong growth in employment has failed to keep pace with people joining the workforce, which in turn reflects the fastest growth in the working-age population since the 1940s.
At face value, higher unemployment points to a less tight labour market, although how different is an open question, with the RBA recently increasing the midpoint of its estimated range for the NAIRU from 4.4% to 4.7%.
In contrast, the median midpoint of the surveyed range of economist estimates is unchanged at 4.3%, where we suspect that private-sector economists put less effort into quantifying the NAIRU than the RBA.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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