“Miraculous” jobs recovery as unemployment rate falls to 5.6%

What a difference a year can make.

In March 2020, images of thousands of newly unemployed Australians lining up outside Centrelink offices were plastered across news bulletins and social media, and within months, more than a million jobs had been lost.

Fast-forward to March 2021, and the recovery has been labelled “miraculous”.

Official jobs figures from the Australian Bureau of Statistics showed Australia’s unemployment rate fell from 5.8% in February to 5.6% in March, with a further 71,000 jobs added in the month – more than double economist expectations.

“Employment and hours worked in March 2021 were both higher than March 2020, up by 0.6 per cent and 1.2 per cent,” said Bjorn Jarvis, head of labour statistics at the ABS.

It means the labour market has recovered all of its pandemic-related losses.

Recovery complete?

Commonwealth Bank Economist Gareth Aird said the nation has now entered a new phase.

“It’s is probably time to stop using the word ‘recovery’ when referring to the state of the Australian economy. The domestic economy is now simply in expansion mode,” said Mr Aird.

“Job vacancies and hiring intentions suggest that with the participation rate at a record high the unemployment rate will drop very quickly,” he added.

The data was collected during the first half of March meaning it predates the end of JobKeeper, which expired at the end of March. But economists at the Commonwealth Bank don’t expect this to derail the strong momentum.

“The strength of the forward-looking indicators of labour demand also indicate that the expiry of JobKeeper will not be particularly problematic for the labour market as a whole,” said Mr Aird.

It comes as CBA CEO Matt Comyn told a parliamentary committee that the bank hadn’t experienced a rise in distressed borrowing, or a deterioration in the outlook for businesses and investment since JobKeeper expired.

“The recovery in the labour market is, in one word, miraculous,” Mr Comyn said.

“At this stage we are not seeing any meaningful sign in distressed borrowing. We would expect some degradation but there is no cause for concern.”

What it means for interest rates

In its latest interest rate decision, the Reserve Bank of Australia reiterated the official cash rate will remain at a record low of 0.1% until inflation has sustainably returned to its target range of between 2 and 3%.

RBA Governor Philip Lowe recently said that’s unlikely to happen until unemployment falls well below 5%, and “probably” below 4%.

Economists at the Commonwealth Bank expect the unemployment rate to reach 5% by the end of this year, and 4.7% at the end of 2022 – lower than the RBA’s forecasts of 6% this year, and 5.5% at end‑2022.

“The RBA is certain to upgrade their forecast profile for the unemployment rate in the upcoming May Statement on Monetary Policy (SMP).  However, the RBA’s recent forecasting history suggests that they will once again err on the side of caution and produce a conservative set of numbers,” said Mr Aird.

“Given the starting point for the economy we are now at the stage where the RBA must produce a conservative set of forecasts if they are to stick with their 2024 forward guidance on the cash rate.”

For now, the RBA is standing firm, saying interest rates will remain on hold until 2024 “at the earliest”.