We got some good news regarding the unemployment rate this morning. This morning, the Australian Bureau of Statistics (ABS) reported that the Australian economy created 89,000 new full-time and part-time jobs in the month of April.
Despite this, the unemployment rate remained steady at 4.1%. This might seem strange, but it portends even more good news for the economy. That's because this was a result of the labour participation rate also rising to a historically high 67.1%, seasonally adjusted.
Remember, the unemployment rate only counts Australians actively looking for work, measured against those already employed. If the number of people looking for work rises, it can balance out those who have just found work. As happened in April.
All in all, Prime Minister Anthony Albanese, fresh from the recent election, will be very happy with today's figures – as would anyone who wants to see the Australian economy succeed.
Well, it might get some people a little worried. Everyone is expecting the Reserve Bank of Australia (RBA) to cut interest rates when it meets next Tuesday. As we recently covered, most commentators regard a rate cut next week as all but certain, with the only question being whether the RBA will deliver a normal 25-basis-point cut or a supersized 50-point slash.
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What does the latest unemployment rate mean for ASX shares and the stock market?
However, a pleasing unemployment rate could conceivably dampen the RBA's enthusiasm for these cuts. The base case for an RBA cut involves assumptions that economic growth needs to be bolstered now that core inflation is back in the RBA's target band of 2-3%, for the first time since 2021.
These latest unemployment figures arguably suggest that confidence and demand within the economy are stronger than what might have been anticipated. Given that businesses are still hiring, not firing and all. It certainly doesn't scream out that the economy needs rates to come down fast.
As investors know, lower rates are, generally speaking, good news for share prices. That's because high interest rates make assets outside the share market, namely 'safe' investments like cash term deposits and government bonds, more attractive. When rates rise, many investors prefer to move money out of ASX shares and into these safer investments that are yielding more than they used to.
But the opposite is also true. When rates are cut, investors are more inclined to buy riskier assets like shares.
Fortunately for those nervous investors, the markets are still expecting to see a rate cut from the RBA next week. According to the ASX's RBA Rate Tracker, the bond markets are pricing in a 51% chance the RBA will slash rates by 50 basis points next week. That's down from 56% on 8 May.
So, we have a stronger-than-expected economy right now, but there's still a good chance of a double rate cut next week. Therefore, it's hard to conclude that today's unemployment rate is anything but good news for ASX investors.
