Drop in jobless rate is a surprise for economists

EVERYONE is expecting the unemployment rate to rise this year, but it looks like the increase might be fashionably late.

The May jobless rate was 5.5 per cent, slightly better than the 5.6 per cent economists had forecast.

The number of people with jobs rose by 1100 in the month, despite expectations of a fall of 10,000.

A number of forecasts, including one from the federal treasury are expecting the proportion of people out of work to rise to 5.75 per cent in the coming 12 months.

RBC Capital Markets senior economist Su-Ling Ong said the unemployment rate has so far managed to resist a big rise but she still expects it to increase later in the year.

‘‘We have job creation averaging about 20,000 a month so far this year and that’s been enough to hold unemployment fairly steady,’’ Ms Ong said.

‘‘ More importantly, the leading economic indicators are showing that we should see a substantial moderation in the labour market in the second half of this year.’’

Ms Ong said she expected the Reserve Bank of Australia to cut the cash rate two more times before the end of 2013.

The RBA’s most recent rate cut was in May, by a quarter of a percentage point to 2.75 per cent.

‘‘You get month to month data that may increase or decrease the risk of a rate cut but it’s the outlook that is the key,’’ she said.

CommSec chief economist Craig James said the figures were surprising when there has been so much news about job cuts by businesses.

‘‘A raft of companies have been telling us that it is hard to attract and retain the right workers,’’ Mr James said.

‘‘It is just that a small number of listed companies reporting job cuts dominate the headlines rather than the raft of small and medium-sized firms that are getting on with business and hiring new workers.

‘‘The job market is healthy but becalmed, and consistent with the performance of the broader economy.’’

He said the unemployment rate is usually a better indicator of how the economy is doing.

‘‘Jobs are being created but not at a pace to see a fall in the unemployment rate,’’ Mr James said.

‘‘It is likely that unemployment will rise over the next couple of months.’’

The trend estimates provide the best guide to labour market conditions and they show a modest lift in the jobless rate from 5.5 to 5.6 per cent.