Australia’s unemployment rate climbed to 4.5% in April while employment declined for the first time in 2026, adding to signs the labour market may be starting to soften under the weight of higher interest rates and geopolitical uncertainty.
Australian Bureau of Statistics (ABS) data released on Thursday showed the economy lost 18,600 jobs during the month, well below economists’ expectations for a gain of 15,000 positions.
The unemployment rate also came in above forecasts of 4.3%, while the participation rate edged down from 66.8% to 66.7%.
The ABS said the number of unemployed Australians increased by 33,000 in April.
“Compared to what we usually see in April, more people remained unemployed this month,” the ABS said.
Easter timing may have added noise
Westpac economist Ryan Wells noted the survey period overlapped with the Easter holidays, which may have added volatility to the result.
Markets and policymakers are increasingly focused on the impact of the escalating Middle East conflict and the Reserve Bank of Australia (RBA)’s recent tightening cycle, with expectations that both could weigh further on economic activity and employment in coming months.
Forecasts point to higher unemployment
Treasury forecasts released alongside the federal budget projected unemployment would rise to 4.5% in both 2026-27 and 2027-28 before easing to 4.25% by 2029-30.
Under a downside scenario involving a prolonged Middle East conflict and oil prices surging to US$200 a barrel, Treasury modelling showed unemployment could reach 5% over the same period.
The RBA’s central forecasts currently anticipate unemployment reaching 4.3% by the end of 2026 before climbing to 4.7% by mid-2028. In the bank’s adverse scenario, unemployment could rise as high as 5.1%.
CBA sees rates on hold
Commonwealth Bank chief economist Luke Yeaman said headline data still masked mounting economic risks.
“On the headline numbers, you could be mistaken for thinking that the Australian economy is navigating calm waters,” Yeaman said.
“Nevertheless, the economy is navigating a dangerous minefield in 2026, with major risks around every corner that could easily derail this outlook.”
Yeaman expects the RBA to keep the cash rate unchanged at 4.6% for the remainder of the year.
Money markets pared back expectations for further tightening following the labour force data, after previously pricing a 20% chance of another rate increase in June and a further rise by November.
Minutes from the RBA’s May meeting — where the cash rate was lifted by 25 basis points to 4.6% — showed the board continued to view the labour market “as being a little tight”.
State Street says narrative may be shifting
State Street Investment Management APAC economist Krishna Bhimavarapu said the April result suggested labour market conditions may be weakening faster than anticipated.
“Today’s jump in unemployment, well above the 4.3% consensus and even our 4.4% call, signals that the labor market narrative may be shifting faster than expected,” Bhimavarapu said.
“It validates the RBA’s inclination to hold in June and raises the bar significantly for a change.”
He said inflation pressures remained a key concern despite softer labour conditions.
“Even if the Iran conflict ends soon as we expect, the bigger near-term story remains the emerging inflation shock. Our high-frequency tracker is already pointing to a sharp pickup over the next three months.
“Further ahead, we still see unemployment drifting toward 4.8% by year-end, which could open the door to a pivot to easing, as it will not just be against expectations of the market and the government, but also of the RBA’s.”
VanEck cautions against reading too much into one month
VanEck head of investments and capital markets Russel Chesler said the rise in unemployment reflected growing pressure from fuel costs, inflation and higher borrowing rates, though he cautioned against reading too much into a single month’s data.
“The unemployment increased to 4.5% in April 2026, which is not surprising considering the current environment of higher fuel costs, persistent inflation and increasing interest rates. Small moves of this nature do not necessarily point to a trend. We’ll need to assess the data over the next few months to determine whether this signals a weakening in the labour market,” Chesler said.
Chesler noted SEEK job advertisements rose 0.2% in April and remained well above pre-pandemic levels, suggesting hiring demand was still resilient.
“Despite sectors like transport including airlines, construction and farming having a high reliance on diesel we have yet seen a material drop in employment in these sectors. This could change quite rapidly if the Iran war does not end soon and oil prices remain elevated,” he said.
Markets reassess RBA path
He added markets had materially reassessed the path for further RBA tightening following the release of the central bank’s latest meeting minutes.
“With the release of the RBA minutes earlier this week the market has reassessed the trajectory of future RBA rate rises and is now only expecting one more rate rise this year around November.
“This aligns more closely with our view that a terminal rate of 4.95% is overly aggressive, it is more likely to be the current 4.35% or possibly 4.65%.
“However, we are not out of the woods, with inflation set to peak over 5% and additional inflationary pressure placed on the economy by the Government’s Budget committing to inject $18 billion of spending into the economy.”
Defensive assets favoured
Chesler said the environment continued to favour infrastructure and defensive-style assets with strong pricing power.
“In this environment, we favour HALO companies: businesses with heavy assets and low obsolescence risk, whose assets are difficult to replicate, replace or make obsolete through new technology or AI.
“Companies such as Telstra, Aurizon, APA and Transurban have strong pricing power, which is particularly important in an inflationary environment.
“By contrast, consumer discretionary stocks continue to look vulnerable, with many still expensive and exposed to margin compression and ongoing discounting,” he said.