Unemployment rate may be modest in May after max out in July 2014, the unemployment rate declined to 3.76% in December as labour force growth slowed in line with employment growth, and it then fluctuated between 4.51% in January and 3.86% in March.The more stable seasonally-adjusted rate has hovered between 4.24% and 4.41% over the past few months. The unemployment rate and its seasonally adjusted variants rose to 4.31% and 4.32%, respectively, in April as the economy struggled in Q1.With growth prospects for Q2 improving, we expect these two rates to moderate to 4.21% and 4.25%, respectively. Both these indicators have declined between 0.5% and 1.0% over past 12 months and are nearly at levels last seen in 2008.The reason that the unemployment rate did not rise in Q1 despite near stagnation in growth can probably be explained by low employment growth in H2 14 (when labour force growth also slowed) and strong productivity growth last year.The economy appears set to grow near trend in 2015 and above trend in 2016. This will help tighten the labour market further and should keep the downside risk to inflation in check even though the economy’s growth potential could continue to rise over the next few years.
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