Australian labour market conditions are in focus with the February Labour Force Survey due to be published by the ABS at 11:30am (AEDT) this morning. The sustained reopening of the economy has helped keep momentum in the recovery of the labour market going, however; there is still a lot of progress that needs to be made before the RBA has indicated it will consider changing its stance, while there is the upcoming withdrawal of the Federal Government's JobKeeper policy that presents a near-term risk.
As it stands | Labour Force SurveyA solid start to 2021 was achieved in January as employment advanced broadly in line with consensus in rising by 29.1k. This came after a robust final quarter of 2020 over which employment increased by 320.4k. For the 4th consecutive month, employment gains were driven by the full-time segment, advancing by 59.0k in January to add to its 218.7k increase over Q4. Part-time employment weakened in the month (-29.8k) but has risen by 71.9k over the past 4 months.
Overall, Australian employment has recovered to be within 0.5% of its pre-pandemic level after collapsing by as much as 6.7% in May. Part-time employment had earlier exceeded its pre-pandemic level but had slipped below that baseline as of January (-0.1%), while full-time employment was still 0.5% below its level from March 2020.
January's rise in employment together with a slight reduction in the participation rate from 66.2% to 66.1% generated a fall in headline unemployment from 6.6% to 6.4%, whereas it had been expected to hold steady in the month. At the peak of the pandemic, unemployment hit a 22-year high of 7.5% but it has come down as the economy has reopened. Broader rates of spare capacity continued to come down with underutilisation falling 0.6ppt to 14.5% and underemployment lowering 0.4ppt to 8.1% to its best reading in 2 years.
The improvement in the labour market in January came despite a large fall in hours worked (-4.9%m/m), with the ABS attributing this to a much larger share of the workforce taking extended annual leave entitlements in the month after the disruptions associated with the pandemic throughout 2020. This outcome left hours worked 5.7% lower over the year, significantly worse than in December (-1.5%).
Market Expectations | Labour Force Survey
For February, employment is forecast to rise by another 30.0k between a range of estimates from 14.2k to 55.0k. The headline unemployment rate is forecast to tick down to 6.3% from 6.4%, though this will largely depend on changes in participation.
For February, employment is forecast to rise by another 30.0k between a range of estimates from 14.2k to 55.0k. The headline unemployment rate is forecast to tick down to 6.3% from 6.4%, though this will largely depend on changes in participation.
What to watch | Labour Force Survey
With labour market conditions the clear focus for the RBA, analysis of each report needs to take in a broad range of indicators. The headline unemployment rate is key, though underutilisation and underemployment are also being followed closely. In a speech by RBA Governor Philip Lowe last week, he outlined that for the Bank's full employment objective to be met, the unemployment rate might need to fall to the low 4% area before any sustained upward pressure on wages growth builds. This highlights how much more progress is needed before accommodative monetary policy settings will be withdrawn, particularly ahead of the end of the Federal Government's wage subsidy scheme next month.
