Australia's Labour Force Survey for March is due today (1130 AEST). The RBA has raised the cash rate to 4.1% following back-to-back 25bps hikes, with its focus firmly on the inflation side of its mandate. However, the labour force report is still key ahead of the May meeting, where current pricing indicates the door is open for either another hike or a hold. The unemployment rate is expected to remain at 4.3%, after rising from 4.1% in January, while employment is forecast to increase by 20k.
March preview: Employment trend key to RBA tightening cycle
The unemployment rate is forecast to hold at 4.3% (range: 4.2-4.4%) in March, alongside an unchanged participation rate of 66.9%. Employment is expected to increase by 20k, with estimates ranging from 5-35k. As the chart below shows, employment (green line) is on a run of upside surprises relative to consensus (yellow line).
If that trend continues, the RBA's narrative around labour market tightness, a central theme to its hiking cycle, is easier to sustain - even if the unemployment rate ticks up. By contrast, if employment starts to falter alongside a rise in the unemployment rate, tightening becomes harder for an already split Monetary Policy Board. Business and consumer sentiment surveys published on Tuesday have predictably collapsed amid the current situation, highlighting risks to employment in the months ahead.
February recap: Unemployment rises; employment surges
The unemployment rate rose unexpectedly from 4.1% to 4.3% in February - despite employment topping all estimates after surging by 48.9k (vs 20k forecast). The key factor was a rebound in the participation rate to a 4-month high (66.9%), resulting in growth in the labour force (83.9k) outstripping employment to drive the unemployment rate higher. The gain in employment was driven entirely by part-time employment (79.4k), while full time employment fell (-30.5k).
Although the broader underemployment rate - including workers wanting additional hours - was steady at 5.9%, the rise in unemployment added to overall slack in the labour market - including unemployed and underemployed workers - increasing from 10% to 10.1%.
Hours worked declined by 0.2% in April, but annual growth held at 1.6%. This followed gains of 0.4% in December and 0.6% in January - unusually strong outcomes for the summer holiday period.
