Australia's unemployment rate has fallen to its lowest since 2008 as the rebound in employment and hours worked coming out of the Delta lockdowns continued in December. While the Omicron wave is likely to see conditions weaken temporarily, Australia's labour market is tightening and forward-looking indicators point to labour demand remaining elevated in 2022. This adds weight to the case for the RBA to wind up its QE program in February.
Labour Force Survey — December | By the numbers
- Employment increased by a net 64.8k in December in an upside result to the consensus estimate of 60k. This followed the record 366.1k rise posted in November on reopening from the Delta lockdowns.
- Australia's unemployment rate fell from 4.6% to 4.2% (vs 4.5% expected) and is at its lowest level since August 2008.
- Participation in the labour force remained steady in December at 66.2% having recovered to its pre-Delta level in the month prior.
- Hours worked increased by 1% month-on-month, extending the surge in activity in November (4.5%m/m) as New South Wales and Victoria reopened from lockdowns.
Labour Force Survey — December | The details
The incredibly robust rebound in the Australian labour market coming out of the Delta lockdowns has extended into December. Following on from the record rise posted in November (366.1k), employment advanced by a further 64.8k this month; while hours worked lifted by 1%m/m as activity continued to expand on a broadening reopening. December's output elevated employment (1.9%) and hours worked (3.0%) further above their pre-pandemic levels.
December's 64.8k employment outcome was weighted towards the full time segment (41.5k), which contributed two-thirds of the overall increase, with part-time employment rising by 23.3k. In the month prior, it was the part-time segment that drove the rebound, consistent with the profile seen in reopenings from earlier lockdowns.
With New South Wales and Victoria continuing to reopen, employment in those states increased by 32.3k and 24.7k to drive the national increase. Queensland contributed a 6.5k rise, but employment across the other states declined slightly. Hours worked posted a 2% rise in New South Wales and 1.4% in Victoria, but hours worked across the other states were flat in the month. Overall, employment and hours worked are running above pre-pandemic levels across all states.
Rising employment and hours worked has led to the tightest conditions in the Australian labour market since 2008 by conventional measures. With the participation rate holding steady at 66.1%, the unemployment rate declined from 4.6% to 4.2%. Broader measures of spare capacity also fell sharply: underemployment from 7.5% to 6.6% and underutilisation from 12.1% to 10.8%.
Mid way through 2021, Australia's participation rate was at a record high at 66.3% but collapsed to 64.5% at the depths of the Delta lockdowns. While reopenings have since seen participation rebound, it remains just off record levels. The one weak spot is in New South Wales where there is a sizeable shortfall in participation (65%) relative to its pre-Delta level (66%). In contrast, participation in Victoria—the state most heavily affected by Covid lockdowns—has rebounded to record highs.
This shortfall in participation in New South Wales sees labour market conditions tighter there than in Victoria. Unemployment in New South Wales has fallen to 4% compared to Victoria's 4.2%. Rates of underemployment (6.3%) and underutilisation (10.2%) in New South Wales are also below the levels prevailing in Victoria (6.4% and 10.6%). A tight labour market in New South Wales could accelerate pressure on wages growth if its shortfall in participation persists in 2022, with the current Omicron wave likely to be holding back the recovery.
Labour Force Survey — December | Insights
Going into today's report, the key focus was on the extent of labour market tightening following November's reopening rebound. With unemployment and broader measures of spare capacity coming in to be at their lowest levels since 2008, this was another very robust report. Furthermore, data on job vacancies remain very elevated, indicating that demand for labour is strong. A tight labour market together with strong demand for workers points to upward pressure on wages in 2022, particularly in New South Wales if its post-Delta shortfall in participation persists. Omicron has since complicated things and is likely to see labour market conditions weaken until the current wave passes, but this should be fairly short-lived given the underlying fundamentals. Barring any downside surprises in next week's CPI data, expect the RBA to confirm the end of its QE program at the February meeting.