Australian labour market activity softened in December, with today's report coming in weaker than expected across the key details. Another wave of Covid-related absences looks to have been a factor. The RBA's outlook for the labour market in 2023 will be a key talking point at the Board's February meeting, with the chances of a near-term pause in rate hikes perhaps slightly improved after today's data.
Labour Force Survey — December | By the numbers
- Employment declined by a net 14.6k in December, disappointing expectations for a 22.5k increase. A downward revision pared the employment gain in the prior month from 64.0k to 58.3k.
- The unemployment rate printed at 3.5%, above the expected level (3.4%), but was unchanged after a revision in November (to 3.5% from 3.4%). Alongside this, there were rises in both the underemployment rate (6.1% from 5.8%) and the underutilisation rate (9.6% from 9.3%).
- The participation rate eased from a record high in November (66.8%) to 66.6%, and the employment to population ratio lowered to 64.3% from 64.5%.
- Hours worked declined by 0.5% in the month following a similar fall in November, with a rise in Covid-related absences a key contributor.
Labour Force Survey — December | The details
Employment unexpectedly fell in December (-14.6k) to register its weakest outturn since July's 19.8k decline. Full time employment continued to rise (17.6k) but was more than offset by a decline in the part time segment (32.2k).
Overall, employment advanced solidly in the final quarter (87.3k); this was a pick up from the pace in Q3 (37.8k) when Covid-related and other seasonal factors disrupted hiring. For the most recent quarter, monthly employment averaged 29.1k, running at an annualised pace of 2.6%.
Although employment declined in December, the unemployment rate held steady at 3.5% on a revised basis. This was due to the participation rate falling from 66.8% to 66.6%, going against the recent run of play. The participation rate was on an upward trajectory through 2022, partly supported by the full reopening of the international borders as growth in the working-age population rebounded above pre-pandemic rates.
The economy was hit by another wave of pandemic-related disruptions as Covid cases picked up. Monthly hours were down by 0.5% in December, as the number of people on reduced hours due to illness lifted by 86k in the month to over 600k, the highest level since August.
Despite falls of 0.5% in November and December, hours worked still managed to rise by 2% for the quarter, carried by a 2.4% surge back in October. Overall, hours worked lifted by 3.2% over the year, to be up by 6.8% on pre-pandemic levels.
December's weakness in part time employment and hours worked were key factors that drove rises of 0.3ppt in the underemployment rate (6.1%) and labour force underutilisation (9.6%). Both were coming off historically low levels, the latter from a 41-year low.
Labour Force Survey — December | Insights
Australia's labour market remains in robust shape despite December's report coming in notably weaker than expected. That said, it does support the case for a near-term pause in the RBA's rate hiking cycle. Employment was still running at a solid pace in Q4 and this can probably be sustained given the still-elevated levels of job advertisements and vacancies. However, given the labour force is expanding at a similar pace on reopened borders, we may be at the lows for unemployment in the post-pandemic period.
