The December Labour Force Survey reported the largest decline in Australian employment since the pandemic lockdowns of 2021, a highly surprising outcome in contrast to recent strength. The unemployment rate held at 3.9% due to a decline in the participation rate from record highs. The labour market eased over the course of 2023 but still remains in robust shape. Further RBA tightening was already considered an unlikely prospect before today's report.
By the numbers | December
- Employment fell by a net 65.1k in December, a significant surprise versus the 15k consensus and coming in materially worse than even the most pessimistic forecast (-35k). November employment was revised up to a 72.6k rise from 61.5k.
- The national unemployment rate was unchanged at 3.9%, while underemployment (6.5%) and underutilisation (10.4%) were also steady.
- Labour force participation declined sharply from a record high of 67.3% in November (revised from 67.2%) to 66.8% in December.
- Hours worked contracted 0.5% month-on-month, with hours worked in November revised from a flat reading to a 0.2% decline.
The details | December
A series of very weak outcomes in today's report came as a surprise. Employment was reported to have declined by a net 65.1k, making this the largest one-month fall since the delta-wave lockdowns back in 2021. This is very much against the run of play; as discussed in my preview, employment was solid in Q3 (72.4k) and then accelerated over October (44.2k) and November (72.6k), with the November outcome revised 11.1k higher in today's report. The ABS's payrolls data also indicated employment continued to rise into year-end.
The ABS noted that the December decline came after "larger than usual" gains in October and November, but the change still looks highly extreme. The volatility was even more accentuated in the composition of employment: full time employment - after surging in November (57k) - fell by 106.6k, its largest decline since the onset of the pandemic, while the part time segment at 41.4k rose by its most since September.
Despite the large fall in employment (-65.1k), there was no change to the unemployment rate (3.9%); this was due to a significant fall in the participation rate from 67.3% to 66.8%, equating to a 65.9k decline in the labour force. Meanwhile, the underemployment rate (6.5%) and total labour force underutilisation (10.4%) were also unchanged.
The other weak aspect of the report was hours worked falling by 0.5% in the month, easing growth over the year from 1.5% to 1.2%. Hours worked by those employed full time fell by 0.8%m/m, by contrast, part time hours lifted by 0.7%m/m. Hours worked fell by 0.4% in Q4 and were down by 1.3% through the back half of the year. My interpretation has been that this weakness in hours worked reflects the adjustment to the backdrop of slowing economic growth, with population growth continuing to support employment. The fall in employment in today's report does not change that view.
In summary | December
There are lots of question marks around today's report, so it is not one to read too much into. In recent months, momentum in employment has been solid and I anticipate that the decline reported for December will reverse over the next month or two. The level of tightness in the labour market eased through 2023, but conditions are still robust with the unemployment rate below 4% and the participation rate around record highs.
