Australia's unemployment rate lifted through 4% in January for the first time since 2022. Employment (0.5k) came in well below expectations, but was likely held back by the peak summer holiday season. Significant volatility within the data relating to changing seasonal patterns post the pandemic is making it difficult to obtain a clear read on the underlying conditions.
By the numbers | January
- Employment lifted by just 0.5k on a net basis in January, disappointing expectations for a 25k rebound following December's steep fall (-62.7k revised from -65.1k).
- The headline unemployment rate lifted from 3.9% to 4.1% (vs 4% exp), its highest in 2 years. Underemployment rose from 6.5% to 6.6%, resulting in the total underutilisation rate increasing from 10.4% to 10.7%, a high back to January 2022.
- Labour force participation did not rebound after falling in December, remaining at 66.8%.
- Hours worked fell sharply by 2.5%m/m, slightly steeper than the decline seen at the same time a year ago (-2.1%).
The details | January
The January labour force survey has disappointed markets coming off the back of December's weak report. This is not overly surprising because the timing of the survey coincided with the peak summer holiday period. I felt this was a factor that could hold back the expected rebound markets were looking for, referring to today's report in my preview as a wildcard. It was also another indication that the statistician's seasonal adjustment processes are struggling to account for the shifts in activity that are occuring around this time of year in the post-Covid economy. Granted these are very technical details, but they give important context to what is now two weak labour market updates in succession.
Employment was soft in January (0.5k) around broadly offsetting movements in the full time (11.1k) and part time segments (-10.6k). While this looks disappointing after December's sharp fall (-62.7k), recall that in January 2023 employment was intially reported to have declined by 11.3k only to be later revised to a 25k increase.
Another factor to consider is that the ABS reports more than 200k people (not currently in the labour force) were waiting to start a new job in January. This is substantially higher than was seen, on average, in the years prior to the pandemic (2016-2020) and will boost employment (and participation) in the coming months. Given all the issues around the data, it is best to reserve judgment in assessing the momentum of employment growth.
Although the unemployment rate held steady at 3.9% in December despite employment falling by 62.7k, this month it pushed up to a 2-year high at 4.1% on a near-flat employment outcome. The swing factor was the participation rate; in December it dropped sharply from a record high (67.3%) to 66.8%, then - with many people on summer holidays - it failed to rebound in January. Again, this speaks to the volatility at play in the data.
The effect of summer holidays on the labour market was most evident in a large 2.5% fall in hours worked in January. This was in the ballpark of the decline seen in January 2023 (-2.1%). With many people away from work, this will have weighed on hiring through the early part of the year.
In summary | January
Seasonal volatility in the data clouds visibility around the underlying dynamics in the labour market. I am optimistic that employment can return to the solid momentum seen through the back half of 2023, which if it can, the unemployment rate would largely track sideways at what are still low levels historically. But if this doesn't prove to be the case, then the RBA's assesment of excess demand in the economy simply wouldn't be consistent with an unemployment rate rising faster than it has forecast, a scenario that would bring rate cuts firmly into focus.
