The Australian labour market has regained momentum, with a post-summer holiday surge in employment driving the unemployment rate back below 4%. Employment more than rebounded from a decline around the turn of the year, which was less severe than initially reported. Today's report provides optimism that the labour market remains resilient to the slowdown in the economy.
By the numbers | February
- Employment increased by a net 116.5k on a seasonally adjusted basis in February, well above the 40k rise expected. Backward revisions revised the fall in employment over December-Janaury to -46.5k from -62.2k.
- The headline unemployment rate fell by more than expected declining from 4.1% in January to 3.7% in February (vs 4% forecast). With underemployment falling from 6.7% to 6.6%, the total underutilisation rate decreased from 10.8% to 10.3%, a low since October.
- Labour force participation ticked up from 66.6% (revised from 66.8%) to 66.7%, sitting slightly below the record high seen in November (67%).
- Hours worked rebounded by 2.8% in February following a 2% fall in January. Annual growth was unchanged at 0.8%.
The details | February
February's report confirms that the labour market slowdown either side of the new year was seasonally related, with activity subsequently rebounding after the summer holidays had wound down. The employment figure posted for February was a net increase of 116.5k (seasonally adjusted) - the largest one-month rise since November 2021 - delivering a far greater rebound than was expected after employment declined over December-January (-46.5k).
February's surge in employment can be explained by shifting hiring patterns in the post-covid labour market. The ABS has picked up that many more people now commence new jobs and move into employment after the summer holiday period than was the case prior to the pandemic. According to today's report, 4.7% of employed people in February were not employed in January. At the same time, the proportion of workers who moved out of employment in February was 3.1%, little changed compared to recent years. This resulted in a net inflow into employment of 1.6ppts, an extremely large increase in historical terms and this drove the headline employment outcome. Over time, the ABS will be able to recalibrate its seasonal adjustment processes to account for this shift, but for the moment the data are very volatile, with employment weakening around the turn of the year and then surging after the summer holiday period.
Smoothing the volatility, the 3-month average increase in employment to February was 23.3k. This indicates employment is running at an annualised pace of around 2%, returning to the sort of momentum that was seen at the end of Q3 last year. Indicators such as job vacancies - while down from their peaks - remain at elevated levels and suggest that the pace of employment growth can pick up.
This will be key to keeping upward pressure on the unemployment rate in check as growth in the labour force is still running at a strong pace on the back of post-covid population growth.
In February, the strength of the employment outcome drove a large fall in the unemployment rate from 4.1% to 3.7%. Whether or not sub-4% unemployment can be maintained remains to be seen; the participation rate saw only a modest lift in the month from 66.6% to 66.7% and will likely rise further towards the record highs seen in late 2023 as the year progresses. Declines in both underemployment (6.7% to 6.6%) and underutilisation (10.8% to 10.3%) reversed earlier increases and are consistent with the labour market regaining momentum.
Rounding out the report, the lift in employment helped to generate a rebound in hours worked of 2.8% in the month. This more than reverses January's 2% decline, which was seasonally related with many people away from work on annual leave.
In summary | February
On the whole, this was an encouraging report in that it confirms the weakness in the labour market over the summer was seasonally related rather than reflecting underlying economic conditions. It essentially indicates a regaining of momentum in the labour market after the holiday period. I don't think it will change either the RBA's assessment of the labour market or its outlook. At Tuesday's meeting, RBA Governor Bullock said the labour market remained tight but that a gradual easing is expected as the year progresses.
