Australia's Labour Force Survey for February is due to be published at 11:30am (AEDT) today. Nearly 2 years of sub-4% unemployment came to an end in January as employment disappointed heavily to the downside of expectations for the second month running. Seasonality appears to have impacted employment around the turn of the year, but a rebound in February is needed to validate that assessment. At its meeting on Tuesday, the RBA acknowledged that while conditions have eased, it continued to describe the labour market as being tighter than is consistent with a return to the 2-3% inflation target.
A recap: Employment failed to rebound, driving the unemployment rate above 4%
After employment closed out 2023 with a sizeable fall (-62.7k), the rebound expected in January (25k) failed to materialise as a broadly flat net outcome of 0.5k (full-time +11.1k and part-time -10.6k) was posted. Although seasonality likely explains the weak outcomes over December and January, the level of employment at around 14.2 million is little changed since October.
With employment losing momentum, the unemployment rate lifted from 3.9% to 4.1% - its highest since early 2022 - as the participation rate remained at 66.8%. Together with a rise in the underemployment rate (6.5% to 6.6%), total underutilisation increased from 10.4% to 10.7%, movements consistent with easing tightness in the labour market.
A large 2.5% decline in hours worked in January coincided with the peak summer holiday period and likely reflects seasonal volatility. However, the sharp slowing in the annual growth rate indicates that hours worked are responding to softer economic conditions.
A seasonal rebound is expected in February
The expectation is that after employment was weak over the summer holiday period it will pick up in February with a 40k increase forecast (range: 15k to 55k). Hiring patterns post the pandemic have shifted, with many more people now moving into employment after the summer holidays. As of January, the ABS reported that around 210k people were waiting to start new jobs, well up from a pre-covid average of around 120k. The ABS's payrolls series lifted by 2% for the month to mid-February, indicating that many people have moved into employment since the summer holidays. This rise in payrolls is comparable to recent years and this has previously translated into a strong employment outcomes in the February Labour Force Survey.
With employment tipped to rebound, expectations are that the unemployment rate will ease back to 4% from 4.1% as of January. The main risk to this forecast is that if the participation also rebounds back towards the record highs seen late last year, then the unemployment rate may hold or potentially even rise.