Australia's Labour Force Survey for March is due at 11:30 (AEST) today. A seasonal rebound in employment drove the unemployment rate back below 4% in February, but markets expect some reversal in today's report. There are upside risks to expectations for a modest employment outcome in March.
A recap: Seasonal rebound in employment drove unemployment back below 4%
Employment surged by a seasonally adjusted 116.5k in February, a rebound that far exceeded expectations (40k) following a decline of 46.5k over December and January (revised from -62.2k). Shifts in hiring patterns in the post-pandemic labour market led to elevated volatility in employment outcomes over the summer months, with many more people now moving into employment after the peak holiday period than has historically been the case. Smoothing the volatility, employment gains averaged around 23k for the 3 months to February, a relatively subdued pace in line with the slowing economy.
Labour market tightness eased through 2023; however, this trend was halted by the strength of February's employment outcome. The national unemployment rate fell to a 5-month low at 3.7% from 4.1% in January, even as labour supply increased with the participation rate lifting from 66.6% to 66.7%. With the broader underemployment rate declining from 6.7% to 6.6%, this left total labour force underutilisation sharply lower on the prior month at 10.3% from 10.8%.
Reflecting the rebound in labour market activity, hours worked advanced by 2.8% in February, the largest month-on-month increase in 12 months. This followed a sequence of weak outcomes in which hours worked fell in each of the 3 preceding months: November -0.2%, December -0.5% and January -2.0%.
Labour market activity is expected to moderate in March
The strength seen in the February survey is not expected to extend to today's report. The median estimate is for a modest rise in employment of around 7k, though estimates vary widely between -40k and +30k. The high-frequency ABS payrolls series recorded a 0.4% rise over the month to mid-March, indicating there could be upside risk to the median forecast. Reflecting upon recent history, March employment has come in sharply higher than consensus in 2 of the past 3 years.
Based on the expectation for employment to moderate, the market forecast is for the unemployment rate to lift to 3.9% in March. Again, estimates cover a wide range from 3.7% on the low side to 4.2% on the high side. Should employment outperform consensus, then the unemployment rate may remain unchanged or come in lower than expected, albeit conditional upon the movement in the participation rate.