Strong momentum in Australia's labour market continued into the new year as employment increased by a further 44k in January, the 8th above-consensus outturn in the past 9 months. The unemployment rate ticked up from 4.0% to 4.1% but is some chance of reversing that move in February with seasonal effects likely to boost employment. Regardless, the labour market is tighter now than in the middle of last year; however, wage pressures are also cooling. Contributing to that dynamic is labour force participation, which after sitting on the highs for the cycle through the back half of 2024, has increased to a new record level (67.3%). After cutting the cash rate by 25bps on Tuesday to 4.1%, expect the RBA to reaffirm its caution on further easing on the back of today's report at its parliamentary testimony in the nation's capital tomorrow.
By the numbers | January
- Employment exceeded expectations posting a 44k net increase in January (full time +54.1k/part time -10.1k) - more than double the median estimate (20k). Upward revisions boosted employment by 4.7k over November (+29.2k) and December (+60k).
- National unemployment lifted from 4.0% to 4.1%, rising in line with expectations to a 3-month high. With the underemployment rate holding at 6.0%, total underutilisation ticked up from 10.0% to 10.1%.
- Labour force participation increased to a new record high of 67.3% in January, up from 67.2% in December. Australia's employment to population ratio also reset to a new record level lifting from 64.5% to 64.6%.
- Hours worked declined by 0.4% on the month reflecting a rise in the number of workers on summer holidays through the survey period. Annual growth accelerated from 3.2% to 5.9% on base effects - a high back to April 2023 nonetheless.
The details | January
Coming off a 60k rise to close out 2024, employment started the new year rising by a further 44k. This was the strongest January employment outturn since 2022, well above the 20k rise expected by the market and a bit stronger than my 35k forecast (see here). Due to seasonal effects associated with the peak summer holiday period, January can often deliver a surprise. The fact employment remained strong speaks to the underlying momentum in the labour market.
The full-time segment (54.1k) saw its strongest gain in 6 months to account for all of the headline increase in employment as the part-time segment declined (-10.1k) - a reversal of the composition seen in December (FT -23.7k/PT+83.7k). On the strength of January's outcome, the 3-month average for employment gains increased from 34k to 44.4k, the run rate elevating to its fastest pace since September last year.
While the national unemployment rate ticked up from 4.0% to 4.1%, the ABS noted this was partly attributable to the seasonal effects touched on earlier. The Bureau reported that some 250k people were attached to a job (but not considered employed) who had yet to start work or were waiting to return to work when the January survey was taken. That figure is lower than in recent years but still significant and (going on the past experience) will likely boost employment in February.
With the broader underemployment rate unchanged in the latest month at 6.0%, the higher unemployment rate pushed up total labour underutilisation from 10.0% to 10.1% - in line with its average in the final quarter of 2024. The underutilisation rate averaging 10.1% in Q4 - down from the 10.5-10.6% levels seen through Q1 to Q3 - reflects the retightening that occurred in the labour market in late 2024.
Although now deep into the post-pandemic cycle, developments on the supply side of the labour market remain encouraging. The participation rate lifted to a new record high of 67.3% in January, while the share of Australians in work (64.6%) has also never been higher. It has been my view that population growth - not only a boost to labour supply - would keep employment well supported even as economic momentum slowed post pandemic. That participation has remained on, and now extended, its highs for the cycle is, I think, positive for the employment outlook. Additionally, elevated labour supply is playing a role is containing wage pressures, consistent with yesterday's Q4 WPI update (see here).
After rising solidly in December (0.6%), hours worked saw a pullback in January (-0.4%). That looks to be mostly attributable to the effects of the holiday period. The ABS reported 22.3% of employed people worked fewer hours than usual in January (16% worked zero hours) due to being on holidays. Those levels are down from recent years where accumulated leave that had built up during the pandemic saw much larger shares of workers taking holidays in January. Annual growth in hours worked is accelerating due to that base effect rising to 5.9%.
In summary | January
Employment momentum remains robust, showing signs of picking up in January to once again defy expectations to moderate in pace. Unemployment remains low despite the move higher to 4.1% and participation in the labour force is at record highs. Seasonal effects were at play in today's report, but the underlying conditions in the labour market are still clearly very strong.
