A strong Australian labour force report for December (released today) has lifted market pricing for an RBA rate hike in February to as high as 50%, with a 25bps hike now fully discounted by May. The labour market rediscovered form to end 2025 with employment rising by 65.2k (vs 27k) - its most in 8 months - and the unemployment rate falling to 4.1% (vs 4.3%) - its lowest in 7 months.
By the numbers | December
- Employment increased by 65.2k - its strongest result in 8 months - to outperform the 27k consensus. This was a significant rebound from the fall in November that was revised to -28.7k from -21.3k.
- The national unemployment rate fell from 4.3% to 4.1%, defying expectations to hold steady as it returned to its lowest level since May 2025. The underemployment rate fell from 6.2% to 5.7%, reversing it rise from November. Total underutilisation fell from 10.5% to 9.8%, a 2½-year low.
- Labour force participation rose to 66.7% from a downwardly revised 66.6% last time out, while the employment to population ratio lifted from 63.8% to 64%.
- Hours worked rose by 0.4% month-on-month (1%yr) to be up by 0.6% over the December quarter.
The details | December
Employment (65.2k) rose at an 8-month high in December, led by a 54.2k rise in full time employment while part time employment lifted by 10.4k. This was after a surprisingly weak result in November where employment was down by 28.7k, its weakest figure since December 2023 as full time employment saw a large fall (-65.2k) while the part time segment saw solid growth (36.6k).
Across the December quarter, employment lifted by almost 74k to average out at growth of just under 25k per month in the period - similar momentum to the June quarter. Employment growth clearly slowed over the September quarter but has then improved into year-end.
The headline unemployment rate falling to 4.1% marked its lowest level since May 2025. And that was backed up by the underemployment rate declining from 6.2% to 5.7%. Overall, combining the two measures, total underutilisation in the labour force tightened substantially falling to 9.8% in December, its lowest since April 2023, from 10.5% in November. Participation in the labour force rose slightly to 66.7% in December, still at a high by historical terms but down from cycle highs north of 67% over the back half of 2024 and into 2025.
Hours worked rose by a respectable 0.4% month-on-month in December, matching the increase in employment (in percentage terms). Across the quarter, hours worked expanded by 0.6%, representing a notable lift in momentum after a flat September quarter (0%).
In summary | December
Today's report was a strong improvement from the indifferent prints seen through much of the back half of 2025. A February rate hike priced as a 50/50 prospect seems a touch overdone in that context, particularly as the RBA's overarching strategy has been to allow the labour market to run a little hot while it returns inflation to the target band. The unemployment rate averaged 4.2% in the December quarter, slightly tighter the RBA's forecast for 4.4%. Next week's Q4 CPI report will hold more weight with the RBA in terms of its decision in February.
