Australia's unemployment rate held at 4.1% in January, defying expectations to rise to 4.2% early in the new year. Employment continued to rise posting a respectable increase of around 18k, after it surged by around 66k as 2025 wound down. Although markets reacted hawkishly to today's report, little has really changed: the labour market is solid and generating wages growth in the mid 3s (see yesterday's report). Further RBA tightening looks likely, but the inflation data holds the key to the timing.
By the numbers | January
- Employment lifted by a net 17.8k in January (full time +50.5k/part time -32.7k), moderating broadly in line with expectations (20k) from December's 65.8k rise.
- Headline unemployment was unchanged at 4.1%. It was expected to tick up to 4.2%. However, both the underemployment rate and total underutilisation increased by 0.2ppt to 5.9% and 10% respectively.
- Labour force participation remained at 66.7%, though the employment to population ratio declined to 63.9% from 64%.
- Hours worked rose by 0.6% month-on-month (1.6%yr), its strongest January outturn since 2023.
The details | January
Australia's Labour Force Survey can often be volatile - especially during the peak summer holiday period. But today's report produced few fireworks. Overall, labour market conditions look to have remained solid early in the new year. Employment lifted by 17.8k on net: 50.5k people were added to full time employment as part time employment declined by 32.7k, nearly matching the expected 20k increase. That was a decent outcome given employment surged by 65.8k in December, its strongest outcome in 8 months.
The key statistic markets zeroed in on was the unemployment rate holding at 4.1%, an upside surprise on expectations to soften to 4.2%. Through the back half of last year, the unemployment rate averaged 4.3% - so consecutive months now at 4.1% suggests the labour market has retightened a little; however, in January, the broader underemployment rate increased from 5.7% to 5.9%, which took total labour force underutilisation back to double digits (10%) after briefly dipping to its lowest since April 2023 in December (9.8%).
Labour supply is off cycle highs having peaked in early 2025. The participation rate stood at an unchanged 66.7% in January, in line with its 3-month average; however, that compares to an average of 67.1% 12 months prior. Meanwhile, the employment to population ratio - the share of working aged Australians in work - was just below 64% in January, 0.5ppt down from record highs at the start of 2025.
Hours worked rose by 0.6% in January following the 0.4% rise in the final month of last year. That was the strongest increase in hours for a January since 2023, with the ABS reporting that fewer people were taking annual leave at the start of the year. Annual growth in hours worked lifted from 1% to 1.6%. The part time segment had been leading the full time segment in terms of annual growth in hours worked, but base effects swung that narrative entirely. Growth in full time hours lifted from 0.8% to 2% as the part time segment swung from 2.1% to -0.2%.
In summary | January
Today's report - specifically the upside surprise on the unemployment rate that came in lower than expected - drew a hawkish reaction as markets adjusted the probabilities for an earlier rate hike than the increase pencilled in for the August meeting. Given the RBA's inflation concerns, August does seem to be fairly distant timeline for a follow-up hike to its increase earlier this month. The most likely scenario in my view is the RBA waits for the next quarterly CPI report (29 April), putting the May meeting (4 and 5 May) on the table for a rate hike - if inflationary pressures have not abated sufficiently through the opening quarter of the year.
