Australia's unemployment rate rose unexpectedly from 4.1% to 4.3% in February, even as employment increased sharply by almost 50k - well above the 20k consensus - as labour supply rebounded from recent softness. The RBA hiked the cash rate by 25bps for the second meeting in succession on Tuesday, highlighting a tight labour market and broader capacity pressures as key factors in its decision. Although the unemployment rate rose, it is still tracking below the RBA's estimate for an increase to 4.3% by the middle of the year.
By the numbers | February
- Employment rose by a net 48.9k in February, outperforming the 20k consensus. Revisions added 3.8k to employment over the past two months: January was revised up to 26.1k (+8.3k) but December was revised down to 64k (-4.5k).
- Unemployment rose to 4.3% against expectations to remain at 4.1%; however, the broader underemployment rate was steady at 5.9%. Underutilisation - the measure that combines the two - rose from 10% to 10.1%.
- Labour force participation increased from 66.7% to 66.9%, a 4-month high. The Employment to population ratio (share of people in work) remained at 64%.
- Hours worked declined by 0.2% in the month after a stronger-than-usual 0.6% rise in January. Annual growth was steady at 1.6%.
The details | February
Employment rose by 48.9k in February, more than double the consensus forecast of 20k while also exceeding the top side of expectations (10-40k). Whereas in January full time employment led the way over the part time segment (FT 54.6k/PT -28.5k), this flipped in February: part time employment increased by 79.4k with full time declining by 30.5k.
Although volatility around the monthly composition has been elevated, momentum in employment growth overall has accelerated noticeably. Employment gains over the past 3 months have lifted to an average of 46.3k, the strongest pace in around 2½ years going by this measure.
Despite the strong employment rise, the unemployment rate still increased from 4.1% to 4.3% to reach its highest since November last year. This was due to an uptick in the participation rate from 66.7% to 66.9%, adding 83.9k to the labour force, outpacing the rise in employment (48.9k). Nonetheless, the recent dynamics have been employment growth has picked up while participation has been trending lower. This has helped keep the unemployment rate from lifting as the RBA has expected it to, but on the other hand this has also played a role in the central bank seeing the need to deliver back-to-back hikes with the likelihood of additional tightening.
Hours worked were down for the month in February by 0.2% and up 1.6% over the year. This followed a strong result in January (0.6%m/m), with the ABS attributing that outcome to a larger-than-usual number of people working through the peak summer holiday period.
In summary | February
Today's report is a case of choose your own narrative - more likely it will probably only be used to strengthen existing views. My takeaway is that employment growth has picked up - there's enough evidence to come to that conclusion - but the unemployment rate is still at risk of rising. That's if participation, which trended down last year, begins to bounce back up again.
