Preview: CapEx Q4

Australian private sector capital expenditure data for the December quarter comes out at 11:30am (AEDT) today. With affected states reopening from lockdowns during the Delta wave, capex is expected to have rebounded in Q4. Forward-looking investment plans should also remain constructive with the economy re-establishing its pre-lockdown momentum.

As it stands | Capital Expenditure

The Delta lockdowns in Q3 across much of the nation disrupted the strong upturn in the capex cycle as the economy was rebounding from the 2020 COVID recession. Capex contracted by 2.2% in the quarter to $32.7bn, falling back to pre-pandemic levels. 

Weakness in equipment spending largely drove the fall in capex with a 4.1% decline in Q4. The economic recovery, accommodative financing conditions and government tax incentives had seen equipment spending rising at pace over recent quarters. Non-mining sector equipment spending fell by 4.6%q/q, consistent with the contraction in domestic demand (-1.7% in Q3) associated with the lockdowns. The restrictions saw many firms delaying capex spending amid the restrictions on activity, while global supply chain constraints were another headwind, particularly in the acquisition of new vehicles. Buildings and structures capex was soft in Q4 (-0.2%), affected by the temporary shutdown of the construction sector in New South Wales and Victoria. 

Mining sector capex lifted by 1.2% in the quarter to $9bn, remaining in its range from the past few years despite commodity prices surging in response to the global economic recovery.  

Pointing to an expectation of temporary lockdown-related disruptions, firms increased their expected capex for 2021/22 to $138.6bn, up 8.7% from 3 months earlier and a stronger upgrade than usual for that stage of the estimates cycle. This implied capex was on track to post a 19.7% year-to-year rise. Capex plans in the non-mining sector increased by 10.3% on the previous estimate, while planned spending in the mining sector was upgraded by a more modest 5.1%. 

Market expectations | Capital Expenditure

Capex in the December quarter is expected to have risen by 2.5%, with the range of estimates between 0.5% to 4.0%. Also in today's report will be firms' 5th estimate of capex plans for 2021/22 and estimate 1 for 2022/23. 

Upgrades from estimates 4 to 5 are generally modest, averaging 1% over the past 10 years. An average result would see estimate 5 for 2021/22 rising to $140bn. However, I think the strength of the previous upgrade (from estimates 3 to 4) signals investment plans are carrying much more momentum than in a 'normal' year, consistent with the economic recovery. For estimate 5, I look for a figure around $145bn. For estimate 1 in 2022/23, a reasonable guide should be around $110bn to $120bn.  

What to watch | Capital Expenditure

Given the fall in Q3, the rebound in capex post lockdown will be important to confirm the resumption of the earlier upswing. The intentions component is also key and will be taken as a guide of the durability of the momentum in business investment beyond the reopening rebound in Q4.  

Australian construction activity -0.4% in Q4

Australian construction activity declined against expectations in the December quarter and was weak over the second half of 2021 as lockdowns and capacity constraints disrupted the upswing established in the recovery from the Covid recession. Elevated residential and public sector construction pipelines should support the resumption of the upswing in 2022.    

Construction Work Done — Q4 | By the numbers

• Construction work done was much weaker than expected falling by 0.4% in Q4 to $53.5bn (chain volume, seasonally adjusted), though growth through the year was steady at 2.9%. The market consensus was for a 2.5% increase in the quarter, with the lowest estimate looking for a 1% rise. In addition, the contraction reported in Q3 was revised down, from -0.3% to -1.2%.   

• Across the categories;
• Engineering work +0.7%q/q to $23.1bn (+4.2%Y/Y)

• Building work -1.3%q/q to $30.4bn (+2.0%Y/Y), which includes;

• Residential work -2.9% to $18.3bn (+0.6%Y/Y)

• Non-residential work 1.3%q/q to $12.1bn (4.1%Y/Y) 

Construction Work Done — Q4 | The details 

Following a strong first half in 2021, the upswing in Australia's construction cycle stalled over the back half of the year. Construction work done had accelerated by 4.6% in the first half of the year reflecting the effects of the HomeBuilder scheme and other policy stimulus but subsequently contracted by 1.6% over the second half as lockdowns and materials and labour shortages held back progress.

Construction activity rebounded in New South Wales in Q4 (5%) after output was hit hard in Q3 (-7.4%) due to the industry being temporarily shut down during the Delta lockdown. Similar restrictions on construction eventually applied in Victoria, which was late in Q3 by that stage. The associated hit to activity looks to have shown up in today's report, with work done in the state declining by 5.5% in Q4. But aside from lockdowns, the momentum was soft with falls in the quarter seen in other states including Queensland (-2.6%), Western Australia (-2.4%) and Tasmania (-0.6%). 

At the national level, the key dynamic has been the weakness in private sector construction over the second half of the year (-3.1%), with activity in Q4 down 2.4%. This was driven mainly by the residential segment, with the 3% decline in Q4 taking the fall over the second half to 3.7%. Private residential work surged by 4.5% in the first half of 2021 following policy stimulus from the HomeBuilder grants, other government incentives and low rates; however, lockdowns and materials and labour shortages were headwinds over the second half. New home building fell further in Q4 (-1.9%) while alterations retraced (-8.7%) from very elevated levels.     

In contrast to the residential segment, non-residential work accelerated over the second half of the year, with Q4's 0.8% increase resulting in a 4.1% rise over the period. Non-residential work lifted by only 0.6% in the first half. This is broadly reflective of business investment picking up as the economic recovery from the Covid recession gathered momentum. However, private engineering work weakened sharply over the second half of the year (-6.5%). 

In the public sector, work done lifted by 7.7% over the second half as governments accelerated the rollout of infrastructure projects as part of their pandemic recovery response. In Q4, engineering work lifted by 6.8% and building work advanced by 1.1%.  

Construction Work Done — Q4 | Insights

Lockdowns and capacity constraints disrupted the upswing in Australia's construction cycle over the second half of 2021. Activity in residential construction weakened sharply on these effects, though policy stimulus measures have led to a very large pipeline in the segment that will add to economic growth as it is worked through in 2022. An acceleration in public sector work provided some offset over the second half, and there is much more to come reflecting the focus of governments in recent budgets to invest in infrastructure. 

Australian Q4 Wage Price Index 0.7%; 2.3%yr

Australian wages growth firmed in line with estimates in the December quarter, remaining around its pre-pandemic pace. A tightening labour market saw a broader-based lift in wages growth than in the previous quarter, boosted by the reopening from the Delta lockdowns. Although more wage inflation looks to be ahead, the RBA is likely to retain its patience stance with regards to raising rates for now.

Wage Price Index — Q4 | By the numbers

• The headline WPI (total hourly rates of pay ex-bonuses) came in around expectations at 0.7% in the quarter and 2.3% over the year. This was slightly firmer than the pace seen in Q3 at 0.6%q/q and 2.2%Y/Y.  
• Private sector WPI increased by 0.7% in the quarter (prior: 0.6%q/q), maintaining the annual pace at 2.4%.
• Public sector WPI also lifted by 0.7%q/q (prior: 0.6%q/q), lifting growth over the year from 1.6% to 2.1%. 

Wage Price Index — Q4 | The details 

The Wage Price Index (WPI) is a gauge of wage inflation for employers in the Australian labour market. It is driven by changes in wage-setting behaviour, either through variations to awards, enterprise agreements or individual arrangements between employees and employers. The nature of Australia's institutional arrangements, with lengthy enterprise agreements and annual reviews of the minimum wage, together with public sector wage policies, means the WPI is typically a slow-moving indicator, a key point to consider in the context of the material tightening in the labour market over recent months.

In the release, the ABS noted that individual agreements were continuing to drive growth in the WPI. A strong labour market and demand for skilled workers meant a larger number of employers had conducted wage reviews than usually seen at this time of year. Public sector wage freezes in New South Wales and Queensland started to thaw in Q4, leading to a larger 4th quarter contribution to wages growth from enterprise agreements than in recent years. Meanwhile, the phase-in of the 2020/21 minimum wage decision was continuing to contribute to wages growth in Q4. Normally, the bulk of minimum wage increases occur in Q3, but this was altered by the Fair Work Commission in light of the pandemic, delaying the increase in the most affected industries. 

Aside from wage reviews and with employers keen to retain staff, many were turning to other incentives such as sign-on or retention bonuses or offering more attractive conditions to assist in that effort. The WPI inclusive of bonuses lifted by 1.1% in Q4, its strongest quarterly rise since Q3 2019, leaving annual growth up at 2.8% and in line with its pace just ahead of the pandemic. As the chart shows, this is being driven by private sector employers. 

    

At the industry level, annual wages growth had firmed in household services, from 2% to 2.4%, and in the goods-related sector (ex-mining), from 2.1% to 2.3%, as businesses were looking to hire staff back following the Delta wave lockdowns. Wages growth in business services was clearly outpacing these other two sectors in Q3 but the pace moderated in Q4, from 2.6% to 2.4%. 

In household services, the main development is the surge in wages growth in accommodation and food services; the industry hit hardest by the pandemic has been left with staff shortages as venues have reopened, with many switching jobs to work in other less contact intensive industries, while border closures have been an additional constraint. In the other industries in the sector, wages growth is for the most part yet to return to pre-pandemic rates.   

In business services, the rebound seen over the past year lost some momentum in Q4. Over the period, many businesses have been ending temporary wage freezes or cuts implemented at the outset of the pandemic and this has boosted measured wages growth. Strong demand has been another factor behind the rebound. As it currently stands, annual wages growth in professional services (2.5%), finance and insurance (2.3%) and administration (2%) is around pre-pandemic rates. However, rental, hiring and real estate (2.5%) and information media and telecommunications (2.2%) is now seeing wages growth running above their pre-Covid rates and materially so in the latter.   

Developments in the goods-related sector are being driven by reopening effects, with annual wages growth in retail (2.6%), manufacturing (2.5%) and wholesale trade (2.4%) continuing their push higher from pre-pandemic rates. Wages growth in the construction sector moderated (2.4%), which is somewhat surprising after the surge in building work due to construction stimulus measures led to capacity constraints. In the transport industry, wages growth remained constrained (1.8%) but could lift higher now that travel restrictions have eased with airlines needing to rehire staff.  

Wage Price Index — Q4 | Insights

All in all, with the labour market tightening post the Delta lockdowns, there was a broader-based rise in wages growth than seen in the previous quarter. However, aggregate wages growth is only around its pre-pandemic pace. Given the tightening seen in the labour market, with overall underutilisation falling to a 13-year low, historical relationships suggest wages growth should be significantly higher (the latest observation is circled). As highlighted earlier, the WPI is a slow-moving indicator and the churn in the labour market caused by the pandemic, with many switching jobs and moving between industries and often receiving higher pay in the process, likely means we will see wage inflation rising over the quarters ahead. But until that hits the data, the RBA will retain its patient stance on interest rates.    

Preview: Construction work done Q4

The December quarter update of Australian construction work done is due to be released this morning by the ABS at 11:30am (AEDT). A strong upswing in the construction cycle was paused in Q3 amid state lockdowns during the Delta wave and from capacity constraints. Eased restrictions should see a Q4 rebound in activity across the sector.  

   

As it stands | Construction Work Done

Construction activity held up better than expected during a disrupted Q3 with the Delta lockdowns in place in New South Wales, Victoria and the ACT. In the quarter, construction activity declined by 0.3% against a 3% fall expected.  

Public sector activity contracted by 2.7% in the quarter compared to a 0.5% rise in the private sector. Site restrictions hit public building work (-9.7%), driving a 2.2% fall in total non-residential work. This weakness was centred in New South Wales where the temporary shutdown of the construction sector saw non-residential work plunge by 11.3%.   

Private sector residential construction activity stalled over Q2 (0%) and Q3 (0.1%) amid capacity constraints and lockdown disruptions. In Q3, a 0.8% decline in new home building was offset by a 6% rise in alteration work, with the latter benefitting from the pandemic-related shift for the desire for more space and from the HomeBuilder grants program.       

There is a large volume of government infrastructure projects in the pipeline, but as highlighted above public sector work fell in Q3 (-2.7%). Engineering activity lifted slightly (0.5%) but could not offset the lockdown-related fall in building work (-9.7%). 

Market expectations | Construction Work Done 

The easing of lockdowns is expected to drive a rebound in activity, with construction work done forecast to rise by 2.1% on the quarter (range: 1% to 3%). The headwinds to that forecast are from labour and materials shortages holding back progress.   

What to watch | Construction Work Done

Today's report should confirm the resumption of the upswing from the first half of 2021 where there was broad-based momentum in construction activity. In particular, watch activity in the residential segment where there is a very large pipeline of work to be done on the back of the Covid stimulus response.

Preview: Wage Price Index Q4

Australia's Wage Price Index (WPI) for the December quarter is scheduled to be published by the ABS today at 11:30am (AEDT). Aggregate wages growth picked up in Q3 to a little above 2% but was still only around the slow rates that prevailed before the pandemic. A material post-lockdown tightening in the labour market likely increased wage pressures over Q4, though whether that is sufficient to sustain aggressive RBA rate hike expectations remains to be seen as the Board continues to reiterate its patience in assessing Australia's wage and inflation dynamics.   

As it stands | Wage Price Index

The WPI met expectations rising by 0.6% in the September quarter, lifting annual growth from 1.7% to 2.2% and returning to its pre-pandemic pace. The fading of pandemic-related headwinds drove the rise in wages growth: the share of employers conducting salary reviews in the quarter was more in line with historical patterns and due to the very low increase from Q3 2020 falling out of the annual calculation. 

Reflecting a tightening labour market, growth in the private sector WPI was 0.6% in the quarter, taking the annual rate up to 2.4%, its fastest in nearly 7 years. Contributing strongly to this increase in Q3 was the effect of many workers on individual agreements receiving pay rises. The public sector WPI, held back by wage freezes and caps, lifted by 0.5% in Q4 and was at a more muted 1.7% annual pace. 

From an industry perspective, the strongest upward pressure on wages growth was limited to a few industries and was generally where labour shortages were evident. This included professional services (3.4%Y/Y), construction (2.6%Y/Y) and accommodation and food services (2.5%Y/Y). Next strongest was administration (2.3%Y/Y). 

Market expectations | Wage Price Index

The headline WPI is expected to increase by 0.7% in the December quarter, around a range of estimates from 0.6% to 1%. Annual growth is forecast to firm from 2.2% to 2.4%; however, it should be noted that a 0.7% quarterly rise would actually generate annual growth of 2.3%, not 2.4%. Referring to the RBA's February Statement on Monetary Policy, the Bank's implied forecasts for wages growth in Q4 are a touch softer than the market at around 0.6%q/q and 2.3%Y/Y.  

What to watch | Wage Price Index

With inflation back at the midpoint of the RBA's target band for the first time since 2014 and the unemployment rate falling to a 13-year low, markets have moved to price in the first RBA rate hike by June, with a further 100bps of hikes anticipated by the end of the year. This profile looks overdone and could be at risk of being pared back unless there is a strong upside surprise in the Q4 WPI. 

The RBA continues to point out it is taking a "patient" approach, highlighting that although it has had to revise up its inflation forecasts, price pressures are mostly reflecting pandemic-related supply issues. Beyond these effects, the RBA has referred to wages growth of above 3% as a guidepost to the sustainability of delivering on the 2-3% inflation mandate. 

That confirmation in terms of aggregate wages may take some time to materialise as the WPI is a relatively slow-moving gauge and is currently affected by the wage policies in the public sector, years-long enterprise bargaining agreements and annual reviews of the minimum wage. But a tight labour market is creating a lot of churn beneath the surface as people switch jobs and receive promotions, which will be leading to higher wages. All in all, today's WPI should give a broad insight into the extent of wage pressures currently being faced by Australian employers as the labour market tightens. 

Macro (Re)view (18/2) | Under the weather

Conflicting headlines around Russia-Ukraine tensions dictated sentiment this week, with uncertainty over developments weighing on equities and helping to put a floor under the US dollar amid more insights on policy tightening from the Fed. The overall dynamics kept flattening pressure on yield curves. 

Australia's labour market was heavily disrupted by Omicron early in the year...

As the Omicron variant spread and caseloads surged, around 5.6% of employed Australians were unable to go to work, either through illness or from being a close contact, in early January. With another 39% of workers on leave during the peak summer period, this week's labour force survey reported the impact from staff shortages on the economy was an 8.8% collapse in total hours worked in January. A fall of that magnitude has been exceeded only once and that was in April 2020 (-9.6%) when the nation went into lockdown at the outset of the pandemic. After building up strong momentum through the recovery from the Delta wave, hours worked in January had fallen to be 6% below their pre-Covid level.    

but underlying conditions were much more resilient than in earlier waves...

Reflecting the resilience the Australian economy has established to the pandemic from each successive wave, underlying conditions in the labour market held up in January. Employment lifted modestly by 12.9k but came in above expectations for a flat outcome. This was broadly sufficient to cover an uptick in the participation rate to 66.2%, keeping the unemployment rate at 13-year lows (4.2%). After tightening considerably in December, underemployment (6.7%) and overall underutilisation in the labour market (10.9%) increased slightly but were still at their lowest levels since 2008. The overall takeaway was that in a tight labour market, businesses are keen to retain staff and despite the uncertainty around Omicron, labour demand continues to rise. Online job vacancies were reported this week to have risen by 4.4% in January to stand 54% above their pre-Covid level, indicating there is scope for the labour market to tighten further. A full review of January's Labour Force Survey can be accessed here

and policymakers are keen to press for more progress towards full employment 

Accordingly, Australia's fiscal and monetary authorities are focused on the push towards full employment despite underlying inflation rising to 7-year highs. Treasury Secretary and RBA Board member Dr. Steven Kennedy told the Senate's Economics Committee this week that while fiscal stimulus is gradually tapering as unemployment declines, support should not be withdrawn early based on historical estimates of full employment. In a tightening labour market, Dr Kennedy highlighted that wage gains linked to productivity growth would be key to containing inflation. There was a complimentary tone in the RBA's February meeting minutes, which reaffirmed maintaining highly accommodative monetary policy to support the return to full employment. That said, higher inflation has prompted the Board to emphasise the need for greater optionality, leading to the early withdrawal of QE and signaling that rate hikes this year were plausible. But there remains some reluctance to the idea of raising rates when inflation is being primarily driven by pandemic-related supply issues and wages growth is only around pre-pandemic rates. 

In the US, the Fed could begin balance sheet runoff earlier...  

The minutes from the Fed's meeting in late January provided some new insight into how the FOMC sees the process of balance sheet reduction taking place. Boosted by emergency asset purchases over the course of the pandemic, the Fed's balance sheet has expanded from a pre-virus level of around $4tn to around $9tn currently, and the general view of the FOMC is that a "significant reduction" is now appropriate. In light of the strength of the labour market and high inflation, the minutes noted a faster pace of runoff was likely than seen in the previous episode in 2017-2019. The implication is that the timing between liftoff in the policy rate, set to take place in March, and the start of balance sheet runoff will be much shorter in this tightening cycle. The FOMC was also of the view that the strength of the economic outlook likely warranted a more front-loaded increase in its policy rate than during the post-2015 hiking cycle; whether or not that equates to a larger 50bps hike to start with remains a strongly debated issue in markets.

Household spending rebounded sharply early in the year... 

Despite the fall in US consumer sentiment to decade lows being linked to high inflation and residual pandemic effects, household spending rebounded strongly in January. Headline retail sales came in at 3.8%m/m (vs 2% expected) after falling by a downwardly revised 2.5% in December. Excluding the categories that have seen prices rise sharply (such as fuel, cars and building materials), control group sales surprised strongly to the upside with a 4.8% surge (vs 1.3% expected), more than reversing December's 4% fall. 

In Europe, comments from ECB officials remain key...

Aside from geopolitical tensions in the region, messaging around the policy outlook from ECB officials has been key for markets. ECB President Christine Lagarde was before the European Parliament this week outlining to lawmakers that the current high rate of inflation was likely to persist for longer than previously anticipated, necessitating a more flexible outlook to policy. President Lagarde reaffirmed the Governing Council's December announcements: net purchases in its pandemic asset purchase program would cease in March and to the plan for tapering purchases in its other QE program over the course of the year (though this is to be reviewed at the March meeting). ECB Chief Economist Philip Lane meanwhile has continued to emphasise that with the outlook for inflation over the medium-term expected to stabilise around the 2% target, steps to remove policy accommodation could occur in a gradual manner. There was also pushback from ECB Executive Board member Isabel Schnabel to aggressive expectations for 2022 rate hikes, noting that market pricing factored in term premia and was therefore likely to be providing a somewhat misleading signal with regards to the start of the hiking cycle. In any case, Schnabel reiterated that the ECB's forward guidance required asset purchases to have ended before rates start rising.  

UK data were consistent with further BoE rate hikes... 

Although UK employment fell by 38k over the 3-month period to December, this was less severe than expected (vs -58k) as Omicron emerged and the unemployment rate held steady around pre-Covid levels at 4.1%. With employment estimated to be down by 588k on its pre-pandemic level there is tightness in the labour market, confirmed by a further elevation in job vacancies to a new record high. All this is putting upward pressure on wages, with annualised pay rates in the final quarter of the year rising from 3.8% to 4.3% (vs 4.2% expected), adding to concerns over inflation, which in January came in above expectations. 12-month headline inflation edged up from 5.4% to 5.5%, while the core rate was up at 4.4% from 4.2%. Due mainly to upcoming increases in household energy prices, inflation is expected to keep rising to be pressing 7% by April. The light remains green for further BoE rate hikes, though it is debatable the MPC will deliver on the 6 additional hikes factored into market pricing over the remainder of the year.   

Australian hours worked -8.8% in January

Hours worked in the Australian economy were crunched by 8.8% in January as the Omicron wave surged. Staff shortages due to illness and isolation requirements were compounded by a higher-than-usual number of Australians taking summer holidays. Despite these disruptions, underlying labour market conditions were much more resilient than in earlier waves of the pandemic, and with labour demand remaining strong, indications are that the labour market can tighten further.   

Labour Force Survey — January | By the numbers

• Employment increased by a net 12.9k in January against expectations for a flat outcome. December's rise in employment was left unrevised at 64.8k.  

• Australia's unemployment rate remained at 4.2%, as expected, at 13-year lows. 

• Labour force participation firmed from 66.1% to 66.2%. 

• Hours worked fell by 8.8% in January, weighed by Omicron isolation requirements and summer holidays. 

Labour Force Survey — January | The details

The surge of the Omicron waved caused significant disruption in the Australian labour market in January as illness and isolation requirements prevented many people from going to work, while a higher-than-usual number of Australians taking summer holidays compounded staff shortages for businesses early in the year. Very high rates of vaccination have allowed lockdowns to be avoided in this wave, but hours worked still fell very sharply contracting by 8.8% in January, a decline exceeded only by the 9.6% fall seen during the national lockdown at the outset of the pandemic. This left total hours in January 6% down on pre-pandemic levels. Hours by part-time workers (-9.1%m/m) showed a slightly larger fall than in the full time segment (-8.7%m/m). 

Around 5.2m Australians reported working zero or fewer hours than usual due to being on holiday — a significantly higher number for January than in recent years. As Omicron surged many were required to enter isolation either from falling ill or from being a close contact. An extraordinary rise was seen in the number of Australians working fewer hours than usual due to sick leave, lifting from 439.9k in December to 743.5k in January, with nearly 450k unable to work any hours at all due to being in isolation.  

Given the high level of absences, many businesses were faced with significant staff shortages in January and more disruption than at earlier stages of the pandemic. Last week's ABS Conditions and Sentiment survey reported 22% of firms were affected by COVID-related absences in January, with medium and large businesses the most impacted. 

Source: ABS 

Across the states, New South Wales (-13.5%) and Victoria (-13.2%) saw the largest falls in hours worked in January, reflecting the higher caseloads there. On a pre-pandemic comparison, hours in NSW had fallen to a new low (-11.8%) while hours in Victoria were close to the depths seen during its second wave lockdown in mid 2020. Total hours across the other states and territories fell by 2.4% in the month but remained above their pre-pandemic level. Western Australia's low caseloads saw hours worked rise by 1.7%, providing some offset to falls in the other states (Qld -2.9%, SA -7%, Tas -5.1%, ACT -3% and NT -1.3%) as Omicron started to spread after the borders reopened.    

Around the disruptions from Omicron, broader labour market conditions held up fairly well in January. Employment lifted by a net 12.9k, with a 30k rise in part time employment more than offsetting a 17k fall in full time employment. Employment outcomes were weakest in NSW (-22.8k) and Vic (-15.6k). Overall, this left total employment 2% above its pre-pandemic level. Compared with March 2020, full time employment (2.4%) has seen a sharper increase than part time employment (1.2%), mostly because the latter has been more vulnerable to job losses from successive waves of the pandemic.    

Encouragingly, the participation rate lifted slightly in January to 66.2%, which should give some comfort to businesses facing staff shortages that they are not in the position of having to wait for Australians to return to the labour force, as is the case in the US and the UK. However, it is notable that there remains a shortfall in participation in NSW (64.8%) relative to its pre-Delta highs (around 66%). Meanwhile, the employment to population ratio reached a new high at 63.4%. 

With the size of the labour force increasing only modestly and employment rising in the month, overall spare capacity in the labour market remained at similar levels to December. The unemployment rate held at 4.2% (though it edged higher when taken at 2 decimal places). Underemployment lifted fractionally to 6.7% despite the large fall in hours worked; clearly, it is difficult to take on additional hours when many were in isolation. Overall underutilisation in the labour market was 10.9% in January, only a little higher than in December.

Labour Force Survey — January | Insights

The surge of the Omicron wave during the peak summer holiday period led to an unavoidably large fall in hours worked in January, leaving many businesses short staffed. However, unlike in earlier waves, broader labour market conditions were much more resilient on this occasion, reaffirming the resilience the Australian economy has established in coping with the pandemic. In a tight labour market, businesses are keen to retain staff. Meanwhile, prospects for further progress towards full employment look positive given the 4.4% rise reported in job vacancies in January, indicating underlying labour demand remained strong despite Omicron.