Jobs market weakens as economic headwinds loom

Poppy Johnston | February 16, 2023

A softer-than-expected jobs report suggests Australia’s labour market is starting to loosen and may take some pressure off the central bank’s aggressive interest rate hikes.

The official unemployment rate lifted from 3.5 per cent to 3.7 per cent in January, returning to its highest point in nine months.

About 11,500 jobs were lost from the economy, Australian Bureau of Statistics jobs data showed, the second month in a row of falling employment.

The participation rate fell 0.1 percentage point to 66.5 per cent.

The jobless rate has been hovering in the mid-threes due to strong demand for workers and economists expected another robust report in January.

Markets anticipated another 20,000 jobs to be added and unemployment to hold firm at 3.5 per cent.

Despite evidence of weakening, seasonal factors fed into the elevated data. 

The ABS noted there was a larger number of people than usual “waiting to start work” and attached to a job in some way, which means they were not yet counted as employed.

BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said this would likely boost employment and weigh on unemployment in the February data.

However, he said the slowing in employment growth should be expected given the sustained tightness in the labour market.

“Consecutive falls in employment suggest conditions may be turning,” he said.

Treasurer Jim Chalmers said the softening numbers were consistent with his expectations of a slowing economy.

“This is the expected consequence of global turbulence and rising interest rates playing out in our economy,” Dr Chalmers said. 

He said the unemployment rate was still near record lows and the strong jobs market would help insulate the economy from global challenges.

Shadow treasurer Angus Taylor said the uptick in unemployment and persistently high inflation was an “ominous” sign.

“The last time we saw an extreme version of this known as stagflation – stubbornly persistent inflation alongside job losses and unemployment – was back in 1970,” he said.

For the Reserve Bank, jobs data is watched closely because of the relationship between the tight labour market and higher wages, which can feed into inflation.

Mr Langcake said the January figures did not provide conclusive evidence of a cooling market, which would take pressure off wages.

“But it is clear the market is tracking sideways, albeit in a very tight position.”

RBA governor Philip Lowe will likely comment on the significance of the statistics at a parliamentary hearing on Friday.

CommSec economist Craig James said the upcoming wage price index, due next week, would offer more insight.

“If wages rise by one per cent or less for the quarter that would allay concerns about a possible ramp up of wage pressures and therefore price pressures,” he said.