Labour market stays strong with surprise employment jump, but risks are building

Australia’s labour market remains resilient, with strong employment growth in February offsetting volatility in the headline unemployment rate.

New ABS data shows employment rose strongly, while a lift in the workforce participation rate – the proportion of the working-age population that’s either employed or looking for a job – pushed the unemployment rate higher. Underlying trend measures, however, point to continued resilience in the jobs market.

But volatile global politics and rising energy prices may start to threaten the employment market’s ongoing strength as the year continues, Commonwealth Bank economists say. 

Strong jobs growth drives mixed result  

The latest ABS data showed employment increased by 48,900 people in February, a figure well above expectations, following a rise in January (based on the ABS’ revision of previously published figures). 

At the same time, the participation rate rose by 0.2 percentage points to 66.9 per cent, meaning more Australians entered the labour force than anticipated. This faster‑than‑expected growth in labour supply lifted the unemployment rate to 4.3 per cent, up from 4.1 per cent in January. 

CBA Head of Australian Economics Belinda Allen said the result highlights the volatility that can occur in monthly labour force data.

“The labour force survey contains several moving parts that can produce unusual outcomes from month to month,” Allen said.

Trend data shows unemployment edging lower  

Looking through this volatility, trend measures paint a steadier picture.

Trend employment rose by a solid 24,000 positions in February, while the trend unemployment rate edged down to 4.2 per cent from a revised 4.3 per cent in January. 

Accounting for rounding in the figures, the trend unemployment rate was broadly unchanged, reinforcing the view that underlying labour market conditions remain firm.

“On a trend basis, the labour market is still tight,” Allen said. From an employer point of view, a ‘tight’ labour market means the demand for new employees is straining the supply of available workers – a situation which can push up wages and inflation   

Participation trends worth watching  

In trend terms, the participation rate has eased gradually since late 2024 and now sits at 66.8 per cent, down from a peak of 67.1 per cent late last year. 

CBA Associate Economist Lucinda Jerogin said participation will be a key area to watch in coming months.

“Some of the recent decline in participation may reflect easing cost‑of‑living pressures compared with the peaks of 2022 and 2023,” Jerogin said. 

“However rising inflation and higher fuel costs linked to the war in Iran could see more people re‑enter the workforce.”

The ABS also noted fewer people moved from “waiting to start a job” into employment in February compared to recent Februarys, while fewer Australians retired compared with a year earlier. Instead, more people aged 65 and over shifted into part‑time work. 

What it means for interest rates  

Overall, the data suggests the labour market remains resilient, but that risks are building.

Higher global energy prices and geopolitical uncertainty are increasing pressure on households and businesses, and could push unemployment higher over time. 

In the near term, CBA expects the Reserve Bank of Australia to remain focused on inflation rather than labour market conditions.

“The February CPI release next week will be critical for the outlook,” Allen said.

See the economists’ full report here.