March Labour Force: rounding out a volatile quarter
Employment: –6.6k (from +117.6k). Unemployment Rate: 3.8% (from 3.7%). Participation Rate: 66.6% (from 66.7%).
The March Labour Force Survey (LFS) delivered mixed of results following a particularly volatile start to the year for the labour market.
After an incredibly strong showing in February, where employment managed to lift +117.6k (revised up slightly from +116.5k), employment declined only slightly in March, down –6.6k. That decline was centred on part-time employment (–34.5k), which effectively took back last month’s gain, while full-time employment continued to rise into the final month of the quarter (+27.9k). The headline result was weaker than the market median (+10k) but was not as weak as we had anticipated (–40k).
While March’s employment print does mark somewhat of a ‘retracement’ from a particularly strong February, it rounds out a more resilient performance for employment growth over the quarter as a whole. Indeed, Q1 2024 saw a cumulative lift of +122.3k in employment, the largest quarterly rise since Q1 2023 (+157k). Results on a quarter-average basis are a little more tempered but were still firmer than what was initially anticipated by most analysts, up 0.5% (2.7%yr) in Q1 2024. That remains consistent with the broader context of a trend slowdown however, easing from 3.0%yr in Q4 2023 and 3.1%yr in Q3 2023.
While labour demand has certainly cooled over the past year, it remains in generally robust health to the extent that employment growth remained moderately positive. That is consistent with results from other data on job vacancies, which continues to highlight a large ‘overhang’ of available jobs relative to pre-pandemic levels. However, other results from the LFS – particularly in relation to hours worked (below) – provides some nuances.
With growth in the working age population (2.9%) still outstripping employment growth, the employment-to-population moderated from 64.2% in February to 64.0% in March. While we anticipate growth across both the working age population and employment to moderate over the remainder of the year, the former will likely continue to outstrip the latter, which will see the employment-to-population ratio fall over 2024 after having moved broadly sideways near historic highs over much of 2023.
Unemployment Rate
Results around labour force participation met our expectations, with the participation rate moving lower from 66.7% in February to 66.6% March. That implied a modest lift in the size of the labour force, up +14.0k. Given employment declined in the month (–6.6k), there was a rise in the number of unemployed persons (+20.6k), which saw the unemployment rate move slightly higher, from 3.7% In February to 3.8% March.
It should be noted that given we had expected a larger decline in employment, that result for the unemployment rate in March was better than we anticipated. At 3.9% on a quarter-average basis, the unemployment rate is virtually unchanged from Q4 2023, but remains higher than what it was a year ago (3.6%). Should these broad trends persist near-term, it would present downside risk to our year-end forecast for the unemployment rate at 4.5%.
Hours Worked
The number of hours worked increased 0.9% in March, to be 1.7% higher in annual terms. The increase in hours worked was broad based with all states recoding gains: WA (2.1%), Tasmania (1.5%), Queensland (1.1%), Victoria (0.7%), NSW (0.6%) and SA (0.4%).
However, growth in hours worked over the March quarter was flat (0.0%). This continues the recent run of weak growth in hours worked, which declined 0.5% over the December quarter 2023 and fell by 0.9% in the September quarter 2023. The degree of weakness has progressively lessened between Q2 2023 and Q1 2024.
The pick-up in employment growth, coupled with weak growth in hours worked, means on average people are working less hours. We have seen falls in the average number of hours worked by both full time and part time employees.
We have also seen a significant fall in the share of part time workers who are able to pick up extra hours and move to full time status (those working 35hrs/wk or more). This has seen the share of full-time employment fall from around 70.1% a year ago to 69.1% today, and trending toward the pre pandemic average of around 68.5%. This suggests that labour demand in terms of average hours has slowed, while the growth in employment suggests that demand is resilient. One possible explanation for this apparent disconnect could be that there is a mismatch between supply and demand and the labour market is rebalancing towards areas where workers are likely to work a smaller number of hours. If we were to take the cue solely from employment, it suggests that labour market conditions could remain fairly resilient. But, if we were to take the cue from average hours, it suggests that there remains some downside risk to labour demand over the period ahead.
Potential Labour Supply
The bounce back in international students and immigrants returning to Australia when borders reopened was larger than anyone expected. As a result, the working age population grew at a record pace for most of last year. This now looks to have peaked, in the month of September 2023 when looking at the annual growth rate. Despite this, the change in the working age population continues to outpace employment. We expect this will continue to occur going forward. This is consistent with a loosening in labour market conditions – with the unemployment rate drifting higher and the employment to population ratio moving lower.
Other Labour Market Measures
Consistent with the bounce back in the number of hours worked, some other labour market indicators also improved over March.
The underemployment rate, which measures the share of employed workers who are willing and able to work more hours, ticked down to 6.5% in March. Over 2023 the underemployment rate has drifted higher in trends terms, coinciding with the slowdown in economic activity.
The underutilisation rate, which combines the unemployment and underemployment rates, remained steady at 10.3%. Consistent with the underemployment rate, the underutilisation rate has drifted higher in trends terms, from 9.5% in late 2022 to 10.3% in March 2024 (trend terms).
The youth unemployment rate, which measures the share of unemployed workers between the ages of 15 and 24, increased to 9.6 % from 9.1% last month. This was the biggest monthly increase since November 2023. The unemployment rate for this segment has trended higher since late 2022, with the participation rate also tending lower over this period. Being a highly sensitive group to changes in labour demand, this provides another signal that softness in labour demand is emerging.
Outlook
The March LFS incorporated somewhat of a ‘pay-back’ from an incredibly strong February, but on balance, it provided a slightly better read on the underlying state of labour market conditions over the opening quarter. That is predominately in relation to the results around employment, which was stronger-than-expected, and the unemployment rate, which remains little-changed on a quarter-average basis since December 2023. However, the survey did present some nuances around average hours worked, confirming that a trend easing in labour market conditions remains present.
The extent to which labour demand will continue to cool over the near-term, however, critically depends on the interplay between headcount and hours. We continue to expect most of the softening in labour demand to present via an easing in average hours worked, with prospects of material economy-wide declines in employment seeming less likely at this stage.
Ryan Wells, Economist, ph (61–2) 9178 2063
Pat Bustamante, Senior Economist, ph (61) 468 571 786
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