Q1 Labour Account: seasonal wrinkle?
The labour market was on a firmer footing before the Middle East conflict and interest rate rises started to impact. Changes in seasonal leave-taking behaviour also reinforce the need to assess the broader context and underlying trends when it comes to productivity and unit labour costs.
For more charts and industry comparisons: Westpac Chart Pack – Q1 Labour Account
- The Q1 Labour Account showed that jobs growth was moving on to a more solid footing before the Middle East conflict and recent interest rate rises started to impact. The +99k increase in filled jobs lifted the annual pace to 1.9%yr, back around the long-run average.
- The pick-up in jobs growth was being largely driven by the market sector, spilling over from consumer-facing services industries into other parts of the economy, most notably business services.
- These trends will be challenged by the aforementioned emerging headwinds. Experiences will vary across industries – those more exposed to the fuel shock likely to show weakness more quickly, such as the manufacturing, construction, transport/logistics and travel/tourism sectors.
- The Labour Account also confirmed that workers took less leave than usual during the start of the year, resulting in an increase in hours actually worked well in excess of hours paid. This muddies the read on productivity and unit labour costs in the quarter, reinforcing the need to assess the broader context and underlying trends.
Overview
The Q1 Labour Account showed that jobs growth was moving onto a more solid footing before the Middle East conflict and recent interest rate rises started to impact. After jobs growth hit a low over the first half of 2025, the number of filled jobs increased by +162k in the second half of the year, before lifting a further +99k in Q1. This saw jobs growth jump from 1.1%yr in Q4 to 1.9% in Q1, back around the long-run average dating back to the mid-1990s.
As is typically the case, jobs growth in the quarter was almost entirely confined to ‘main jobs’, which rose +93k (0.6%) in Q1. Growth in ‘secondary jobs’ tends to be a bit more volatile, but in the latest quarter, it was almost proportionally identical, up +7k (0.6%). Given this relative stability, the multiple job holder share once again remained stable at 6½%, a bit lower than the 6.7% peak in 2023 but still well above the pre-pandemic average of 5.7%.
This pick-up in jobs growth was largely driven by the market sector, following on from the recovery in economic growth over last year. As this recovery was maturing into the early part of 2026, jobs growth was starting to spill over from consumer-facing services industries into other parts of the economy, including goods production (mostly construction), goods distribution (mostly transport and logistics), but especially across a wide range of business services sectors.
Jobs growth in the non-market sector played a significant role during 2022-24 before slowing down over 2025, most of which was driven by health care and social assistance services. More recently, non-market sector jobs growth has started to pick-up, but this largely reflects a weaker base of comparison (weaker jobs growth in early 2026) combined with a stronger showing from the education and training sector – jobs growth in health care remains largely stagnant after the monumental hiring effort from recent years.
However, these trends will be challenged by the turn in the economic conditions taking place as a result of rising interest rates and the Middle East energy shock. We expect the bulk of the labour market softening to arise in the second half of this year, once these forces have had more time to reverberate throughout the wider economy. Experiences will also vary across industries – those more exposed to the fuel shock likely to show weakness more quickly, such as manufacturing, construction, transport/logistics and travel/tourism.
Productivity and Unit Labour Costs
One of the more eye-catching results from the Q1 National Accounts was the decline in labour productivity, measured as GDP per hour worked. With GDP expanding by only 0.3%, but hours worked lifting by 0.9%, labour productivity fell –0.6% in Q1, pulling the annual pace down to a meagre 0.3%yr. This is an important consideration when we start to think about underlying cost pressures across the broader economy.
Admittedly, this is an area that becomes quickly overloaded by economist jargon, but the bottom-line is that, all else being equal, weaker productivity over a longer period of time is usually associated with a higher cost base for the economy. Put simply, if workers produce less GDP per hour (i.e. weaker labour productivity) and are paid roughly the same per hour worked (i.e. steady average earnings), then the cost of labour per unit of GDP is higher (i.e. rising unit labour costs).
The ‘wrinkle’ this time around is that while labour productivity took a step back in Q1, so did average earnings per hour. These two effects offset each other, meaning growth in unit labour costs was broadly steady. As noted by Chief Economist Luci Ellis earlier today, the reason why average earnings per hour surprised to the downside was that there was an unusual contrast between hours actually worked and hours paid.
The main ‘wedge’ between hours worked and hours paid is the amount of paid leave taken. But since patterns in leave-taking behaviour are usually stable over time, there is little difference in growth rates between the two series once both are seasonally adjusted. In the most recent quarter however, there was surprisingly less paid leave being taken by workers – the number of hours paid grew by 0.6%, but a larger proportion of those hours were actually worked, hence the larger 0.9% rise in hours worked.
This serves as a reminder that we should avoid overegging quarterly statistics on productivity and unit labour costs. There can be significant noise and residual seasonalities in any one component, which can become greatly exacerbated once combined into ratios. It is more important to focus on the underlying trend, which we elaborated on in our Q1 National Accounts write-up. In short, productivity growth lags during investment-intensive phases of the economic cycle, as resources go toward building infrastructure such as roads, airports, the energy grid or data centres. As we saw in the mining boom, it is only once this infrastructure is operational that we will start to bear the fruits of stronger productivity growth..
Industry Insights
The main theme in the industry detail was the broadening pulse in market sector jobs growth beyond just consumer-facing services industries. This was most clearly on display in the business services segment, which was responsible for the lion’s share of market sector jobs growth in the quarter. Across the constituent industries: professional, scientific and technical services recorded a back-to-back gain (+12.4k), financial and insurance services bounced back from a modest fall (+5.7k), administrative and support services posted its largest gain since the pandemic (+13.8k), rental, hiring and real estate services continues to trend higher (+3.9k) while information media and telecommunications was flat.
On the goods production side of the economy, jobs growth continues to be dominated by construction, up a further 10k to hold around a solid 3.8%yr pace, with gains concentrated in heavy and civil engineering and its associated construction services, coinciding with the uplift in building activity across various segments of the economy. The much smaller industry of electricity, gas, water and waste services posted its eighth consecutive quarter of jobs growth, aided mostly by electricity supply which will remain a structural support for the foreseeable future. It was encouraging to see manufacturing post its first quarter of jobs growth since mid-2024, but this may well prove to be fleeting given the acute exposure to fuel cost pressures stemming from the Middle East conflict.
Market sector industries that are services-oriented and more directly exposed to the recovery in consumer spending were performing well last year, but momentum has recently started to wane. Under the surface, accommodation and food services posted its first decline in a year (–7.1k) but this was offset by stronger growth in other services (+5.6k) and arts and recreation (+1.4k). The risk is that jobs growth in these industries continues to slow as the shock from high inflation and higher interest rates continues to weigh on real household disposable incomes. For those industries that are more goods-oriented, results were more encouraging. Retail trade reversed last quarter’s decline with a +6.1k bounce in jobs growth, and wholesale trade managed to expand headcount for the first time since 2024, with a solid +6.4k gain in Q1.
Jobs growth in health care and social assistance, the largest employer in Australia which represents around 16% of all jobs, continues to normalise. After the monumental hiring effort over 2022-24, jobs growth slowed drastically over 2025 and has held steady near this trough in early 2026, up +5.9k (1.2%yr) in Q1. Given a large portion of the jobs growth in this industry over recent years was driven by disability assistance services tied to the NDIS, the Government’s plans to clamp down on cost growth in the program means that future cycles in jobs growth may not be as large as in 2022-24. This will have implications for the wider labour market, given how large of an employer the industry is. Across the rest of the non-market sector, momentum has been mixed. The main positive has been education and training, which posted its largest increase in filled jobs since 2024 (+20.9k). However, jobs in public administration and safety fell by around –0.6k, after a solid hiring effort over 2025.
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