Australia’s labour market finished 2025 on a strong note, with the unemployment rate sliding to 4.1% in December from 4.3% in November, according to the ABS. Employment grew by over 65,000 with gains in both full-time (55,000) and part-time work (10,000).
The participation rate also rose to 66.7% despite a 30,000 person drop in unemployment. Overall underscores ongoing labour force engagement.
A key driver was strong youth hiring, which drove much of the employment increase and helped push hours worked to elevated levels. Underemployment, a measurement if slack in hours, also showed signs of easing, reflecting broad-based demand for labour.
Data has beaten expectations with the NAB having forecasted the unemployment rate to hold at 4.3 per cent with the economy adding 40,000 jobs. And economists having expected higher unemployment.
Market Implications
- RBA stance: A tighter labour market usually argues against near-term rate cuts. This along with elevated inflation reinforces the expectations that the RBA may remain cautious in the near-future.
- Consumer outlook: Lower unemployment and rising hours worked support household income underpins consumption, an key driver of growth.
- Wage watch: Continued labour market tightness could feed into wage growth, a critical input for inflation and future rate expectations.
What to watch next
- Wage data: Upcoming wage data will be key in assessing the dynamic between labour market tightness and real wage growth.
- Underemployment trends: More improvement signals more sustained labour demand.
- Participation changes: Further increases could reflect deeper labour market strength.
- Inflation: Despite a fall of 3.8% to 3.4% in inflation from October to November, keep an eye on inflation data and whether employment data is translating into broader inflation dynamics.