Making sense of Australia’s messy January labour force data

The unemployment rate spiked to 4.1% in January, suggesting the nascent deterioration in the labour market was gathering momentum. However, a good deal of the increase in unemployment in the month appears to be driven by changing seasonal patterns in job attachment.

• The January labour force data raised some concerns that the labour market is slackening at a faster pace than we had anticipated, with the unemployment rate spiking to 4.1%. However, much of the increase in unemployment appears to be attributable to a sharp increase in workers that are attached to a job but waiting to start work.
  
• Accounting for workers who are waiting to start a new job in the next month, we find labour market conditions were little changed in January. If the increase in workers waiting to start work was more in line with the pre-pandemic average, the unemployment rate would have remained at 3.9% and employment would have increased by a strong 95,000.
  
• We still expect a deterioration in labour market conditions as the real economy slows over the first half of this year. But the process is not as far progressed as the headline labour market indicators suggested in January.