Jobs market in focus as economic priorities shift

The Reserve Bank of Australia is forecasting a jobless rate of 4.2 per cent in the middle of the year and 4.3 per cent by the end of 2024.

RBC Sydney economists Su-Lin Ong and Robert Thompson said they expected the labour market to weaken more quickly than the RBA.

"The softer underlying trend is unlikely to change," Ms Ong and Mr Thompson said.

In January, employment numbers also fell short of expectations, with just 500 jobs added to the economy over the month.

While still low by historical standards, the labour market has been exceptionally tight throughout the pandemic recovery with the jobless rate below four per cent for almost two years.

Labour markets are becoming an increasingly important factor in the Reserve Bank's interest rate decisions, the RBC economists said.

"The trade-off between the RBA's two key objectives – two-three per cent inflation and sustained full employment – is clearly a judgement call which likely changes depending on where we are in the economic and policy cycle," they said.

"A shift may be underway as inflation continues to make progress towards target while the labour market weakens across multiple metrics and perhaps faster than the RBA's base case."

Westpac economists said evolving holiday dynamics would set the scene for another "murky" reading in February, with the usual timing of returning to work after the summer break or starting a new job seemingly in flux.

Still, the bank's economic team expect an employment bounce back of 40,000 jobs in February.

They predicted the participation rate holding at 66.8 per cent, resulting in the unemployment rate rounding down to four per cent. 

"Extrapolating from that volatility, the underlying softening that emerged over the second half of last year will broaden over this year," the bank's economists wrote in a note.