Australia’s unemployment rate climbs to a two-year high of 4.1pc in January

The unemployment rate rose more than expected to a two-year high in January, with the number of people out of work now 15 per cent more than a year ago.

The unemployment rate lifted to a two-year high after more than 22,000 Australians lost their jobs in January, amid a broader weakening in economic activity stemming from higher interest rates and inflation.

The Australian Bureau of Statistics reported that once seasonally adjusted, the unemployment rate increased from 3.9 per cent in December to 4.1 per cent in January — the first time since January 2022 that the reading was above 4 per cent.

Economists had anticipated unemployment climbing to 4 per cent.

The key jobless measure had been tracking in the mid-3s for about a year, but now appears to be pushing higher – albeit with the rise driven more by strong immigration growth easing labour market pressures, rather than employers sacking workers.

The data showed that the number of unemployed people climbed 22,000 in the month to 600,600 nationally — an increase of 14.9 per cent for the year to January, and it follows a 65,000 increase in the month prior. January saw just 500 jobs added in the month, compared to a gain of 25,000 markets had expected.

ABS head of labour statistics Bjorn Jarvis said the larger than expected increase in unemployment could be seasonal factors driven by the summer holiday period.

“While there were more unemployed people in January, there were also more unemployed people who were expecting to start a job in the next four weeks. This may be an indication of a changing seasonal dynamic within the labour market, around when people start working after the summer holiday period,” Mr Jarvis said.

“In January 2022, 2023 and 2024, around 5 per cent of people who were not employed were attached to a job, compared with around 4 per cent in the January surveys prior to the Covid-19 pandemic.”

KPMG chief economist Dr Brendan Rynne said that over the past three months, the average employment growth dropped to only 3,400, which was much softer than the momentum seen during 2023 as a whole.

“This provides further evidence that the slowing economy continues to impact the labour market, with more signs of loosening in employment growth and spare capacity,” he said.

“While most indicators continue to point to a tight labour market compared to pre-Covid, we expect that strong labour supply via migration, amid slowing demand, will push the unemployment rate higher.

The Reserve Bank said after it opted to keep rates at 4.35 per cent this month, that conditions in the labour market continued to ease gradually, although tighter than is consistent with sustained full employment and inflation at target.

The central bank has forecasted that the unemployment rate will be 4.2 per cent by June and 4.3 per cent by the end of the year. Dr Rynne said that unemployment will rise to a more natural level of 4.5 per cent over the next six months and potentially into the 5’s early next year.

It comes as all four major banks – and most economists – agree that the RBA is done lifting interest rates and will look to lower the cash rate in the back half of 2024.

Underemployment — which measures the share of workers who are trying to get more hours but are unable to — was up 0.1 per cent to 6.6 per cent, according to the ABS’s seasonally adjusted figures, higher than a year earlier but below pre-pandemic levels of above 8 per cent.

Tasmania had the higher unemployment rate in the country at 4.5 per cent, followed by the ACT at 4.3 per cent and 4.2 per cent both in Queensland and WA.