Surging energy and input costs and collapsing confidence in March had only a modest impact on jobs growth. Employment rose by 17.9k, the smallest increase in four months. A small decline in the participation rate to 66.8% was enough to keep the unemployment rate low and steady at 4.3%. In fact, the unemployment rate has remained within a narrow range of 4.1% to 4.3% for eight consecutive months.
March’s results need to be interpreted cautiously. The labour force survey was conducted between 1 and 14 March, meaning it captured only the early stages of the escalation in hostilities in the Middle East, alongside the response to the February rate rise. The March increase in the cash rate occurred after the survey period and is, therefore, not captured in the data, although it was widely anticipated. As a result, the labour market numbers should be read as backward‑looking at a time when economic conditions were deteriorating rapidly.
Beneath the headline result, there was a split in the composition of employment. Part time jobs fell by 34.6k, while full time employment more than unwound the losses of the previous month, rising by 52.5k.
A softening in the labour market appears inevitable, alongside a rise in the unemployment rate. Hiring decisions typically lag shifts in economic activity, so the initial adjustment is more likely to emerge through slower hiring, reduced hours worked and rising underemployment before any material increase in layoffs.
Business confidence collapsed to –29 in March, its weakest reading since the onset of COVID and the largest monthly decline since that period. By contrast, the NAB employment sub‑index rose to its highest level since mid 2024, underscoring the lag between deteriorating sentiment and changes in hiring intentions.
The experience of acute labour shortages following the COVID shock may also influence business behaviour. Firms may be reluctant to shed labour prematurely, preferring to adjust through other channels. There are already signs that businesses are conserving cash, stretching invoice payments and reassessing discretionary spending as higher fuel prices and weaker demand pressure margins. These responses point to growing caution, even as headline employment remains resilient.
We expect further tightening from the Reserve Bank (RBA) as it attempts to rein in inflation pressures that have been reinforced by higher energy costs. The combination of elevated inflation and higher interest rates will weigh on economic growth and, over time, jobs growth. The key question is not whether the labour market softens, but how quickly it does so and how much slack ultimately emerges.
During the COVID downturn, the unemployment rate rose sharply, moving from 5.0% in December 2019 to a peak of 7.4% in mid 2020. JobKeeper, introduced in March 2020 with payments commencing in April, helped contain labour market scarring at that time. No comparable policy backstop exists at present, and it is perhaps still too early to assess whether one will be required, though some early high‑frequency indicators are not encouraging.
Consistent with this more cautious outlook, a recent survey of economists, including ourselves, published by the Australian Financial Review on 6 April 2026 showed a median expectation among 38 economists for the unemployment rate to rise to 4.5% in the final quarter of this year. This sits above the RBA’s most recent forecast of 4.3% published in February. Our forecast is more pessimistic at 4.7% with risks skewed to the upside.
If unemployment were to rise to levels seen during the COVID shock, it would breach 6% and possibly approach 7% (in the absence of any government response). The depth of this economic shock and the peak in unemployment will rely heavily on the duration and intensity of the conflict, which remains highly unpredictable.
