The February labour force data suggest the job market remains resilient, but the nature of employment growth is changing. The strength in employment was concentrated in parttime roles, while fulltime employment declined. This perhaps points to a more cautious approach by employers, with labour demand being met through more flexible arrangements rather than an expansion in fulltime headcount.
Employment spiked 48,900 in February, well above market expectations for an outcome of 20,000. Part-time jobs jumped 79,400, the biggest monthly gain in more than 4 years. Full-time jobs contracted by 30,500.
Despite the outsized gain in the month, the unemployment rate rose from 4.1% in January to 4.3% in February. This rate of unemployment is still within recent ranges. Indeed, since January 2025, the unemployment rate has stayed within a range of 4.1% to 4.3%, veering out of this range only once in September 2025.
Higher participation has added to labour supply and contributed to the increase in the unemployment rate, even as employment continued to grow. The participation rate rose by 0.2 percentage points to a 4-month high of 66.9%. This suggests that labourmarket adjustment is increasingly occurring through higher unemployment rather than weaker hiring.
The Reserve Bank (RBA) raised the cash rate in February amid rising inflation pressures. The rise in the costofliving pressures may have encouraged some Australians to remain in, or reenter, the labour force, including through parttime or additional work.
For the RBA, the combination of rising participation and a gradual lift in unemployment points to some easing in labour market conditions. However, this easing is unlikely to materially offset the inflation challenge in the near term. Inflation was already too high before the hostilities in the Middle East. The significant disruption to the supply of oil, fertiliser and chemicals means inflation is likely to push higher in the near term.
Looking ahead, the outlook for employment has softened. Higher interest rates, rising input costs and pressure on household incomes are likely to weigh on business conditions and hiring intentions. While some sectors are likely to remain more resilient, particularly less energy intensive services, industries that are more exposed to discretionary spending and energy costs are likely to see employment growth slow more sharply. As economic momentum weakness through the year, we expect unemployment to move above 4.5% and above the RBA’s current forecasts. Before the Middle East conflict began, we were expecting a lower unemployment rate. But the hit to growth means unemployment is likely to move higher.
How high unemployment rises will partly depend on the duration of the conflict in the Middle East. A hit to economic growth can no longer be avoided, as we enter the fourth week and as the International Energy Agency warns it will take at least six months for oil supply to recover in the Gulf.
