Australia’s December labour force report is expected to show a rebound in employment after a surprisingly weak November, but the broader picture remains one of a labour market that is gradually cooling rather than sharply deteriorating.
Economists at Westpac note that employment fell by 21.3k in November, extending a run of softer outcomes in recent months. On a three-month average basis, employment growth is now tracking at around 1.4% year-on-year, a pace that is clearly below Australia’s long-run average and consistent with a slowing labour market. That said, Westpac cautions against over-interpreting a single month’s result, particularly given increasingly volatile data since the pandemic as changes in leave-taking behaviour continue to complicate seasonal adjustment.
Importantly, November’s employment decline was not accompanied by a rise in unemployment. Instead, the unemployment level fell modestly, as the participation rate dropped to 66.7%. This fall in participation effectively cushioned the unemployment rate, which held steady at 4.3%. However, Westpac highlights that on a three-month average basis the unemployment rate is clearly trending higher, now sitting around 4.4% compared with 4.1% six months earlier.
Looking ahead to December, Westpac expects a modest bounceback, forecasting employment growth of around 40k. With participation expected to recover slightly to 66.8%, this would see the unemployment rate round up to 4.4%, marking roughly a 0.4 percentage point increase over the past year and reinforcing the narrative of gradual softening rather than abrupt weakness.
A similar rebound story underpins the outlook from Commonwealth Bank of Australia, although with a slightly more optimistic tone. CBA also points to November’s choppy result, which saw employment fall by 27.5k and participation decline by 0.2 percentage points. Drawing on historical patterns, the bank notes that when both employment and participation fall materially in the same month, there is a high probability of a rebound in the following survey. On that basis, CBA forecasts employment to rise by around 35k in December, with participation lifting to 66.8% and the unemployment rate remaining unchanged at 4.3% to end 2025.
Beyond the near-term volatility, CBA remains constructive on the labour market outlook. The bank points to internal indicators suggesting more consistent monthly employment gains ahead, alongside improving economic growth and rising utilisation measures. Together, these signals are seen as supportive of sustained employment growth through 2026, even as the pace of expansion remains more moderate than in the post-pandemic boom.
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In markets, a broadly in-line or modestly stronger December labour force outcome would be unlikely to generate a major reaction, but the balance of risks still leans toward a slightly firmer AUD if employment rebounds as expected. A solid headline jobs gain and a recovery in participation would reinforce the view that the labour market is cooling only gradually, keeping the Reserve Bank of Australia cautious. That backdrop would tend to support the Australian dollar at the margin, particularly against low-yielding peers, though any upside is likely to be capped by the steady rise in the unemployment trend and the absence of renewed wage pressure. For equities, the ASX would likely take a resilient labour print in stride: stronger employment supports the domestic growth outlook and consumer confidence, but also nudges, at the margin, closer to rate hikes (not in prospect at the moment though)
