Australian labour market data for December released today showed a fall in headline employment and hours worked, steady unemployment, and a small fall in participation. Officials noted that the data were again impacted by a bigger-than-usual number of people working reduced hours due to illness.

The number of employed persons in Australia fell by 14,600 persons in December after an increase of 64,000 in November, well below the consensus forecast for an increase of 20,000. Full-time employment rose at a slower pace, up 17,600 persons after a previous increase of 34,300 persons, while there was a fall of 32,200 persons in part-time employment after a previous increase of 29,800 persons. Work hours fell 0.5 percent on the month for the second month in a row.

Today's data show the unemployment rate was unchanged at 3.5 percent in December, just above the consensus forecast of 3.4 percent, while the participation rate fell from its record high level of 66.8 percent to 66.6 percent. RBA officials expect tightness in the labour market to persist in coming months, and this strength in labour market conditions will likely reinforce their view that further rate increases will be required over this period.

Employment is expected to continue to rise in December, at an estimated 20,000 versus 64,000 in November which was much stronger than expected. The unemployment rate is expected to hold steady at 3.4 percent.

The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labour force.

This report is used as an indicator of the health of the domestic economy. Employment trends highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.

The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.

The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.