Australian labour market data for December released today showed a sharp and unexpected decline in employment, a steady unemployment rate, and lower participation. The fall in employment in December, however, follows unusually strong increases in the two previous months, with officials noting that employment still increased over the last three months of the year but in a seasonal pattern that differed from previous years. This suggests that underlying labour market conditions remain solid and that the focus of Reserve Bank of Australia officials will remain on upside risks to the inflation outlook.

The number of employed persons in Australia fell by 65,100 persons in December after increasing by 61,500 persons in November. The consensus forecast, in contrast, was for an increase of 15,500 persons. Full-time employment fell by 106,600 persons after a previous increase of 57,000 persons, while part-time employment rose by 41,400 persons after increasing by 4,500 persons previously. Hours worked fell 0.2 percent on the month after dropping 0.1 percent previously.

Today's data also show the unemployment rate was unchanged at 3.9 percent in December. The participation rate fell from a record high of 67.2 percent in November to 66.8 percent in December.

At a 15,500 consensus, employment growth in December is expected to slow sharply from November's higher-than-expected 61,500 increase. Unemployment is expected to hold at 3.9 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.