Labour market conditions in Australia strengthened sharply in February, with employment recording its biggest increase since 2021, the unemployment rate dropping to a five-month low and the participation rate increasing slightly. This strength in labour market conditions will likely reinforce concerns about the inflation outlook among officials at the Reserve Bank of Australia and reduce the chances of any easing in policy in the near-term.

The number of employed persons in Australia surged in February, increasing by 116,500 persons after a revised increase of 15,200 persons in January. The consensus forecast was for a much smaller increase of 30,000 persons. Full-time employment increased by 78,200 persons after a previous increase of 19,900 persons, while part-time employment rose by 38,300 persons after dropping by 4,600 persons previously. Hours worked rose sharply, up 2.8 percent on the month after dropping 2.5 percent previously.

Today's data also show the unemployment rate fell from 4.1 percent in January, its highest level in two years, to 3.7 percent in February. The participation rate rose from 66.6 percent to 66.7 percent, remaining close to record highs.

Officials noted today that the big increase in employment recorded in February partly was driven by an unusually large number of people starting a new job after they had reported in December and January that they were not currently employed. Officials note that the number of people waiting to start a new job early in the year has increased sharply since before the Covid-19 pandemic, indicating that there has been a shift in seasonal patterns.

At a consensus rise of 32,000, employment in February is expected to climb versus January's virtually flat increase of 500. Unemployment is expected to edge lower to 4.0 percent from 4.1 percent with the participation rate expected to hold steady at 66.8 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.