Latest data challenge RBA’s notion that labour market has tightened
Australia’s labour market held steady in March, but Westpac is warning that the real impact of the Middle East conflict and higher interest rates is yet to show up in the jobs data – and could force the (Reserve Bank of Australia (RBA) into a sharper tightening cycle than many borrowers are prepared for.
The seasonally adjusted unemployment rate remained at 4.3% in March, unchanged from February and in line with market expectations. That headline masks some nuance: the number of unemployed people actually fell by 3,700 to 656,300, while employment rose by 17,900 to 14.77 million – a softer result than the 20,000 jobs gain economists had expected and the weakest monthly outcome since last November.
The quality of jobs growth was mixed. Full-time employment jumped by 52,500 to 10.17 million, while part-time employment fell by 34,600 to 4.59 million. Part-time job seekers declined slightly, down 3,800 to 217,500, and those looking for full-time work edged up to 438,800.
The participation rate slipped from 66.9% to 66.8%, underemployment held at 5.9%, and total monthly hours worked lifted by 9 million to 2,016 million.
Westpac: ‘starting point’ before Middle East shock hits
Westpac economist Ryan Wells notes the March Labour Force Survey, taken between March 1 and 14, is the first major “hard” data release since the escalation of conflict in the Middle East, but argues it is still too early for the shock to be visible in labour market outcomes.
Instead, Wells sees March as a snapshot of the starting point before higher fuel costs, shipping disruption and rate hikes fully filter through the economy.
Employment growth trends had actually turned more positive going into the conflict, with annual jobs growth on a three‑month average basis rising from a trough of 1% in January to 1.5% in March, reflecting last year’s recovery in domestic demand and broader hiring across consumer and business-facing sectors.
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"This does challenge the RBA’s assessment that 'the labour market has tightened a little recently' – it now looks much clearer that lower unemployment rates around the turn of the year were a result of temporarily weaker participation, not a sustained re-tightening," says Wells.
Inflation, RBA hikes and a lagging labour market
Westpac’s baseline scenario assumes an eight‑week closure of the Strait of Hormuz, pushing trimmed mean inflation to around 4% in the second half of 2026 as higher fuel and oil‑derived input costs ripple through the economy.
In that environment, the bank expects the RBA to deliver three further 25‑basis‑point hikes – in May, June and August – to lean against rising inflation expectations.
For the jobs market, Westpac sees the bulk of the softening landing in the second half of the year, with unemployment lifting to around 4.9% on a quarterly basis and remaining near that level through 2027. The adjustment is expected to come more through slower hiring and reduced hours than large-scale layoffs, with industries exposed to fuel costs – including manufacturing, construction, transport and tourism – likely to feel the pinch first.
Read more: Oil shock could force rates higher, says RBA deputy governor
For brokers and lenders, that combination of higher rates, sticky inflation and a gradually weakening labour market points to a tougher environment for highly leveraged borrowers and a renewed focus on serviceability buffers as the RBA keeps growth–inflation trade‑offs firmly in its sights.
