Ahead of the ending of the JobKeeper program next week, the latest labour force data confirmed a further improvement in employment, a lower unemployment rate but a rise in the number of people underemployed.
It was good news overall that showed the economy improving from the deep 2020 recession.
In February, the number of people employed rose 89,000 which means that employment is now just a fraction below the pre-COVID-19 peak recorded in February 2020.
The news was also favourable for the unemployment rate, which fell to 5.8 per cent, down from the peak of 7.5 per cent in 2020, but this is around half a percentage point above the pre-COVID-19 rate.
This recovery in the labour market, to date, is linked to the lift in economic output in the second half of 2020 and the early months of 2021.
As the economy has opened, lockdowns ended and restrictions eased, a lot of business has resumed and people have ramped up their spending.
The extra spending on health care and infrastructure has been part of the overall economic pick-up that has required more people return to work.
This is how economic cycles always work – the labour market responds to the dynamics of the economy with job creation inextricably linked to the growth rate of the economy.
Looking ahead, there are a few obvious potholes that may slow down the recovery in the economy and the labour market.
The most obvious is the ending of the JobKeeper payment at the end of March. Payments to employers will end, who will be under no obligation to retain staff after the wage subsidy ends.
Indeed, for those in the sectors of the economy still under downside pressure – universities, the arts and hospitalities and international tourism by way of example - it is likely that employment will fall and the unemployment rate will rise when the labour force data for April and the few months after that are released.
It is likely that around 100,000 people will go from receiving JobKeeper to unemployment in the next few months.
In addition to the obvious human cost, it will mean those people will not have the income to spend in the economy. Retail sales are likely to be weaker as a result.
This broader economic downside will be exacerbated by the $100 a fortnight reduction in the JobSeeker payment to those unemployed, even allowing for the increase that the government has provided for in reaction to what was a pitifully low level of unemployment benefits prior to the COVID-19 outbreak.
In the June quarter, household income growth risks falling because of these cuts.
For the moment, the downside risks are likely to be contained, but that assessment assumes the other parts of the economy and global events remain broadly positive in terms of their influence on the Australian economy.
Australia is still vulnerable to a further escalation of the trade dispute with China.
The global economy remains vulnerable to weakness as COVID-19 continues to spread through much of the world.
International borders are set to remain closed for a considerable period of time, which will act as a constraint on the local tourism and education sectors.
There is also a growing risk that the regulators will impose tighter lending rules in the wake of the recent lift in house prices, a move that could derail an important source of wealth creation for the household sector.
All of which suggest the good news on the economy and the labour market may be about to pause.
It is to be hoped this is a temporary pause rather than the start of a concerning trend. The data for the labour market have, to date, been encouraging.