Unemployment rate falls back to 3.5 per cent as Australia's population surges above 26 million

Employment bounced higher last month as the economy added a net 64,600 jobs and the participation rate edged higher, causing the jobless rate to fall back down to 3.5 per cent and stoking expectations of an April interest rate hike.

The result, which exceeded market expectations of a 50,000 increase in employment, underlines the ongoing strength of the labour market despite the pressure on the economy from a succession of interest rate hikes and high inflation.

The Australian Bureau of Statistics said the result reflected a "higher than usual" number of people moving into employment in February, particularly in the ACT, NSW and Victoria.

Treasurer Jim Chalmers hailed the drop in unemployment as a "truly remarkable outcome" and Employment Minister Tony Burke said the result showed the strength of the economy.

The employment update came as separate ABS data showed Australia's population grew by 1.6 per cent (418,500 people) in the 12 months to September to reach 26.1 million.

The expansion was driven primarily by a jump in overseas arrivals. An extra 303,700 people were added as a result of net overseas migration as arrivals reached almost 537,000 - similar to pre-pandemic levels - while there were just 233,200 departures.

The influx of new arrivals and a small lift in the participation rate to 66.6 per cent indicates the country's labour supply is expanding. The federal government has also devoted extra resources to help clear a backlog in visa approvals.

This expansion is expected to help contain wage pressures.

The Reserve Bank of Australia has flagged that it is alert to the possibility of a damaging wage-price spiral emerging, though it has so far been reassured by the moderate pace of wage gains and Mr Burke dismissed such concerns.

"I can tell you why I'm not worried about a wage-price spiral," he said. "A wage-price spiral is driven by high wages growth. Australia does not have high wages growth."

Mr Burke said low unemployment was "not irrelevant" to wage growth but "on its own a low unemployment figure doesn't do the job".

The minister said the government's industrial relations reforms were supporting pay increases and it was looking to close loopholes "to make sure that improvement in pay doesn't get undercut through bad actors".

Reflecting the surge in new entrants to the labour force, the hours worked surged 3.9 per cent to 1917 million.

The ratio of employment to population rose 0.2 percentage points to 68.6 per cent - not far short of the recent high of 68.9 per cent reached in November.

Overall, the economy added 74,900 full-time jobs and lost 10,300 part-time positions. An extra 401,800 have been created since February 2022.

The ranks of the unemployed shrank by 16,500 people and there are now 51,600 fewer people without a job than there were a year ago.

The strength of labour demand highlighted by the figures may cause the Reserve Bank of Australia to consider whether more rate hikes are needed to tame inflation.

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Market expectations of more RBA rate hikes have bounced around in recent days as investors have tried to assess the risk of global financial upheaval following the failure of Silicon Valley Bank and Signature Bank in the US and concerns about Credit-Suisse and evidence that inflation in the US has remained stubbornly high.

But ANZ economist Adelaide Timbrell said the strength of labour market and the fact that inflation remained "too high" meant further monetary policy tightening will be required. ANZ economists tip two more rate hikes to take the official cash rate to 4.1 per cent.

Commonwealth Bank economist Belinda Allen, however, thinks the current volatility in global markets will weigh on the Reserve Bank's deliberations, even as it considers the ongoing strength of employment.

"Together it suggests the April RBA Board meeting remains live," she said.

Equities analyst at online investment platform Stake, Dylan Zhang, said the chances of a rate hike pause next month were "high".

"The collapse of SVB and Signature Bank in the US, and the ongoing crisis with Credit Suisse in Europe, means the global economy looks shaky," Mr Zhang said. "The RBA will remain committed to cooling inflation but global issues mean concern is rapidly shifting to focus on the overall health of the economy, rather than inflation alone".

RBA governor Philip Lowe has said the central bank is trying to navigate the economy along a narrow path to reduce inflation while limiting the damage to the labour market.

But the RBA thinks the unemployment rate will need to be higher if the forces of supply and demand in the economy are to move into balance.

It expects the unemployment rate will gradually increase as economic activity slows, forecasting it to reach 4.4 per cent by mid-2025.