Australia’s unemployment rate fell to a seasonally-adjusted 4.1 per cent in December as 65,000 new jobs delivered the lowest jobless figure in seven months. The result dipped from 4.3 per cent in November, trending against market expectations of a climb.

“This is a surprise, but a welcome one,” said Managing Director of Talent Solutions at Employment Hero David Holland. “These figures confirm the labour market is finally delivering after months of doom and gloom. However, beneath the improvement, recovery is still fragile in the near-term for SMEs.”

Market Economics Managing Director Stephen Koukoulas was among many economists expecting the labour market would remain ‘soggy’ after four months of minimum job creation. “It’s a way better sign of the labour market than anybody was expecting, so, good news from that perspective,” he said.

Youth Roles and Full-time Jobs Drive Trend

Significantly, among the 65,000 new jobs the ABS recorded, 55,000 were full-time positions. Underemployment eased 0.5 per cent to 5.7 per cent, and the underutilisation rate was also lower, falling to 9.8 per cent in December, down 0.7 percentage points.

ABS head of labour statistics Sean Crick noted younger Australians were a major driver of the uptick: “This month we saw more 15-24-year-olds moving into employment, contributing to the rise in overall employment and the fall in the unemployment rate.”

Data Reveals Pressure Sitting In The Details

But while the national headcount rose, an analysis of 300,000 Australian small and medium businesses revealed a more fragile picture for the sector.

“Employment Hero data reveals how SMEs are faring and while we saw a healthy annual employment growth of 6.5 per cent – six times higher than what ABS reported – momentum is weakening,” Holland explained. “Employment [in SMEs] decreased 0.2 per cent from November and hours were down massively, across all timeframes tracked: monthly, quarterly and annually.”

There was also a ‘youth paradox’ at play; while the ABS reported more young people in jobs, Employment Hero data showed some were struggling. “Younger Australians were hit hardest in December, with under-35s seeing softer wages and fewer shifts at a time of year when we typically see a lift, especially in retail and hospitality.”

Koukoulas noted annual employment growth was sitting at 1.1 per cent, the second-weakest result since the pandemic and below the 20-year average of 1.7 per cent.

Jobless Rate Fall Could Bring Interest Rate Rise

This positive news for the labour market may have one negative consequence for business owners who’d hoped 2026 would bring interest rate cuts and ease mortgage and loan repayments. 

“With inflation above the target band this is the kind of outcome that could mean a rate hike,” Holland warned. “The economy might be slowing, but the jobs market is turning a corner.”

Before today, only two of the four big banks – CBA and NAB – had forecast an interest rate rise in 2026. But the probability of an increase immediately rose in the wake of today’s announcement.

The Reserve Board will consider the labour force figures and next week’s inflation data when it meets to decide interest rates on February 3.