Australian labour market entering 2026 on 'steadier footing', says Deloitte

An improvement in market sector hiring is a positive sign for the Australian labour market, but higher interest rates, economic uncertainty, and a widening divide across occupations could affect hiring decisions over the year, according to the latest employment forecasts report by Deloitte Access Economics.

Deloitte Access Economics partner and lead report author, David Rumbens, said after nearly a year of weak hiring, employment has stabilised, with 86,400 Australians finding work across December and January.

Rumbens said while this has helped steady the labour market, the pace of growth remains modest, with annual employment growth of just 1 per cent in the year to January 2026. This is well below the 2.4 per cent average recorded in the three years prior.

“The unemployment rate has settled around 4.1 per cent, still well below the pre-pandemic average of 5.2 per cent. But the drivers of employment growth are changing. The post-COVID hiring surge in health care, education and public administration has eased as tighter government budgets curtail public sector hiring," said Rumbens.

Rumbens said while recent indicators pointing to improvement in private sector hiring were encouraging, the outlook remained uncertain.

"With interest rates back on the rise, elevated borrowing costs and subdued demand will weigh on hiring decisions," he said.

Deloitte Access Economics is forecasting employment growth to slow from 1.8 per cent in the 2025 calendar year to 1.1 per cent in 2026, before lifting slightly to 1.4 per cent in 2027 as net overseas migration slows.

The report outlined a clear divergence in employment growth across broad occupation groupings.

According to its forecast, Deloitte Access Economics expected employment growth to be strongest among community and personal service workers, professionals and labourers.

Employment among managers, clerical and administrative workers, and sales workers was expected to remain broadly flat.

Rumbens said this pattern reflected "deeper structural changes in the labour market".

"Roles involving routine tasks are weakening, while demand for trades, physical roles and human-centred services continues to expand," he said.

"Professional occupations sit in the middle, where AI is likely augmenting rather than replacing work for now."

Deloitte said understanding the impact of AI on employment remained a key challenge for policymakers and businesses.

“Early US evidence suggests junior employment levels have declined in firms that are bigger adopters of AI," said Rumbens.

"Australia is likely one to two years behind this frontier, but the scale of investment in AI suggests labour market impacts – both disruptive and augmentative – may soon emerge."

At the moment, Rumbens said firms were focused on improving AI fluency rather than redesigning jobs around AI.

"Once organisations restructure workflows to integrate AI more fully, the effects on employment will become clearer."