A few weeks ago the Federal government admitted that its obsessive pursuit of a budget surplus in the coming year at a time when private spending is still relatively weak was doomed. The slowing Australian economy had undermined its tax base as was always going to happen. The problem is that in trying to impose fiscal austerity the economy has suffered and the labour market is not producing enough jobs to even match the underlying population growth. Today’s release by the Australian Bureau of Statistics (ABS) of the Labour Force data for December 2012 reveals that all the evils on the demand and supply side of the labour were aligned – total employment fell, full-time employment fell, unemployment rose, participation eased and working hours fell. It is certain that underemployment rose given the drop in working hours. In other words, the data is unambiguously bad. The unemployment rate rose to 5.4 per cent. The data is not consistent with any notions that the Australian labour market is booming or close to full employment. The most continuing feature that should warrant immediate policy concern is the appalling state of the youth labour market. My assessment of today’s results – a failing economy with further weakness to come. The Government should wake up to itself and even if only motivated by the federal election later this year it should reverse the direction of fiscal policy and introduce some direct job creation by way of employment-targetted stimulus.