ABS 6202.0 - Labour Force, Australia, August 2013: Jobless rate rises to four-year-high of 5.8%; Unemployment rate climbs to post-global financial crisis high of 5.8%, in line with forecasts
There is no excuse for rising underemployment with inflation so benign. A huge failing by the previous government, and proof the federal deficit is too low. We really need a strong housing cycle.
What do you think about IRs? Are private debt levels so high that we will need to rely on government debt from here on in? Given the level of rhetoric about budget surpluses and government debt during the campaign I wouldn't be holding my breath waiting for bigger government deficits.
What do you think about IRs? Are private debt levels so high that we will need to rely on government debt from here on in? Given the level of rhetoric about budget surpluses and government debt during the campaign I wouldn't be holding my breath waiting for bigger government deficits.
I think the LNP are smart enough to know austerity would be a disaster. But in the same breath, I think they will not run sufficient deficits (a bit like the USA). This will give us a muddle through scenario. No recession, but nothing great either.
The upside scenario is a very strong construction cycle from low interest rtes.
RBA Governor Glenn Stevens is probably looking at the recent economic news in a Lara Bingle kind of way – ‘where the bloody hell are we?’
This week there has been some schizophrenic news with solid gains in business confidence and consumer sentiment, yet a second straight month of falling employment with the unemployment rate hitting a new four-year high of 5.8 per cent. This follows recent news of a solid, albeit slightly below trend, growth pace for GDP and ongoing low inflation.
It pays to remember a couple of vital things when looking at divergent economic news. It is never the case that every indicator is pointing in the same direction and with the same momentum. Even in the strongest upswing or deepest downturn, there are often a few ups that are accompanied by a few downs. Some of the ups will be strongly positive and some will be less robust. It is the way economies normally perform.
What is also critical to recall is the difference between leading and lagging indicators for the economy.
Leading indicators are those which usually turn a little before or ahead of the general business cycle. Share prices, bond yields, housing and even consumer sentiment often (but not always) turn before the whole economy adjusts and then move in the same direction. Lagging indicators are so named because they do not change their direction or momentum until many months after the business cycle has turned. The two most important lagging indicators are employment and inflation which only pick up after the pace of economic growth has accelerated and vice versa.
Yet it is employment and the rate of inflation that attract a lot of the attention each month or quarter. Yesterday’s jobs report was no different.
The RBA’s Stevens will be delighted that the leading indicators remain solidly positive and will not be concerned that the lagging indicators remaining soft.
Importantly, there is a quite massive wealth effect unfolding for consumers with house pricing rising at a solid pace and the stock market hitting fresh five-year highs. The value of the ASX and house prices has increased by over $700 billion in the last 18 months or so. That is a lot of wealth that has been generated. Add to that a clear uptrend in housing construction and the lift in the animal spirits for business and consumer and there are reasons to be optimistic about the outlook. Clear signs of an upswing in the global economy bodes well for ongoing strength in exports.
For some time now, Treasury, the RBA and the bulk of market economists have been forecasting a lift in the unemployment rate. The more optimistic forecasts are for the unemployment rate to rise to 6 per cent while the more gloomy are looking for 6.5 per cent or more. Treasury is in the middle with a forecast for the unemployment rate to peak at 6.25 per cent.
This is the context for yesterday’s jobs numbers which showed a second month of falling employment and a further tick higher in the unemployment rate, to a four-year high of 5.8 per cent.
On a best case, it is still likely that the unemployment rate will rise in the next few months. This should not be a concern for the economy or Glenn Stevens for that matter so long as the leading indicators keep their positive glow.
To be sure, the labour force data yesterday were not good, but nor were they unexpected. While the Australian dollar fell sharply in reaction to the news and the odds for a further interest rate cut shortened a little, the leading indicators that remain solidly positive and will likely stop the RBA from cutting interest rates any further in the current cycle.
Thankfully, Mr Stevens is no Lara Bingle. He understands where the economy is at and can decipher the important news from the noise, and the leading indicators from the lagging indicators.
For now, he will be broadly content with the way the economy is performing. Stevens will likely enjoy the footy finals and perhaps a little flying time over the next few weeks in full knowledge that there is a huge amount of monetary stimulus in place and because the leading indicators for the economy are looking stronger than they did a couple of months ago.
Until yesterday, it’d been a good week for economic news.
We’ve seen solid gains in consumer and business sentiment since the election, and the sharemarket has posted modest gains since Friday (the ASX200 is up 1% in a week).
But the unemployment rate isn’t looking good. Data released by the ABS yesterday showed the unemployment rate in August had risen to a four-year high of 5.8%. The participation rate also fell from 65.1% of the labour force to 65%. This means there were fewer people actively looking for work, which should lead to lower unemployment figures if all things were equal. The fact that unemployment rose shows a labour market doubly deteriorating.
This, needless to say, isn’t good.
Economists have been predicting unemployment will rise for some time now as the mining investment boom draws to an end. Yesterday’s figures were in line with those expectations. And the expectations are that it will get worse. The RBA is predicting an unemployment rate of 6.25% by the end of this fiscal year. Some economists are predicting worse.
But it wasn’t all bad news.
Hours worked were up for the third consecutive month.
This means many businesses aren’t laying off staff because they’re struggling for customers. But they are working existing staff for longer instead of hiring anyone new. This isn’t great, but at least it shows there’s work to be had.
Businesses are generally reluctant to fire people in response to monthly fluctuations in market conditions. Managers, where they can, would rather cut hours if there’s not a lot of work to be done. So rising hours worked is a good sign for the economy, even though it comes at the expense of job-seekers.
The other thing to remember is that unemployment is a lagging indicator. While undoubtedly important, it’s a snippet of how the economy was a month ago rather than how it is. That’s not just the fault of data collection. If a business decides conditions are good enough to hire more staff, it’ll generally take at least a few weeks for them to get someone in the role. In the meantime, they’ll work existing staff for longer, which is what we saw in yesterday’s figures. Given work hours have been rising for three months, this indicates businesses are uncertain about increasing their cost base even though their business has need for new workers.
Yesterday’s unemployment rate thus says more about election uncertainty in August than it does about our economy today.
With sharemarkets and confidence on the rise, we should expect the figures to stay steady or get better next month as businesses digest the election result.
So, yesterday’s unemployment rate result was bad. But not as bad as it looked. As long as things like consumer sentiment keep improving, things should turn out okay.
no wonder you are shitting your pants about projects, you rely on them.
What's your excuse? Oh that's right your negative equity and job loss, back to scrubbing toilets mate.
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
Your a sorry excuse for a person, supporting and advocating the destruction of our country. Stop encouraging infesting and wreck less speculation in a basic human right.
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
Your a sorry excuse for a person, supporting and advocating the destruction of our country. Stop encouraging infesting and wreck less speculation in a basic human right.
Your a sorry excuse for a person, supporting and advocating the destruction of our country. Stop encouraging infesting and wreck less speculation in a basic human right.
"wreck less"??
what the fuck is wrong with you?
I am the love child of Tony Abbott and Pauline Hanson
Yes wreckless, your advocating a careless and dangerous position to take on real estate. So what's wrong with you? Scared?
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
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