Forget Tony Abbott’s boasts about how many jobs have been created since his government was elected.
The facts are that the labour market is weak, and the incentive for business to put on more staff is low (though the ANZ job ads survey out early this week indicated employers are increasingly looking to hire).
Not only has the unemployment rate (6.4 per cent last month) jumped to its highest point in almost 13 years, the average hours worked each week is stuck around a record low 31.7 hours.
In practice, it means there is plenty of scope for employers to bump up the hours of existing staff before they need to start thinking of hiring someone extra.
Today’s labour force figures simply reinforce Reserve Bank of Australia warnings that the growth outlook is underwhelming – the central bank expects the economy to have expanded by just 2.25 per cent in the 12 months to June this year, and doesn’t expect any major improvement until into 2016.
There are some positives. The exchange rate is hovering around $US0.76, interest rates are at a multi-decade low of 2.25 per cent, petrol prices have tumbled in recent weeks and consumer sentiment has jumped.
But the improved outlook of households is likely to be short-lived as worries about job security and political turmoil in Canberra drag on confidence.
Altogether, it is not a great time to be framing a federal budget, with little reason to think that the huge slowdown in revenues from company and personal income tax will be reversed any time soon.
If ever the nation needed to have a serious conversation about broadening the tax base and reigning in tax expenditures (which were worth $113 billion in 2009- 10 alone), this is the time.
As Stephen Bartos noted in testimony to the inquiry into the establishment of the Parliamentary Budget Office, “tax expenditures are the unloved orphan of fiscal scrutiny, paid little attention and not well understood and analysed”.
It is time to change that.
Tag Archives: unemployment rate
Forget Tony Abbott’s boasts about how many jobs have been created since his government was elected.
As economists are often wont to say, the March labour market figures are decidedly ‘noisy’.
The unemployment rate is down (a 0.2 percentage point drop to 5.8 per cent), but so is the participation rate (also slipping 0.2 of a percentage point to 64.7 per cent.
So, jobseekers were more successful last month, but there were proportionately fewer of them.
In addition, the Australian Bureau of Statistics tell us, more than 22,000 full-time jobs were lost, offset by the addition of more than 40,000 part-time positions, to push the aggregate hours worked in the month up by eight million.
A review of recent jobs data shows these numbers have been volatile. Until last month, the unemployment rate seemed to be on an inexorable rise. After hovering around 5.7 to 5.8 per cent for most of the second half of 2013, it climbed in quick succession to 6.1 per cent by February.
Over the same period the participation rate slid down to a seven-year low of 64.5 per cent (in December 2013) before jumping to 64.9 in February and settling a little lower last month.
The trend measure, which is offered as a way to ‘see through’ the monthly volatility, says the unemployment rate held steady last month at 6 per cent, and the rate of increase has slowed and may be levelling off.
Looking at the labour market through the prism of demand for workers, the ANZ job ads series suggests more employers are looking to add staff, which would be a concrete vote of confidence that better times lie ahead.
Turning points in indicators of economic activity often seems to be characterised by a period of volatility before a definite direction asserts itself, much like a sail that momentarily flaps in the breeze as a ship changes tack.
Often such turning points only become really apparent with hindsight.
But other evidence suggests that jobless rate might not have much further to climb, bringing the prospect of an interest rate hike into sharper focus.
Retail sales are firming (strong monthly gains in December and January were consolidated in February), building approvals are up more than 23 per cent from a year earlier, and business conditions and confidence are improving.
But the recent appreciation in the exchange rate (the Australian dollar surged to US94.3 cents following the release of the jobs data) is a clear risk for the RBA, which has been keen to see the currency lose much of its altitude.
Today’s activity shows the currency markets are primed to exploit even the hint of an increase in the interest rate differential between Australia and the US, where confirmation by the Federal Reserve of a US$10 million cut in bond purchases under the quantitative easing program saw the greenback lose ground.
The stronger $A will also hamper the shift in the economy away from resources-led activity toward other sources of growth, possibly prolonging the nation’s lacklustre GDP performance.
A turn in the labour market, if that is what this proves to be, is unlikely by itself to convince the RBA Board to hike rates – particularly while wage inflation appears so tame.
A more probable prompt for a rate rise would be increasingly uncomfortable signs of heat in the housing market, particularly credit growth. So far, the warning signs on this front are amber, rather than flashing red.
A lift in the unemployment rate to 6 per cent – its highest point in almost 11 years – will surprise no-one.
In fact, the real surprise has probably been that it has taken this long.
In keeping with the trend of previous jobs reports, the Australian Bureau of Statistics has revealed that a further decline in full-time employment occurred in January, this time by 7100 positions, taking the number of Australians employed full-time to 7.95 million – the lowest number in almost two years.
The reason the unemployment rate has jumped to 6 per cent after spending the latter half of 2013 stubbornly stuck around 5.7 and 5.8 per cent is because, perversely, because the number of discouraged job seekers has stabilised.
The participation rate, the proportion of the working age population in the labour force (ie with a job or actively seeking employment), held steady last month at 64.5 per cent.
Amid all the high-profile announcements about factory closures (most notably and immediately, the SPC cannery in Shepparton), few people will be shocked by confirmation that the unemployment rate has increased.
The number of Australians who want to work but haven’t got a job now stands at 728,600 – a jump of almost 17,000 from last December.
But does this mean the Reserve Bank of Australia will put a rate cut back on its agenda?
That appears unlikely.
The central bank had anticipated that the unemployment rate would at some point reach above 6 per cent, so the fact that it has now done so will not be “new news”.
Additionally, inflation has turned out to be stronger than the RBA had anticipated, making it wary about adding further stimulus to the economy.
As noted in a previous post, RBA Governor Glenn Stevens was unusually explicit following the central bank’s February 4 Board meeting about the future course of interest rates.
Usually, like many central banks, the RBA shies away from being too definitive about the future of monetary policy, which is not unreasonable given the fluidity of global economic and financial conditions.
So when Mr Stevens said the most prudent course for the RBA was “a period of stability in interest rates”, it was a clear message to markets not to expect rate cuts – or hikes – any time soon.
An unemployment rate with a ‘6’ in front of it would not appear to change that message.
Though the loss of more than 31,000 full-time jobs in December 2013 has, not surprisingly, grabbed most attention, the Reserve Bank of Australia is possibly more interested in another set of numbers that came out today.
In a sign that low interest rates are having the desired effect, building activity is strengthening, improving 1.6 per cent in the September 2013 quarter to be up 5.4 per cent from a year earlier, according to the Australian Bureau of Statistics.
In the residential sector, new houses accounted for the majority of improvement – activity there was up more than 5 per cent from the September quarter 2012. This is on top of a significant 3 per cent upward revision in ABS estimates of dwelling commencements in the June 2013 quarter.
The improvement has also been reflected in measures of the value of all building work done, which rose above $21 billion in the September quarter for the first time in about two years.
The activity figures match RBA lending data, which show housing credit grew by 5 per cent in the year to last October.
Taken together, the results are adding to the pretty strong signal to the central bank that, notwithstanding December’s weak jobs numbers, it does not need to cut interest rates any further.
Before the release of the labour force data, markets had priced in a minor 7 per cent chance that the official cash rate would be lowered to 2.25 per cent at the RBA Board’s 4 February meeting.
Knee-jerk reaction might have pushed those odds a little higher since but it seems unlikely the unemployment reading will have unsettled the RBA, which anticipated the jobs market would soften through much of the coming year.
Instead, the on-going recovery in building work will have it pondering how much longer it should hold interest rates down at current levels.
Though inflation remains subdued, and talk of housing bubbles is (once again) exceedingly premature, household spending is clearly gathering some momentum. Retail sales are up, as are building approvals and home construction. Sure, job insecurity will be a not-insignificant handbrake on consumption.
But in the push and pull of economic forces, growth seems to be gaining ground, and the RBA is likely to view the 2.5 per cent cash rate as increasingly inappropriate.