An unemployment rate with a six in front of it last week gave everyone a scare. But the people who are fretting about it are six months behind the curve, and are missing the forest for the trees.
The employment data out last week were a disappointment to many. Particularly the unemployment rate, which nudged up to 6.0% – the first time the unemployment rate’s had a six in front of it in ten years.
The papers had a field day. Unemployment rate highest in ten years. Unemployment hits decade high. Unemployment is going to break into your house at night and eat your cat.
Man, what short memories we have. I remember a time in Australia when we dreamed of having an unemployment rate with a six in front of it. And I remember economists telling us that, with all the churn in the labour market, 6% was about as much as you could hope for.
And then there’s the international context. 6% still makes us the envy of the world. The wheels of the economy haven’t fallen off just yet.
And never mind that the labour force data, like all monthly series, is pretty volatile. A lot of economists say that monthly data is too noisy to worry about. That’s why we have quarterly inflation data, not monthly.
But I’m not trying to put a gloss on things. I’m not trying to spin this in some kind of good news story. There was nothing ‘great’ in the data.
Employment fell another 4,000, and is flat over the year. We didn’t manage to create any new jobs in 2013.
There’s no positive way to spin this.
We’re helping people spend more quality time with their family?
But there’s something a little off with the labour market data. Taken at face value, it seems to be at odds with a lot of other economic indicators.
The housing market is the obvious example. Prices continue to surge, and nationally are into double-digit growth year on year. There’s action on the construction side of things as well. New building approvals were 22% higher over the year to December, pointing to a veritable boom in the construction industry (though of course it is coming off a low base.)
But it’s not all about housing. Retail sales also continue to do well. They grew at their fastest rate since 2009 in December, pushing towards 6% year on year. Surveys of business conditions have also jumped sharply in the past few months, pointing to a fairly robust outlook in the business community.
So what do we make of it? Seems like we’re kinda getting two contradictory messages. So which is it?
Are these indicators misleading us, and the economy is actually getting weaker? Or is the labour force survey misleading us?
Well, it’s kind of neither.
The thing to remember is that there’s always a lag between economic activity and jobs. The economy starts to improve, economic activity picks up, but firms take a while to get hiring again. They want to make sure the pick up in demand is permanent. So they run the existing workforce a little harder, until they’re sure.
Then they start hiring again.
And so generally (and this comes from the economists now) employments lags activity by about 6 months to a year. It’s fairly consistent rule in economics.
So to understand what’s happening with employment now, we need to cast our minds back six months to a year.
And that takes us back to before the housing market turned, when the influence of mining sector was transitioning, and there was a fair bit of uncertainty in the global outlook.
Most economists now reckon the domestic economy turned around September 2013, supported by a boom in housing, and the employment data is still catching up.
Indeed, if you look at the forward indicators of employment – like job advertisements and the employment questions in the NAB and ACCI business surveys, it shows that conditions have stabilised in recent months.
If this story is right, then I think we could expect to see employment pick up sometime around April or May.
It’s certainly not the doomsday scenario the papers would have you believe.
Not that I can really blame them. The high-profile job losses at Holden, Toyota and SPC-Ardmona have put job losses on the front-page.
And what a lot of people take from this that Aussie jobs are going out the door.
But that’s the wrong end of the stick. While the SPC decision was a bad political one I think, the closure of Holden and Toyota represent a long-run and inevitable decline in manufacturing.
The measure of the country is how we respond to that – by our ability to create new job-creating industries.
And on that measure, Australia’s actually not doing that bad.
Harrison Polites over at Business Spectator runs the numbers and lists the top 5 employment growth sectors in the country, highlighting that while manufacturing has continued to shed workers, some industries are booming.
The top 5 are:
- Food and Drink Services: Where employment has increased almost 30% since 2007.
- Heavy and Civil engineering – it’s workforce of 150,000 is 50% bigger than 5 years ago, thanks in part, but not entirely, to the mining boom.
- Private Social Assistance services – things like residential aged care and child care. Employment here is up 50% as well, but with the baby boomers just starting to retire, we’ve only seen the thin edge of the wedge on this one.
- Private education – up 20%
- Online Retail – also up 50%. It’s a small industry with only 25,000 workers, but it’s growing rapidly.
The point is, despite all the doom and gloom we get in the media, there are long run factors behind the recent high-profile job losses – not cyclical factors.
And if we look at the cycle, then we can see that employment is still catching up, but there’s no cause for alarm yet.
So there’s plenty of upside.
Justin says
As employment improves generally, so will employment in childcare. They go hand in hand. This is also excellent for the education & development of kids under 5
Aaron says
Great commentary as always Jon. This got a belly laugh from me, which is always a good thing;
“Unemployment is going to break into your house at night and eat your cat.”
Please do post a sequel to this in April/May once the next set of unemployment figures come around. No matter which way it swings, I like your perspective.
Ellis Porter says
Is it not true that the rise in housing both new and existing has been largely due to overseas cashed up investors mainly Chinese. Recent reports are that this market is now in retreat with an expected down turn approaching 60%. The state of the European common. alliance remains fragile and the Chinese economy in moderate decline. As Australia Economy greatly depends on trade with China does this not leave us on the economic edge?
Mike says
The biggest problem with the headline employment data is that it does not capture variation in the workforce. A considerable number of working age citizens are leaving the workforce, due in large part to ongoing inability to obtain reasonable work. Actual labor underutilisation (being the difference between hours actually worked and hours worked at full employment) is pretty close on 14% – the difference between Australia’s unemployment and the rest of the world is largely in definition.
Still, sentiment is improving which will hopefully result in a turnaround soon.
Zia Tokhi says
Read the article ‘The Gods of Money & Their New World Order Project” by Richard K. Moore in http://www.newdawnmagazine.com. You will find the answer to the upside and downside of the economies around the world,- who, why and how the the strings are pulled. It is an interesting insight into the new world order -growth and decline of economies, jobs losses, market manipulations,etc etc
Gary Powell says
Hello John,
Like your gusty blogs & most of what you do re Knowledge Source & teaching 21st century financial intelligence.
However , you are NOT factoring in the currents effects of the scores of part time & casual workers.
The “working poor” as they have been called on occasions. I include myself in them @ the moment, sadly.
Along with the grown in ‘disabilities’ pensions & sector.
So the ‘real unemployment & under employment’ figure affecting the health of our economy is much higher.
Also as a active member of the LIBERAL PARTY we are proud of your success to date.
Gary Powell
Businessman & Liberal Party Member.
Robert Realist says
Of the top 5 employment growth sectors in the country, heavy and civil engineering is the only one to offer high-end specialist professional employment opportunities, stimulate the economy and generate real wealth. Food and drink, social assistance and retail services contribute little to the economy and provide primarily low-level employment opportunities. Australia aspires to be a “clever country”. How can a nation of waiters, carers and retailers ever possibly prosper? If the list of top employment growth sectors is accurate, most Australians can look forward to little more than a subsistence lifestyle in the future.
Tom says
Hear Hear Robert,
Having read Jon’s blog, I was running through the insights of other readers, heading down to the bottom to make comments very similar to yours.
What we need is export earnings.
The mines will eventually run dry, or other suppliers will be able to out-price us, stealing the minerals market, just as they have with the automobile industry.
What is the long-term PLAN???
All we are hearing from the Coalition “Still-Opposition-on-Government-Benches” is hopes and aspirations. They need to realise that they are in Government now. The buck stops with them.
In their attempts to justify their negativity while in opposition, They are concentrating on, and cannot get their minds past showing how BAD the Labour moves were. All the while, Oz is crying out for some positive leadership.
Instead of harping on about deficits and surpluses, They should get the country moving into the Asian Century.
One good place to start would be to get stuck into the Northern Development program.
National savings are accumulated in good years, to be spent in bad years. That was the idea behind Wayne’s spending splurge. Keep the nation working. Educate our children to the MAX, as an insurance policy for the future.
So many other countries are failing in this area, that our next generation of well educated professionals will be in great demand in the global economy, and repatriating some of their earnings. The Philippines, with VERY limited potential for exports of goods, have for a long while been exporting educated labour, which brings in large quantities of foreign capital. They are becoming a “Clever Country”.
Although one can question some of the ill-advised, profligate handouts, the GFC DID HAPPEN – IT WAS REAL!!!. The idea was to put money into circulation, to keep the wheels turning. Without that support to the national economy, we would definitely, despite Joe’s assertions to the contrary, be in deep doodoo today and for several years to come. Another “Recession we had to have.”
Despite owing money to the international bankers, as a nation, our financial position is very healthy, given the world situation. The Coalition are obsessed with a balanced budget, regardless of the “big picture” position of the country.
My parents went through the Depression, then WW2, building up a BIG family – 10 kids eventually. No wonder they advised us to borrow only for a home. Everything else should be bought with cash – going without while saving for big ticket items.
This is still Joe’s attitude.
Surely some of his advisers live in the real world!!!
To make money on a big scale, you have to invest money in productive infrastructure.
If a nation waits until it is out of debt, before preparing for the future, it will forever be in debt.
Governments all over the country are encouraging the urban sprawl, swallowing up our most fertile arable land – Then spending Billions on road transport to service the new houses. All the suburban market gardens have gone. All the local farmers have been priced out. We need a national freeze on expansion, concentrating on higher density living near railway stations and freeways, which have already been paid for.
Our National and State finances should be going into PRODUCTIVE infrastructure.
The Top End is a prime candidate for intelligent development.
Let’s get off our butts and do it!!!
Andrew says
Not one of those growth areas for jobs is taking part in the productive economy, all service industries that will die in a heartbeat when the productive parts of the economy slow.
Dean says
Yeah..whats wrong with our Nations young becoming waiters for the rich, carers for the elderly, and purveyors of predominantly chineese plastics. Maybe with the time left over from our part time jobs we can all join the liberal party . Jon, you can do discount seats at your talkfests for such folk. Scramble up creative ways for families to pool their cash and credit lines get into “community housing”…we all are just one big family after all.. Maybe Aussis need to self start and get their own businesses, polishing the riches floors and cutting their lawns. Courses in mandarin will of course give one the market edge….
Kat D says
We’re well on the way to becoming a banana republic! Just what will become of property prices and rental yields when unemployment trends up as manufacturing industry rides off into the sunset, while the amazon model is devastating the retail sector employment. We just have to wait for the catharsis when prestige motor vehicles and overpriced women’s handbags are no longer seen as desirable objects because they contribute to foreign debt as much as they add to greenhouse gas emissions. Let us educate our little Vegemites to appreciate the abundant Australian space and freedom (including freedom from debt and freedom from fashion-addiction and overseas holidays) so in the future they’ll be able to stroll to the local market to buy home-made handicrafts and organic GMO-free produce. The seeming preoccupation by the populace with ‘panem et circenses’ (MKR and the Olympics?) has to cease.
fuzzyruss says
Normally Jon, I tend to agree with your point of view, but in this case, like the replies above, I can not.
The list of top 5 growth industries is a misleading response to what is happening to the knowledge base in this country with the loss of manufacturing. Food & drink services (another term for hospitality) and child and aged care offer small reward to the workers who will lose their jobs in manufacturing. Have you tried to cover a mortgage and raising two kids on the pay you get for serving coffee? The qualifications for heavy and civil engineering is out of reach to most, as is private education. Who can afford to go back to uni for 3-5 years, with no pay, let alone if you pass the entrance requirements to re-skill? This leaves online retail-a segment so small it will hardly absorb the swathe of jobs yet to go, especially in Victoria. Remember that for every job that goes from a car line, or such, 4-5jobs down the supply chain is affected. One wonders what the unemployment rate will be in Victoria, come 2017.
And all this talk of us adopting new high tech industries to replace the car industry, well, I’m curious to know that that would be? Solar, oh wait, China has the market on that, cold fusion-nope, not realistic, um, what else? Not much I’m afraid. No, we need Teir 1 manufacturing just as we need resources, primary industry, services and banking to have a balanced economy.
Marat says
Take that Jon. What can you answer for the above points. They are sound points, unlike your pretty pink glasses pictures!
Kathy says
This assumes of course that the 6% figure is even a remotely accurate indicator of the true unemployment figure, which as most people should know by now is manipulated and massaged within an inch of its life until it doesn’t even resemble the true figure.
It still astounds me that people believe the so called “figures” on such things such as unemployment and inflation released by those in supposed authority.
In the 1930s the unemployment figure was worked out based on ALL people aged over 15 and under 65 who were capable of working, but were not in fact working. That is the true unemployment figure.
A presenter at a talk I attended late last year (November 2013) advised us that if unemployment was being measured today the way it had been done previously during the 1970s, 1980s and even the early part of the 1990s, the true unemployment figure in Australia today was closer to 13%!!!
That was in November last year. How many places announced closures and layoffs since then? Forge and Alcoa are two recent ones that spring to mind.
And don’t even start on “official” inflation rates.
Max Power (@MaxPower_83) says
Jon, you mention job losses at SPC, but as far as I know there haven’t been any.
Apparently Coca Cola is putting in $78million, and the State Government another $22million.
Last I heard, sales were also up by around 50%
I think the federal government made the right decision on that one.