Is unemployment about to jump?

Yesterday, Roy Morgan Research released their latest poll on unemployment and and it caused a minor stir amongst market watchers:

In July 2011 Australia’s total unemployment as measured by Roy Morgan was 885,000 (7.6%), up 40,000 (0.6%) from June 2011, and up 148,000 (up 1.3%) since July 2010.

The Roy Morgan July 2011 ‘underemployed’* estimate was virtually unchanged at 859,000 (7.3%), down 3,000 (but up 0.2% as the workforce shrunk) from June 2011 and down 81,000 (0.8%) since July 2010.

In total in July 2011 an estimated 1,743,000 (14.9%) of Australians were unemployed or ‘underemployed,’ up 36,000 (up 0.8%) on June 2011 and up 66,000 (0.5%) since July 2010.

As stated, there was a large drop in the Australian workforce in July, down 378,000 to 11,687,000 which is virtually unchanged from a year ago (up 42,000) and slightly higher than in March 2011 (up 23,000).

Overall full-time employment in Australia for July is 7,421,000 (down 219,000 since June 2011 but up 30,000 since July 2010) and part-time employment is 3,381,000 (down 199,000 since June 2011 and down 136,000 since July 2010).

There are now 495,000 Australians looking for full-time work (up 28,000 on June 2011 and up 128,000 since July 2010). An additional 390,000 Australians are looking for part-time work (up 12,000 on June 2011, and up 20,000 since July 2010).

The latest Roy Morgan unemployment estimate is 2.7% above the 4.9% currently quoted by the ABS for June 2011.

As you can see from the above chart, Roy Morgan uses a different methodology from the ABS for its unemployment rate, which consistently holds the rate higher than the Canberra boffins and is much more volatile. Nonetheless, in trend terms, the two series match up pretty well over time.

Allowing for the volatility, the Roy Morgan data has, for the past few months, been suggesting a slowdown in new full time jobs. A confirmation of the official data. Again allowing for the volatility, it is not yet obvious that, despite the jump, July is a turning point for the employment market.

Having said that, however, it would not surprise me for three reasons.

The first is the most obvious. For seven months now, the domestic economy outside of mining has gone from bad to worse. There is no need to go through it all again, but the fact is the weakness has persisted beyond any excuses coming from the floods or any other shock-related rationale and it’s obvious on both the production and demand sides in large parts of the economy. Although there’s been offsetting strength in mining exposed sectors, there is no saying that the adjustment of resources from one part of the economy to another has to run a smooth course. As the lurching in RBA rhetoric has shown over the last four months, the economy itself is caught between very large growth and contractionary forces.

This leads into the second reason. If, as I’m supposing, businesses outside of mining are waking up to the fact that they are confronted with a structural shift in the composition of economic growth, and that means their profits will grow more slowly, if at all, then more and more are going to begin looking rather at the cost base to improve profit. Shedding labour is an easy efficiency to find. Going into earnings season, I’ll be keeping a sharp eye out for head count cuts. And the market will be too.

Which brings us to the final reason. This is a major shock to the system for a services economy that has spent the past 6 or 7 years fighting the ‘war for skills’. There has been a lot of labour hoarding going on for the last half decade (which in part may explain the lack of productivity growth). Remember, for instance, the widespread stories of cuts to hours worked instead of actual sackings during the GFC?

If there’s a sudden realisation that the new paradigm for services is permanently slowed growth owing to the mining Futureboom! then some of that sentiment to protect labour is going to diminish.

And with it perhaps, full employment under 5%, at least for a while. Of course, if we’re heading into a combined Western recession, all bets are off.

Houses and Holes
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Comments

  1. The low unemployment rate has been the great mystery of the 2011 slowdown/recession. Employment growth has clearly flattened off in the first half of the year and if unemployment now starts to rise the bullhawks arguments will completely undermined.

    Mining: Making room for Futureboom!

    • how about

      Mining: keeping unemployment out of double digits

      or

      Mining: subsidising manufacturing since 1983

      • Au Contraire Dirt Digger. The balance is rapidly shifting. The one-two punch of the rampant Aussie dollar and higher-than-necessary interest rates (both a direct result of the TOT and mining investment boom) is now resulting in far greater job losses across retail, manufacturing and tourism that can mining, and mining-related construction can ever hope to absorb.

        Mining: They get a six figure salary, you get higher mortgage repayments

        • I agree with Dirt Digger. Things would be far worse without the mining boom. However, his formulation is binary and overly reductive. The boom is being poorly managed which is resulting in much more pain to other sectors than need be.

          • I agree, it would have been worse over 2009-2010 but the balance has changed in 2011. For most Australians the mining boom is now a net negative.

          • Mate, seriously, it’s a bit pointless to keep repeating this, but without mining Australia would be so buggered right now it’s not nice to imagine. It would be Steve Keen all the way.

          • Here’s a comment I read in response to a Colebatch piece in the SMH:

            the mining industry is killing this country because it causes higher dollar and lower exports of items that actually are taxed correctly (unlike the measley %7 mining pays). Farmers have copped floods, high dollar, cyclones etc and now higher electricity and higher interest rates- if the reserve bank doesn’t wake up to itself- Australia may wake up one day and find we have no farmers and no way to pay for food from overseas.

            People are finally getting it!

            Mining: Its the disease not the cure

          • Conference.

            Re Colebatch quote: That guy is so wrong as H&H has explained a multitude of times…you just don’t like the medicine.

          • Okay, I’m not an economic genius. Just a random smartarse. But I’m going to tell you what I think anyhow. So there.

            Mining is the cane toad of Oz industries. It came to the rescue during the great cane beetle plague of 2008. Everyone applauded and told the cane toad that it was a cute little fella and slung it a few dollars for its troubles.

            Of course we know what happened then, don’t we? That ugly little cane toad started to believe its publicity and thought it was pretty. So it started having sex with itself. And grew out of all proportion. Kept on asking for a few more bucks slung its way as well. Next thing you know it overran the country.

            Now, all of out native frog industries have died because of the cane toad. Toad friends aren’t always toad friends.

            That’s a sad story. *sniff*

          • Mining Bogan, methinks you may have consumed a toad with such a psychedelic fairy story spewing forth, one clearly designed to frighten the uneducated.

            You should have visited Kalgoorlie recently – after having basked in the magnificent glow of wonderful mining colleagues you would have emerged with a marvellous and deep understanding of that most glorious of industries – mining.

            Mining is the titan of the Australian economy.

          • We’re going to have to labour the counter factual again I see.

            NZ is doing ok for the same reason we are. It has record terms of trade because of Chinese demand for commodities.

            Any scenario in which we imagine no mining boom now also intrinsically removes China from the equation.

            As Glenn Stevens said the other day, we’d be going through the same services economy adjustment (austerity) but with falling incomes.

            We’d be into Keen territory well and truly.

          • Any scenario that deals with a less high aussie dollar also has to factor in $3/l fuel.

            Can’t see a retail boom happening there.

          • We’re going to have to labour the counter factual again I see.

            Someone has to.

            NZ is doing ok for the same reason we are. It has record terms of trade because of Chinese demand for commodities.

            Sure, but without the intensity that Australia is experiencing. China isn’t exactly dependent on lamb and wool for its manic investment boom.

            Any scenario in which we imagine no mining boom now also intrinsically removes China from the equation.

            China may well remove itself from the equation by blowing itself up.

            As Glenn Stevens said the other day, we’d be going through the same services economy adjustment (austerity) but with falling incomes.

            We are going through the same services economy adjustment, and all the income growth is restricted to the mining sector, which uses its political and economic clout to avoid paying its fair share.

            I’ve often said we are destined to become a welfare state supported by mining income, but if we cannot find the political courage to tax the bejesus out of the bastards then we’ll end up something more like Gulf oil state. A nightmare scenario where mining magnates fill the role of oil sheiks, and the rest of us live in poverty.

            Can you imagine Sheik Twiggy, Sheik Clive and Sheik Nathan? Each with their own football team and fleet of Ferraris.

          • And that would be different to the Wool and Beef Barrons of old how ?
            Different the the media Empires, or the cardboard kings, trucking magnates ?

          • There is high demand for many of NZ’s commodities. Their milk exports are booming, plus they bought up large tracts of prime South American Farm land over the past decade, especially in uruguay.

        • NZ does have a mining industry. bit of gold, bit of coal. and an oil/gas industry.

          But its manufacturing/processing is kept alive by a minimum wage of about $10 AUD.

          • Don’t forget that 1/4 of those under thirty plan on emigrating from New Zealand leaving no-one to work those $10 hour (and no super) jobs 😉

          • “Mate, seriously, it’s a bit pointless to keep repeating this, but without mining Australia would be so buggered right now it’s not nice to imagine. It would be Steve Keen all the way.”

            Are you saying H&H, that mining is and will prevent Australia from entering a recession? I would have some difficulty with any argument that the mining boom is preventing businesses from failing and unemployment from rising in the rest of the economy. What are we to think if Australia stumbles, unemployment rises to 1990 levels – and all the while, mining keeps booming? I’m pretty certain that the “mining is our golden goose” meme would die a pretty quick death in the collective mind of the public.

    • Unemployment is not the great mystery of 2011. Its’ not that low. I won’t rant again with what a Mission Australia and a CentreLink employee told me what is going on in their places of work. Unemployment and Under-employment (under-employment that still requires CentreLink assistance) has been on the increase, by that I mean, people applying to these offices for benefits have been increasing in number, “substantially since June 2009” on a monthly basis. Since 2009 to present the unemployment rate has fallen as far as 4.9%… Really?

      So this blog title posted, “Is unemployment about to jump?”, I say yes, even more. And I’ll say this even if Mining goes into an orbital BOOM. That’s just my thoughts.

      What I’d like to ask is whether there is truth to this article, and what does it mean for this Mining Boom and Australia?

      Australian mining industry 83% foreign-owned: study
      http://au.news.yahoo.com/thewest/a/-/world/9753059/australian-mining-industry-83-foreign-owned-study/

      Now I see why K. Rudd (for right or wrong) wanted to tax Mining. How much of the Mining Boom is to Australia’s favour? Yes, I know we would be more tanked without mining.

  2. As an IT specialist in Sydney its become very obvious even in the short time I have been here that there is a huge drop off in this sector in terms of projects and open positions. I am relatively lucky to have a full time job that pays well but my company is struggling to place people into projects and it doesnt look like its getting better.

    I lived in Silicon Valley for 2 years and left in 2007 just when the crash was happening. It had similarities with here with firstly a sharp drop off in retail swiftly followed by real estate crash and job cuts everywhere.

    In the CBD I still see people queueing up to pay $3.50 for a crap cup of coffee so it hasnt bottomed yet!

    • It is really a mystery the employment rate. I lost my job during the GFC and couldn’t find anything since then. I looked and applied even for some volunteering, without success. They are looking only for labor to employ.

  3. “Shedding labour is an easy efficiency to find. Going into earnings season, I’ll be keeping a sharp eye out for head count cuts. And the market will be too.”

    They are doing it already and it will have an impact on our market here.

    Just look at HSBC, Cisco, etc that have reported earnings drops and headcount reductions around 10% of global workforce. I am told by a family member at Cisco in Sydney that many people have simply stopped working because they think it wont matter anyway and their projects will be dumped.

    • I think we will be a bit smarter than in US where management skills are crap and where they drop heads count as a quick saving.

      Training is bloody expensive, especially in Australia where it is a big job to get an acceptable productivity out of the Aussie tick heads.Lay off is the last line.

  4. Great insights HnH…I think youa re right abotu the desire to protect labour being a reason unemployment has risen as sharply as some preduicted (including myself).

    I would also argue that Australian industrial relations laws are playing a part in forcing businesses to hold onto workers. They fear being taken to fair work Australia and they figure it is probably too much risk until they just have to get rid of staff…

    The thing about having such a highlty regulated labour market is that althought the shedding of jobs will be harder (even though it shouldnt be…business need to cut cost or go broke!) if there is a down turn and jobs are lost – it will also be a lot harder for people to start hiring again as they will be reluctant due to the regulatory handcuffs applied by the ALP.

    Then we will see the damage done by the scraping of work choices

    • Think you have it in one there Stavros.
      The lack of flexiability is not only making some sectors reluctant to reduce headcount until they have posted a couple of losses, its also making those sectors and businesses that are hiring reluctant to take on new hires.

      Despite the ‘skill shortage’ minning companies are becoming fussier in hiring.

  5. H&H I think you only need to work 16 hours a week to be considered full time, so if that is true I’d say we have a lot more part time than full time workers. I’m no expert on this however.

    Nick, on Cisco, in the UK my UK Cisco (soon to be ex Cisco) friend tells me the same story there.

    • For the ABS report:

      Full time workers
      Employed persons who usually worked 35 hours or more a week (in all jobs) and those who, although usually working fewer than 35 hours a week, worked 35 hours or more during the reference week.

      Part time workers
      Employed persons who usually worked fewer than 35 hours a week (in all jobs) and either did so during the reference week or were not at work during the reference week.

      But I do not not what the definitions are for the Roy Morgan report.

      cheers

  6. Perusal of the RBA website shows that M1 money supply was increased only by a total of 3.6% in the two years from June 2009. This in an economy with about 3% inflation and population growth around 1.5% at that time. Now in one month between May and June 2011 the RBA has increased M1 by 3.7% which is more than in the past 2 years. This reminds me of the M1 increase between June 1992 and July 1992 of 9.5% in the midst of the commercial property crash when ANZ and Westpac were on the ropes. This, with other factors heralded the bottoming of commercial property in about October 1993. That is, there is a long lag. Now it is residential property where the problem resides.

  7. We have had 5 staff leave over the past two months.

    We replaced one of them a very senior person on a wage of $100k with two juniors on wages of $50k each.

    Net result is 3 jobs lost to the economy but nearly a saving of $400k to our bottom line.

    • I should add that we have pretty much applied a wage freeze as well.

      If people do not like what they are being paid (pretty good rates anyway) they can try and find work elsewhere.

      Our assessment is in our industry we can find sufficient staff at lower cost than our existing base.

      Sound morbid I know but when you employ over 60 people you need to do what you can to ensure the company as a whole survives this tough time.

    • It is shame, because in some industries the young professionals haven’t studied some fundamentals; it is easier to click the button and to use software. But the genuine understanding what, why and how is lacking badly. Strange things happen in consulting industry.

    • Well, so much for IT skills “shortage” in this country.
      .
      PS: Before anyone accuses me of xenophobia, I am an immigrant, a product of the so-called skills shortage.

  8. What is always interesting to me is the notion that rising unemployment in one sector (e.g. retail) can be soaked up by expansion of workforces elsewhere in sectors such as mining and mining related construction. This is a simplistic view of what is happening on the ground because it takes no account of the mismatch of skills and experience required when people attempt to move from one sector to the other. It can be very costly for firms and individuals.
    My experience of the current tensions in a workforce because of the mining boom is based on what I see going on here in Perth. The mismatch between what one sector has in surplus and what another sector is seeking is even evident within engineering consulting firms like the one I work for. Within our company some skill sets are in very high demand, so much so we are actively recruiting overseas, because we cannot find anyone to fill vacancies. Our clients are also asking us to provide secondments in these same skill sets because they too cannot find anyone. The salaries on offer are now amazing….but on the other hand other sections of our company have fallen on hard times with daily requests for work from highly qualified individuals who sit 20 metres away from me. Elsewhere within our company, other offices report high demand for the same skill sets in demand here, but soft in many other areas with a threat of workforce contraction in these specialisations. The majority of the people we employ in this industry are degree qualified and for them to swap from one specialisation to another is exceedingly difficult, requiring long term training, and an acceptance by clients that they will be suitable for the tasks.
    The issue we have as a company is that those skill sets that are currently in high demand are also unlikely to be required into the longer term, as once the construction of the expansion facilities is completed (2015) there will be little work in these specialisations during the operational phase of projects.

    • What is always interesting to me is the notion that rising unemployment in one sector (e.g. retail) can be soaked up by expansion of workforces elsewhere in sectors such as mining and mining related construction.

      Yes its ludicrous, but that doesn’t stop the likes of Gittins! posting nonsense about labour being “freed up” to “make room” for mining. A shop assistant in David Jones is hardly going to become a construction worker or mining geologist overnight.

      It also ignores the fact that far more people work in manufacturing, tourism, education and retail, than will ever working in mining, and mining-related construction, even at the peak of the investment boom.

      • Gittins’s columns remind me of the old quote, “In theory there is no difference between theory and practice, but in practice there is.”

  9. I’ve heard quite a few people in the last couple of weeks comment on the lack of jobs being advertised at the moment.

    Common sense dictates that full employment can’t go on when the major economic powerhouse (construction/property) is in a downturn.

  10. Got a heads up during the week that most telecomms companies (amongst others) have been shedding staff in large numbers since July 1st. Might just be a one off adjustment, but July at least should be negative.

  11. Tom Friedman spoke of new mining trucks that don’t require drivers on tuesday night, so don’t expect mining to take up the unemployment slack in the long run. Give it 20 years, and all the menial jobs on mine sites will be automated. Australia needs to lead the innovation, invention, manufacturing and operation in this field, but no doubt it’ll be another country that takes up the mantle as we’re too busy de-skilling.