Unemployment looks set to jump

Tomorrow the ABS releases its October Labour Force survey and the chances are growing that we’ll see a jump in unemployment.  The August report wasn’t bad, with the unemployment rate falling from from 5.2862044% to 5.2477873%. But despite the decent month, the trend for unemployment is firmly up:

Another measure that appears to have crossed an important turning point is hours worked, which are rising:

Although this seems good on the surface, the counter intuitive reading is that the reversal in the measure is the result of part time workers losing their jobs. That might be because we are beginning to see an unwind of the “skills crisis”. That is, businesses have been hoarding labour for fear of being unable to replace it. But as they realise that no new boom is coming, some of that fear is ebbing away and so are the jobs. The ratio of full time positions to part time has fallen from 2.52 in 2008 to 2.36 in September.

Adding to the unemployment picture, recent data has been at best modest. The ANZ jobs survey for October fell for the sith month out of seven and falls in this measure do track the unemployment rate:

And yesterday, the NAB survey printed some very weak labour data. Although the MSM cherry picked the rising business confidence number, take a look at the red circled numbers:

That is the worst employment index print since July and the second worst since the GFC recovery. Moreover, the collapse in the labour cost index in the past three months to 0.6%, the lowest since December 2009, strongly suggests advancing labour market slack.

Finally, of course, earlier in the week we had the Roy Morgan figures which did show a big jump in October unemployment:

As you can see, it is unusual for the gap between the unadjusted RM data and smoothed official data to be quite this wide. And the RM data actually has a decent track record of leading unemployment spikes.

It may not be this month but the planets are aligned for a jump in unemployment.

David Llewellyn-Smith

Comments

    • AS I’ve been arguing for a moth or two, expect to hear more about the falling TOT. The surplus will be gone by early next year in my view. The only question is, how long will ore and coal prices stay down. If they do for the first half of next year, I’d expect that to add to unemployment, yes.

      • Yeah I read it and had remembered your posts on here and thought you would find it interesting. I agree with you. I am wondering with this new carbon tax what is that going to do to Australian coal pricing and wondering if that will increase the cost of it and create more headaches. Interesting times

      • Say iron ore prices stabilise around current levels (‘stay down’) – why would you see this leading to increased unemployment?

        • According to some research, TOT shocks can effect employment more than GDP. Goes something like: high incomes disguse underlying prodcutive weakenss enabling busiensses to retain staff that they would normally cut ie. there is a kind of infalted demand. When the income hit comes that demand evaporates and so do the jobs it supports, without really hitting GDP so much.

          More here: http://www.macrobusiness.com.au/2011/10/why-the-rba-should-cut-rates/

          • Thanks. A few thoughts. Should governments run countercyclical fiscal policy when strong ToT? Does a floating exchange rate ameliorate impact of a rapid decline in ToT.? Would current moderation in IO pricing be sufficient to constitute ToT shock?

  1. The August report wasn’t bad, with the unemployment rate falling from from 5.2862044% to 5.2477873%.

    Can’t resist. 🙂

    There are 8 significant figures in the quoted ABS numbers. The actual unemployment number would have at most 7 significant figures. This implies that not only do the ABS quote an unemployment number to the nearest unemployed person, they quote a number to the nearest fraction of an unemployed person. Amazing precision 🙂

    • How anyone in a bureau of statistics can blithly quote those figures is beyond me. Measurement error would make me suspicious of any change under 1% and the figures should be rounded up to a couple of decimal places in my view…

  2. Where I work – A lot of contractors have contracts that expire at either November or December month-end.

    Many of these will not be renewed.

    I think its lucky for those that have a full-time permanent job that there are so many people employed on a contract basis.

    It provides a buffer until you lose your job in the recession too!

      • Commercial & IT&S.

        Commercial business has slowed down significantly in the last 6 months, with many businesses running “projects” to keep staff occupied. Full time permanents went into project roles, and contractors came in to back fill. A lot of the contractors are being let go as the full time permanents roll off the projects back into the business.

        I’ve also heard from multiple sources that IT&S roles in the contracting space are dead. A good friend of mine works at IBM, and the only thing holding them from dropping a stack of staff in Melbourne is a huge project with the NAB. Very few serious contracting jobs or big projects in the pipeline, especially roles over 100k. A lot of these people have been sitting on 100k for a number of years (and have mortgages and mouths to feed), so it will be interesting to see how a drop in contracting income impacts on mortgage stress.

        Full time employees are protected in some cases by falling wages, but contractors can experience falling wages dramatically. With over 10% of Australians (and probably higher percentage of the professional workforce) in contract employment, this could have a very big impact on disposable income. Many of these people won’t fall into the ‘unemployed’ figures even if they are unemployed for over 12 months.

        • Also in Melb IT services. Second that, hearing from many places of a slowdown in IT hiring, which was not evident a few months ago. Most of the big banks are either hiring freeze (ANZ) or looking to let contractors and/or suppliers go.

          To be expected really, given that their revenue expectations from hereon must be a chunk lower than they all just reported.

          • But November/December is not normally the strongest time for IT recruitment? Everyone’s winding down for the year?

          • Sherlock – normally it’s strong because 12 month, 6 month and quarterly contracts are finishing up and being replaced/renewed. This year, not so much…

          • My graph of Sydney IT jobs in my own field of expertise shows a huge peak in about May followed by a steep decline of around 70% to September. October improved slightly, but there are stil only around 30% of the job ads at the peak.

            Currently it’s not as bad as 2001, but going by the rumours, it soon will be.

  3. reusachtigeMEMBER

    When are people going to realise that the unemployment figure is absolute bogus and is designed to paint as rosie a picture as is possible in the world of selectively twisting stats for a lies purpose?

    On top of the twisted stats, many jobs being lost at the moment are white collar jobs and a lot of these people don’t qualify for unemployment benefits and are unlikely to register themselves as unemployed for quite some time while they have savings to drain.

    There will, no doubt, reach a point where all these people have to jump in and declare themselves as unemployed and it is then that the rate will balloon. This will be when the gobbermint changes the classification so as to not include these people, bringing our unemployment back to the safe “5%” range.

    What do you know, we’re booming again! 😉

    • I’m not sure that’s such a useful view. Although you may be right that the stats are designed to give a happy impression and could be done differently, they still change over time, giving us a guide to conditions.

    • +1 reusachtige

      I’m a professional who 5 years ago decided for a seachange to undertake a PhD 12 months ago started looking for work, managed a few part-time consultancies, but apart from that …..nada.
      Savings now gone (frugally) on mortgage and foodstuffs so joined the ranks of the great unwashed yesterday!

      Anyone need a good entomologist??

      • Well, I’m sorry if I sound blunt, but you took the risk. I don’t greatly enjoy my job anymore, but it’s the only way I know I can make a decent living. Sometimes, we just have to smile through the pain.

        • Yes I did take the risk Sherlock, but what is this country coming to if you get a post graduate degree – in Biosecurity – and still have trouble gaining empolyment. At the moment I would take just about anything, but I also live 70km out from the city.

          I may have to look closer at my personal hygeine 🙂

          And smiling through the pain become a little like a grimace with increasing utilities bills!

          I was merely agreeing that reusachtige’s post was on the money. And I know others in the same boat.

          • You might want to consider looking for work in the US …depending on your personal circumstances. And I wouldn’t be put off by the higher unemployment rate over there. Work visas for Australians are easy to obtain (if you have a company sponsor you) and a higher degree is valued far more highly by HR people in the USA than HR people in Australia.

            Biosecurity sounds like the sort of thing you might find work in with the FBI, homeland security etc.

            (plus houses are cheap :))

          • I’m a little anxious reading your post Seb. Hope you can be mobile in your quest.
            But”what is this country coming to if you get a post graduate degree – in Biosecurity – and still have trouble gaining empolyment.”

            All together now:”HOUSESNHOLES”

          • The BurbWatcherMEMBER

            Hey,

            Email me at [email protected] – I work for a large enviro and engineering consultancy, and might be able to get someone to look at your CV (can’t promise a job, however….)

      • Why are Thorpee and Warnee coming back? Probabaly for the same reason as many ‘old timers’; to get an income that they never thought they’d have to seek out again. I know many past-successful business people and retirees who now, after the devestation of the GFC on their assets, are going to have to (1) sell their homes/downsize and/or (2) join the ranks of those seeking employment. Unemployment is going to be for many more than the young/middle aged, from hereon in.

    • “When are people going to realise that the unemployment figure is absolute bogus and is designed to paint as rosie a picture as is possible in the world of selectively twisting stats for a lies purpose?”

      Like the CPI, the headline unemployment rate is extremely limited. It can only ever indicate one specific aspect of a complex labour market, so naturally it will be misleading at times. However, this does not mean that it was designed to mislead.

      • I don’t particularly follow any “government conspiration” stuff but if you’ve lived long enough to see how the social political elites tend to screw the general public by abusing their “power / authority” – then, I could understand why people see those statistics like CPI and unemployment rate are just another way to manipulate the ignorant general public.

        • As far as I can tell, Australian media consumers don’t like complexity, so our news is all about one-dimensional horse races. CPI, opinion polls, interest rates and uemployment all fall into this category. It’s what sells, so it’s what we get.

          But feel free to blame some amorphous “social political elites”. I’m sure that’s a more involving story than one about an ignorant and incurious public being pandered to by an avaricious press.

    • Or maybe a lot of the baby boomers will ‘retire’, meaning they aren’t included in the statistics?

      I’m sure tens of thousands of baby boomers would happily retire now, if the superannuation was still at 2007 type levels. There are many examples of people delaying retirement to earn a little more cash.

      These people ‘retire’, young people take their places, workforce significantly reduces, and hey presto – unemployment figures stay the same.!.

      • In 10 years time that will be far more true – at the moment, you’re looking at the very leading edge of boomers hitting the official retirement age (b. 1946), with another 15 years to run. The question then becomes whether companies will be able to cover it with the dip in Xers before Gen Y reaches the upper levels of management.

    • There will, no doubt, reach a point where all these people have to jump in and declare themselves as unemployed and it is then that the rate will balloon. This will be when the gobbermint changes the classification so as to not include these people, bringing our unemployment back to the safe “5%” range.

      What do you know, we’re booming again!

      Another thing that could make us look in better situation is that some of those long-term unemployed people will either die of hunger / lack of nutrition or have to go overseas to find job. So, presto… less unemployment in Australia.

      I know this is not complete picture, but did any of you also see many Asian migrants went back to their home-country recently to find better living standard ? Maybe if economy gets worse, we will see Kiwis, South Africans and Poms went back to their home country too ?

  4. good coverage here H&H. i thought a shocker last month but think tomorrow could be it.

    medium term trend is UE up, house prices down, interest rates down, stocks up.

  5. The uni I work at is dishing out 400 forced redunantcies. Total staffing about 7500. Reason given by the Chancellery is that we can’t maintain the same operational budget due to the tanking international student market. We’ve had a year of shedding contract staff but this time it’s a mass shedding of permanent staff for the first time this uni’s history.

    • Diogenes the CynicMEMBER

      Yes those international student numbers are a driver. Given they pay three times as much as domestic students any fall in their numbers is catastrophic for university revenues.

      A shake up is not necessarily a bad thing for some academics mind you – when I worked at a Sandstone institution 4 years back some of the tenured staff needed a stiff broom.

      • David Lodge brilliantly (and hilariously) captured the trevails of tenured academic life in his novels. Stiff broom indeed.

      • I don’t know the specific make up of the redundancies but well over half are professional, clerical and maintenance (quite a few “tradie”) positions. So it’s ripe for freeing up for the mining boom! Boom boom boom!!! Gittins! would be happy.

        PS. A round of voluntary redundancies cleared out the deadwood from the academic staff about four years ago and many either weren’t replaced or were replaced with contract staff. Hence the academics are a much smaller part of the current round of redundancies.

    • What city is that based in?

      A lot of Melbourne based student businesses are hitting the wall. A lot of student apartment complexes are now “happy to take anyone” too.

    • Well, I also work in higher education sector and from what I know usually employees in the sector are somehow more protected by industrial agreement and unions from mass redundancies. So, it must be pretty bad at your place to allow such redundancies.

  6. Mortgage stress will increase with higher unemployment. At least we can all celebrate that house prices are falling.

  7. I like the anecdotes.

    I got the chop just before the GFC and have been unable to get a job since. I guess that even though I was at the top of my game and fit, being 55 cuts me out. I’ve had a couple of interviews and been quizzed over the phone a couple of times, but nada.

    We live in our motorhome now, so I do try to get jobs in different areas.

    I got the boot by a sociopathic CEO who was later sacked and was charged by the SEC but avoided jail by one juror’s vote. I get nothing from the gov’t and I’m not counted in the unemployment stats.

    • What industry are you in, Rod?

      It’s a real pity – at 55 you’ve got a lifetime of experience, and you’re unlikely to be declining physically.

  8. Based on the data I have seen, I am expecting a 5.4% or 5.5% ABS unemployment figure (Even a high 5.3 is a possibility)

  9. While an increase in unemployment (particulalry through mass layoffs) is bad for the people involved it doesn’t necessarily mean a slowing economy.

    Total hours worked might still be growing as we have a growing population and so need growing total employment in absolute terms just to keep the unemployment rate steady.

    In the US, while the unemployment rates is only falling marginally and slowly, total employment is actually growing and has been for some time.

    I am not saying it will continue to grow, just noting that total employment can grow in absolute terms even as the unemployment rate increases if you have working age population growth. It distinguishes between measuring things in absolute numbers compared to measuring something else with a percentage rate.

  10. The BurbWatcherMEMBER

    Sebastionbear, as per comment above, email me at [email protected] – I work for a large enviro and engineering consultancy, and might be able to get someone to look at your CV (can’t promise a job, however….)

  11. I work for one of the big 4. Some areas on hiring freezes. Some areas shedding, removing waste etc. come new year we will see the full effect.

  12. There are several big infrastructure developments here in the west (iron ore, O&G) that have not yet made the final investment decision, its imminent for a couple of them as they are nearing the end of the environmental approvals process. Typically the FID is made after all approvals are in place. Approvals are usually good for 5 years….meaning you can delay the start of the project for up to 5 years without having to go through the process again. Now, given the global volatility and decline in ToT it will be interesting to see if the imminent FIDs are still positive for these large projects. If one or more FIDs are negative it will indicate the big end of town have decided the forecast demand for their product has declined substantively.