Here is some more detail from the Roy Morgan unemployment report this afternoon:
In January unemployment is up 1.7% to 10.3% (1,278,000). The large increase is primarily driven by an increasing number of young people looking for work — youth unemployment (18-24yr olds) has increased to 24%, far higher than the next highest age groups (14-17yr olds: 9.5% and 25-34yr olds: 8.9%). However unemployment has risen across all age groups in January.
Unemployment traditionally rises in January — the Roy Morgan unemployment estimates tables below show unemployment numbers have risen in 9/11 years since the turn of the century. The rise is because young people emerging from school are waiting for University offers — especially second round offers, and other young people are yet to decide whether to continue further University study and seek employment while they consider their options.
Recent University graduates looking for work are also uncertain about the year ahead as post-graduate job offers are yet to be made and many people who may be offered a job in February are themselves job-hunting in January just in case the post-graduate job offer doesn’t materialise. The Roy Morgan unemployment estimates show that unemployment consistently drops in February (7/11 years) as students receive formal job offers and transition into full-time work.
A further factor in explaining why unemployment this January has increased far more than it did a year ago is the fact that January 2011 was unique. Last year saw continuing Government stimulus (Building the Education Revolution, the Home Insulation Scheme) and also a spate of natural disasters around Australia that created many disaster related jobs. Many young and able-bodied people were employed during January 2011 to help ‘clean-up’ after devastating floods Australia wide, and particularly in Queensland and Victoria. The month of January has passed relatively disaster-free — although there is now severe flooding occurring in Northern NSW and Southern Queensland.
The rise in youth unemployment is occurring alongside the broader trend of rising unemployment — which has now risen in six out of the last eight months from a 2011 low of 818,000 in May 2011 (up 460,000 in eight months) — unemployment has now reached a record high of 1,278,000 (10.3%). This is the highest ever recorded Roy Morgan unemployment estimate in Australia. Additionally, a further 934,000 Australians are employed part-time but looking for more work. Incredibly, this means a record high total of 2,212,000 Australians (17.8% of the workforce) are either unemployed or underemployed.
So, there is a seasonal element to the jump. Late today I had a chat with Roy Morgan CEO Michele Levine and asked her how significant this seasonal dimension was. She answered that it was certainly part of the month’s result but, nonetheless, the jump was very unusual in magnitude (which is obvious in the chart). The sectors she nominated as under most pressure were those you would expect for peripatetic youth: retail and hospitality.
She went on to say that she did not expect the result to retrace far if at all in February, owing to the broad based demographic losses that are gathering pace in other sectors. In fact, she said, she expects the RM unemployment rate to increase at least into mid year, in part because internal polling of business is indicating many more managements are planning reduced rather than expanded headcounts.
When asked if she thought the official stats were likely to follow she replied she’d be very surprised if they did not.
At this stage, then, I think we can say with confidence that the big part time job losses in the ABS December numbers is indicating a substantial shift in the big sectors of youth employment affected by both weak credit demand and reduced tourist demand. Older demographics are also under pressure but less so. So we are probably not yet outside of the type of scenario painted by Bill Evans at Westpac who has argued we’ll see 6 per cent unemployment by mid year.
On the question of whether this weakness could feed on itself, I’d say yes, in a narrow sense. The 18-24 demographic is a high discretionary spending group so its possible these job losses will feedback into further retail weakness and more job losses. This may not perturb the RBA too much. Who better to send into the mines?
Importantly, I’d also say no, that on these numbers we’re not set for a broader feedback loop of weakness. The youth group are not big mortgage holders so there’s no immediate impact on bank arrears. Having said that, there’s going to be a lot of young people staying at home longer, leaving an already softening rental market that much weaker.
Nonetheless, there is a stark warning in these numbers for policy makers. What the RM numbers show is that the “adjustment” from credit-led to mining-led growth, championed until recently by the boffins in Canberra, can proceed in big jumps not just smooth redistributions of resources.
If not handled carefully, this adjustment could turn disorderly and all sorts of nasty feedback loops develop. The RBA will certainly cut next week and should, but, I fear, with the banks poised to molest the cut, sentiment could just as easily fall not rise. The likelihood of a credit rebound is increasingly remote and the likelihood of more cuts is increasing.