More on the Roy Morgan numbers

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.

Comments

  1. “Late today I had a chat with Roy Morgan CEO Michele Levine” – among the journalistic heavy hitters. Congrats.

    • If not handled carefully, this adjustment could turn disorderly and all sorts of nasty feedback loops develop

      Oh, I do so hope so. The can kicking is so, sooooo tedious!

  2. Should we start battening down the hatches for a London style revolt by disaffected youth in the short to medium term then?

    • Something tells me you can throw many Aussies on the doll, take their Super off them, and put more taxes on them, increase the prices of everything, and still they wouldn’t revolt.

      The dissaffected youth in the Cronulla Riots rioted over, well…, it wasn’t any economic reason.

      Don’t get me wrong, if they do revolt it will be so heart lifting to see their spirit in the right place.

      • And I thought only Germans are willing to accept all kind of tax rises, entitlement & benefit cuts, extension of retirement age, all kind of price increases, additional liabilities to pay for our brethren EU countries… And no one ever considers to protest or articulate their worries. Media tells us how well we are doing and that we live in paradise.

        And in addition we have here this ghastly weather (a bit better than in Britain though)…

        Cheers from the far side (“auld Europe”)

    • Nah, still hearing my peers crap on about how their parents are going guarantors for their $300,000 2 bedroom unit even though it gets $250 in rent. “Building wealth” to retire in 10 years at the age of 30 is what they want. Its funny that the majority of them are arts students.

      • LOL – yes I am actually hearing the “retire” or “millionaire” at 30-ish via property and/or shares investment from 24-27 year olds! (hey, i’m 31, so i’m allowed to have a comment!)

  3. Christ, I was just thinking how uncharismatic Mark Zuckerberg is, these kids today they have no hope.

  4. good work on this H&H.

    sad for those losing their jobs but not at all suprising. the trend remains unemployment up, house prices down, interest rates down, stocks up. will see much more of all these in 2012

    • House Prices Down and Stocks Up?

      Half the ASX 8 are retail banks. Allied Irish, Anglo Irish, Bank of Ireland, Citigroup, Bank of America, Barclays, Royal Bank of Scotland, Lloyds TSB etc etc are mostly Down OVER 70% on their 2007 prices (or nationalised).

      The mega profitable Irish ones are down 99% or nationalised. Bank of America has recovered to be down 85%. Barclays is the best at 70% down. The rest around 90% down.

      It is rumoured that at the Australian convention of Proctologists at Surfers, Dr Proboscis stood on the table after having a few too many and subsequently screamed “ITS DIFFERENT HERE”. 🙂

      Its different

    • I figured 2012 would see more visible effects of what has been going on for a couple of years now.

      Didn’t think it would go to sh**s so son after New Years!

  5. When do these kind of historical structural adjustments ever proceed as smooth redistributions of resources ? They don’t. There is no ability to meaningfully arrest the increase in unemployment that we are facing – it is futile for the RBA to even try. They, more than anyone, should recognise that higher unemployment will be an unavoidable consequence, perhaps even pre-requisite, for the long-term process that is unfolding. The short and long-term cycles of volatility that have always accompanied economic growth and geo-political upheaval can not be disappeared behind a magic vale, however much we wish it so.

    • I did the other week.

      There’s a few offering 6 months at that rate. Though some can take days to transfer the money so you may miss the rate. So I suggest you call or do it in person.

    • Did it 2 weeks ago with payment at maturity to defer the tax liability to the next FY. May I suggest Ubank for individuals and SMSFs?

      -gt

  6. Coincidentally, I had a call today from one of our packaging suppliers. It is the first time in living memory that the regional sales manager for this company – a national household name in consumer packaging manufacture – has ever made a cold sales call to check on our inventory and/or current requirements for fibre packaging.

    During the call, it emerged that their sales in WA are “right down for no obvious reason” across their customer spectrum. While the details cannot be verified, I was told that for the first time in decades this company are laying off workers at plants all over the country in response to declining demand.

    Obviously, product-specific packaging is an essential input into manufactures of all kinds, especially, as in our case, in consumer products. This is purely anecdotal and in itself has little meaning, but it is consistent with the story that manufacturing is taking a hit nationally and that job losses have kicked off.

    This is a process that, once commenced, can become self-reinforcing and is, at the very least, congruent with the trend weakness in leading indicators published last year.

    This reflects a new theme in consumer behaviour, which – for the want of another expression – I think could be called “de-consumption”. This is a way of thinking about consumer need-satisfaction and the learned cultivation of a savings reflex among consumers.

    Marketers spend a lot of time and money trying to generate two things in consumers – general product awareness/interest and then specific brand or product demand which can then be translated into sales. The principle is that a state of “anxious wanting” can be stimulated in consumers’ minds and then consumers can relieve this state by buying/consuming. This cycle sounds ridiculously Pavlovian, but nevertheless is actively applied in consumer marketing and seems to be reflected in consumer behaviour.

    De-consumption is a parallel form of behaviour, but with opposite outcomes. It is the process by which consumers reward themselves by rejecting the interior impulse to spend and substitute it with the impulse to save. De-consumption is driven by consumers’ “anxious wanting” – or primary need – for security when they feel economically threatened.

    In a consumer society, in a certain sense, we are what we own or can buy. However, in a society where our elementary security is threatened in some way, we are also what we have saved – that is, we are defined in part by the resources we have for our protection or support in the future.

    So consumers are learning to be more than what they can buy, but also to define themselves by responding to the savings-reflex. In so doing, individuals are responding to deeply-based needs for primary security. These are very powerful forces and, as can be seen in the data, have the ability to modify the behaviours of millions of people. This is certainly happening in the US and it has begun to happen here too.

    Of course, since the behaviours of large populations affect the circumstances of nearly all individuals within populations, so economy-wide mutation in consumption and saving choices will drive changes in specific demand for goods and services and therefore profits and jobs in individual firms. This is just about irresistible the way I see it.

    • +1 “de-consumption”

      Nicely put Briefly, made perfect sense to me as I am firmly in that category – even to the point of selling many of my projects and toys and directly paying down debt.

    • Deus Forex Machina

      Thanks for sharing that Briefly – very informative and important.

      I might nick some of this for a piece i’m writing – cheers

      • I’m glad you like the concept…please feel free, and thanks for mentioning it. MB should get the credit for providing a platform for new thinking… 🙂

        • The relative size of the increase means that adjusting the figures is unnecessary and ultimately futile. It’s just a bloody big jump in unemployment.

          BTW briefly, excellent post. If you are working in the receivables/accounts dept of a packaging company, you have missed your calling! (and probably should create a blog incorporating the fields of psychology and marketing, in the same vein as MB)

    • Booboo Bingbang

      Good stuff Briefly – this is the character post great-depression where frugality was worn like a badge of honour and took 30 years to eventually dissolve (with assistance from the Mad Men)

    • Excellent posting and food for thought. Gratification for resisting the credit impulse? Who’d have thought it!

    • Yeah, interesting stuff and I certainly feel this on a personal level. The urge to save is strong at the moment and it goes beyond that too. We’re having some tension with certain friends of ours at the moment who haven’t made the same shift in their thinking. They are in the “let’s get mortgaged to the eyeballs and buy stuff from Hardly Normal 24 mths interest free and have everything we want now” and the “let’s boast about going to expensive restaurants with 3 hats and photograph everything we eat” stage. It’s become a real chasm between us and try as I might, I can’t help but be disgusted by their decadence.

    • Really interesting!! Can the ‘de-consumption’ be turned back around easily – are US consumers just ready to flip back the other way?

      • great read, well-structured, but all I could inteprete from that article is de-consumption = consumer belt tightening. Save more, spend less, nothing out of the ordinary considering the borderline recession we’re in.

    • Excellent! I have been “de-consuming” for a while now. I was getting sick and tired of people back home completely obsessed with buying and media telling me that I should do in order to be considered successful and to enjoy my life.

      I certainly recognise a certain satisfaction whenever I resist those impulses by focusing more on usefulness (“need” would equal food and shelter, I’m not that spartan yet). Resisting MSM and particularly TV has made this a lot easier.

      Life is a lot less stressful when you focus on things you consider important instead of what others say should be important.

      We are saving like mad right now, not really to be prepared for impending doom but simply because I would have absolutely no idea what to usefully spend it on. Certainly not on overvalued, poor quality property!

      To be honest, one of the first things to change my outlook was the movie “Fight Club”. The ideas about consumerism were bloody brilliant!

      This documentary sealed my fate:
      http://www.youtube.com/watch?v=QDXr72trxuU

  7. What about risks to the mining investment boom? It seems that everyone here assumes that it’s given and ultimately there will be more jobs in the resource sector to partially offset losses in other areas.

    If China slows down it will not only impact prices of our resource exports but will likely lead to freezing some of the projects. Only yesterday BHP announced sacking 155 workers from Nickel West.

  8. All I am hearing at the moment is how finance graduates are climbing over themselves to land a job at Goldman where they can do and work 20 hours a day and earn megabucks.

    Apart from the great pity that this is what our ‘brightest’ youth aspire to, I fear they’re in for a big surprise when the resource boom ends and the reality of lower financial sector returns bites. Another example of the reality taking longer to set in in Australia than everywhere else.

    • It’s not the resources boom that’s the problem for these fine young men. The investment bank boom has already busted and will not return for several generations.

        • I agree. Once we’re through the worst everyone forgets and get on their merry way to another bubble.

          We didn’t learn from the 30’s either.

      • My point is that it is not yet busted here because there is still resource-related investment banking activity. It will be, though.

        “Not different, just slower.”

      • You overestimate this generation’s memory H&H.

        ““No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.”

        H Mencken

    • Deus Forex Machina

      I’ve been in financial markets for 25 years and the first time I heard of this RM Employment data was here at Macro – we need to bring it into the limelight I reckon.

    • The ABS figure is a palatable number to the masses. It gives most punters a warm fuzzy feeling there are some who are doing it tough but not them. They live in hope the Government (most are unable to differentiate between the RBA and Government) will lower interest rates which means either more online shopping or another investment property. If the MSM headlines screamed 10.3% un or under-employment, they’d shit themselves and snap shut the wallet quick smart.

  9. Assuming if all the information is true, are the numbers incorrect? Isn’t the current Australian unemployment about 5.2% based on ABS figures. Was the 10.3% based on? Or was this based on another country not Australia.

    Please advise.

  10. Looking at ABS Employment and ABS Underemployment, both are in what I would call precursor states for recession.

    The YOY Growth rate in number of employed persons has fallen to essentially zero and the Underemployment has stopped falling and the difference to the long term regression has turned up from the low point.

    After the complaints from the major retail stores and given the high AUD effect on tourism I am not surprised at the general trend in the RM figures, although I am surprised at the size of the jump, even after allowing for school and uni leavers.