The last 24 hours has seen an unusually high level of drivel emanating from our point-scoring politicians and media, this time over unemployment statistics.
Carried largely by the News Ltd press, the Opposition and Government have respectively had Ricardian and Keynesian convulsions. The Opposition claims that the weakening employment market is the result of the government failing to cut spending enough. The Government has countered that unemployment has risen because the Newman state government has cut too much.
Labour force figures are all about trend, not one report, so let’s take a look at what the trends tell us:
As you can see, QLD and WA are leading the nation’s rise in unemployment. This should be no surprise to anyone. We are in the midst of a terms of trade shock, driven almost exclusively by the large falls in thermal coal, coking coal and iron ore prices:
Coking coal is concentrated in QLD. Thermal coal is too, with plenty also in NSW. Iron ore is obviously concentrated in WA.
You will note as well that the rise in QLD unemployment began in the June QTR ahead of the rise in WA. This is very likely the result of the Newman Government’s job cuts, which began in May. When Howard came to power in 1996 and slashed the public sector, ACT unemployment jumped almost 1%. National unemployment also rose half a percent.
That’s what happens when you cut jobs. The bigger question is what are the fiscal multipliers in the longer term? In the last few cycles it has been the case that cutting government spending has helped lower interest rates and hence short term pain was followed by long term gain in increased private sector activity.
In this current cycle, however, which is defined by deleveraging, the risk is that job cuts increase the negative fiscal multiplier because there is little interest in increasing borrowing even if rates fall.
The Government is right about one thing, it will be very interesting to watch Queensland unemployment in the year ahead. It will be the Petri dish for the economic politics that will dominate the Federal election.