Today’s release by the Australian Bureau of Statistics (ABS) of the – Labour Force data – for June 2013 signals a deteriorating situation. Employment growth was about zero and full-time employment continued to contract. 84 per cent of jobs created in the last 6 months have been part-time. Unemployment rose by 23,700 and the unemployment rate rose 0.2 points to 5.7 per cent. This data signals an urgent need for fiscal stimulus to reverse the negative trend. Unfortunately, with both sides of politics locked into an austerity mindset the situation is likely to deteriorate further…
The following table provides an accounting summary of the labour market performance over the last six months. The monthly data is highly variable so this Table provides a longer view which allows for a better assessment of the trends. WAP is working age population (above 15 year olds).
The conclusion – overall 104.7 thousand jobs (net) have been created in Australia over the last six months (heavily influenced by the February and April 2013 results). Over the last six months, full-time employment has risen by only 22.0 thousand jobs (net) while part-time work has grown by 82.7 thousand jobs.
Over the last 6 months, a staggering 82.7 per cent of the net employment opportunities created have been part-time, which explains the sharp rise in underemployment (see below)
The Working Age Population has risen by 179 thousand in the same period while the labour force rose by 151.6 thousand. The weak employment growth has thus not been able to keep pace with the underlying population growth and unemployment has risen as a result (by 47 thousand).
To put the recent data in perspective, the following graph shows the movement in the labour force and total employment since the low-point unemployment rate month in the last cycle (February 2008) to June 2013. The two series are indexed to 100 at that month. The green line (right-axis) is the gap (plotted against the right-axis) between the two aggregates and measures the change in the unemployment rate since the low-point of the last cycle (when it stood at 4 per cent)…
The Gap shows that the labour market is still a long way from recovering from the financial crisis that hit in early 2008. There hasn’t been much progress since January 2010, when the fiscal stimulus started to run out.
In fact, in June 2013, the Gap reached the levels that appeared in May and June 2009 when the Australian economy was enduring the impact of the crisis. All the gains made since then have gone…
Overall, the labour market still has significant excess capacity available in most areas and what growth there is is not making any major inroads into the idle pools of labour.
The following graph updates my 3-recessions graph which depicts how quickly the unemployment rose in Australia during each of the three major recessions in recent history: 1982, 1991 and 2009 (the latter to capture the 2008-2010 episode). The unemployment rate was indexed at 100 at its lowest rate before the recession in each case (January 1981; January 1989; April 2008, respectively) and then indexed to that base for each of the months as the recession unfolded….
It is significant that the current situation while significantly less severe than the previous recessions is dragging on which is a reflection of the lack of private spending growth and declining public spending growth.
Moreover, the current episode is also different to the last two major recessions in the sense that the recovery is over and the economy is deteriorating again…
At 65 months, 1982 index stood at 154.2 and was falling while the 1991 index was at 141.9 and was also falling. It is clear that at an equivalent point in the “recovery cycle” the current period is more sluggish than our recent two major downturns…
The notable aspect of the current situation is that the recovery is very slow…
The participation rate is still substantially down on the most recent peak in November 2010 of 65.9 per cent when the labour market was still recovering courtesy of the fiscal stimulus.
What would the unemployment rate be if the participation was at its November 2010 peak?
The following graph tells us what would have happened if the participation rate had been constant over the period November 2010 to June 2013. The blue line is the official unemployment since its most recent low-point of 4 per cent in February 2008. It is currently at 5.7 per cent.
The red line starts at November 2010 (the peak participation month). It is computed by adding the workers that left the labour force as employment growth faltered (and the participation rate fell) back into the labour force and assuming they would have been unemployed. At present, this cohort is likely to comprise a component of the hidden unemployed (or discouraged workers).
Total unemployment in June 2013 was estimated to be 709.3 thousand. However, if participation had not have fallen there would be 827.5 thousand workers unemployed given growth in population and employment since November 2010.
The difference between the two numbers reflects the change in hidden unemployment since November 2010. These workers would take a job immediately if offered one but have given up looking because there are not enough jobs and as a consequence the ABS classifies them as being Not in the Labour Force…
Overall, today’s data shows that the Australian labour market is deteriorating slowly.
…the trend evidence supports a view that the labour market is very weak and employment growth is consistently so low relative to population growth that the unemployment rate is trending upwards – slowly.
The data does not suggest we have reached the point where unemployment will rise sharply. Rather it will eke its way up towards 6 per cent over the next 6 months.
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The above is an extract only. For the full report, which includes a bunch of other indicators and charts, check out Bill Mitchell’s blog.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
