Each month, following the release of the monthly labour force statistics by the Australian Bureau of Statistics (ABS), Professor Bill Mitchell, Director of the Centre of Full Employment and Equity at the Charles Darwin University, provides a comprehensive report on the data that is well worth a look. Below are some key extracts from this month’s report:
We had the three evils in August – contracting employment, rising unemployment and a contracting labour force (via a further fall in the participation rate). Employment growth has negative now been negative for the last three months (a recession!) and in August both full-time employment and part-time employment contracting. Total employment is now lower than it was 6 months ago. Unemployment is rising towards 6 per cent as the weak employment growth fails to keep pace with the underlying population growth. Hidden unemployment also rose as more people gave up looking for work in an environment where job opportunities are shrinking rapidly. The broad labour underutilisation data from the ABS for the August quarter (released today) show sharp rises in both unemployment and underemployment…
Today’s data shows that the labour market is now giving way to the weak state of aggregate demand. Over the last 18 months or so we have seen the labour market data switching back and forth regularly between negative employment growth and positive growth spikes.
This pattern is now consolidating into a negative trend…
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 there have been 12.2 thousand jobs (net) lost in Australia over the last six month, which is appalling given the positive spikes in April 2013. Employment growth has been negative for the last three months and 5 of the last 6 months…
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 50 thousand).
The rise in unemployment [also] would have been much worse had the participation rate not dropped by -0.362 points…
Unemployment is now heading to 6 per cent (my forecast for the end of 2013) and will continue to rise unless there is a dramatic reversal in employment growth.
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.
I have plotted the 3 episodes for 68 months after the low-point unemployment rate was reached in each cycle. The current episode is now in its 67th month. For 1991, the peak unemployment which was achieved some 38 months after the downturn began and the resulting recovery was painfully slow. While the 1982 recession was severe the economy and the labour market was recovering by the 26th month. The pace of recovery for the 1982 once it began was faster than the recovery in the current period.
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…
The participation rate fell by 0.1 percentage points in August 2013 after falling by 0.2 points in July. This continues the downward trend we have seen over the last six months (see Table above).
It is now at 65.0 per cent. The falling participation meant that the rise in unemployment was lower than otherwise given the contraction in employment…
If the participation rate had not have fallen, total unemployment, at the current employment level, would have been 732.9 thousand rather than the official count of 714.1 thousand as recorded by the ABS – a difference of 18.8 thousand workers.
Thus, without the fall in the participation rate, the unemployment rate would have actually risen to 5.9 per cent rather than its current value of 5.8 per cent.
The conclusion is that hidden unemployment rose and this attenuated the rise in the official unemployment rise. In functional terms this signals a much worse deterioration in the conditions than signalled by the current official unemployment rate…
What would the unemployment rate be if the participation rate was at that recent peak level (65.9 per cent)?
The following graph tells us what would have happened if the participation rate had been constant over the period November 2010 to August 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 5.8 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 August 2013 was estimated to be 714.1 thousand. However, if participation had not have fallen there would be 895.1 thousand workers unemployed given growth in population and employment since November 2010.
The unemployment rate would now be 7.1 per cent if the participation had not fallen below its November 2010 peak of 65.9 per cent…
Overall, today’s data shows that the Australian labour market is weakening fast total employment contracting for the third consecutive month.
In general, we always have to be careful interpreting month to month movements given the way the Labour Force Survey is constructed and implemented.
But the negative trend is now becoming entrenched enough to support the 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 – now more quickly than earlier in the year.
The lack of job opportunities is leading workers to give up looking for jobs (that are not there) and the shrinking labour force is keeping the rise in unemployment down. But the unemployment rate is flattering given the accompanying rise in underemployment and hidden unemployment.
The official unemployment rate is trending upwards and it will eke its way up towards 6 per cent over the next 3 months.
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.
