AMP Capital chief economist Shane Oliver says that while consumer confidence and spending is recovering, the Australian economy faces a long road back to recovery:
ABS labour force data showed a further sharp deterioration in the Australian labour market into mid-May with employment falling another 228,000 and unemployment rising to 7.1%. This is worse than economists including ourselves expected but still far better than we expected a month or two ago when we saw unemployment going rapidly up to just below 10% this quarter. Whatever it is it’s a devastating outcome for those impacted.
The bad news is that the “true” unemployment rate is probably a lot higher than 7.1%. The change to JobSeeker that allows people to receive it and not have to look for work has contributed to a 3% decline in the participation rate (from 65.9% to 62.9%) since March. If the participation rate had only fallen by around 1% as occurred in the early 1990s recession unemployment would have risen to 10%. Furthermore, JobKeeper covering 3 to 3.5million jobs has prevented an even steeper fall in employment – a rough guesstimate of which is around 500,000 jobs. If this is also allowed for it would take the “true” unemployment rate up to around 13.8% which would be the highest since 1935.
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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.
