By now it has become obvious the economy simply isn’t creating any new jobs, and the lack of opportunity is discouraging people from remaining in the work force. In today’s editorial we will assess the January jobs figures and recent employment trends, and speculate what the future might hold for the labour market.
Last week the Australian Bureau of Statistics revealed the economy shed 3,700 jobs in January, well shy of the 15,300 jobs expected to have been created during the month.
Breaking down the number revealed 7,100 full-time jobs were lost and 3,400 part-time jobs were added. It was the second consecutive month where the economy has shed jobs to the surprise of economists.
If that weren’t enough, the unemployment rate also jumped two percentage points from 5.8% in December to 6.0% in January. That is the highest unemployment rate since August 2003.
Although the participation rate was unchanged at 64.5%, December’s participation rate was revised down from 64.6%.
January’s employment numbers continue a pattern of anaemic monthly job growth and a rising unemployment rate.
Worryingly, the increasing unemployment rate has coincided with a significant drop in Australia’s participation rate.
Below we graph the five-year trend in
Australia’s unemployment rate (white line) and participation rate (blue line).
The growing divergence is a symptom of diminished job opportunities – the participation rate drops as more Australians give up looking for a job and exit the labour force.
The jobless rate only takes into account Australians who are counted as being in the labour force. Therefore, the drop in the participation rate masks the true extent of the unemployment situation.
The ANZ Job Advertisements Survey is seen as a leading indicator of employment and below we graph the five-year trend in the survey.
The chart shows the number of jobs advertised has deteriorated significantly since 2011 and are presently near their post-GFC lows.
However other data suggests the declining trend in job ads is about to end.
The latest NAB Business Survey showed business confidence rose in January after three months of declines. Business conditions also ticked up slightly during the month.
A key takeout from the survey was the surprise jump in employment conditions. Whilst employment conditions remain consistent with the weak labour market, they have improved significantly from their lows in the third quarter of 2013.
The RBA warned as recently as this month unemployment was likely to continue heading higher as the economy transitions away from mining-led growth to non-mining led growth.
In its monetary policy statement for the December 2013 quarter, the RBA said it expects unemployment to continue rising throughout 2014 before heading lower in 2015.
Employment is traditionally seen as a lagging indicator of economic growth. Other data such as retail sales, business conditions and housing, are signalling strength in other parts of the economy.
This appears consistent with the view that a strengthening economy will eventually create demand for jobs.
A stabilisation in business confidence and a recent improvement in the NAB employment conditions sub-index are also indicating an eventual recovery in job advertisements, which bodes well for future job growth.
It is important to note that business confidence remains fragile given the structural changes being experienced by the economy.
These include the mining boom’s end and its impact on other parts of the economy, as well as the death of the local car manufacturing industry.
With Toyota deciding to pull out of Australia by 2017, joining Ford and Holden, there are estimates that up to 50,000 jobs could be lost up and down the car manufacturing supply chain.
If the RBA is indeed finished cutting interest rates and the Aussie dollar continues its recent upward trajectory, business confidence could be damaged by the renewed currency strength.
Also, the Abbot government has warned repeatedly that it is looking to cut spending in order to repair the budget.
Public sector spending cuts will likely act as a drag on the economy and may even delay the expected recovery in the employment market.
So whilst expectations are presently for unemployment to begin declining in 2015, this forecast remains subject to significant risks.