Steady as she softly grows

Another day another set of economic data. Today it was the turn of the employment figures top come out.

On the very surface things looked OK. The unemployment rate stayed steady at a seasonal rate of 4.9% (though if you want to get down to the decimal points in April it was 4.859339% and in May it rose to 4.9265151 – so it actually rose 0.067% so it is only a rounding quirk that there was not an increase (for example it rises by the same amount next month, the rounded figure will be 5.0%.

But let us keep with the rounding for now, and say that unemployment remained steady. Let’s have a look at employment:

Employment increased 7,800 (0.1%) to 11,440,500. Full-time employment decreased 22,000 to 8,027,100 and part-time employment increased 29,800 to 3,413,500.

So the “steadiness” of the unemployment rate was due to an increase in part-time employment making up for the fall in full-time employment.

When such thing happen, it is always good to have a gander at the Labour underutilization figures – ie those who want to work but have no work, or those who have a job but want to work more. First the long term rate (since 1978)

Not surprisingly it largely mirrors the unemployment rate, and you can also see that it rarely gets below 10%. The average since 1978 is actually 12.1%.

Let’s have a look at it over the past 5 years:

It shows that just before the Global Financial Crisis smacked us around, it was at that historically low 10% level, but now it is at 12.2% – ie just above that long term average.

It means that we are not at “full employment” by any means. 4.9 per cent employment is quite healthy – and well below the average since 1978 of 7.1 per cent, but there are a lot of people who want to work more than they currently are. 

If we then look at actual employment growth we see this weakness in the labour market as well.

Now if I was silly I would just show this graph and say wow, look at all the extra people who are being employed compared to 1978:

But such a nominal graph like that is pretty meaningless, and no one would be so silly as to look at nominal figures without taking into account population growth...

So let’s focus on the percentage change in employment in the last 5 years to actually see what is going on in the labour market:

As you can see, after the trough of the GFC in 2008-09, there was very good strong growth in employment to the end of 2010, but that 3 of the last 6 months has actually seen a decline in seasonally adjusted total employment, and the quarterly average is now near zero per cent growth.

Now to an extent this is not unexpected. After all we have just come out of a shocker of a quarter in terms of GDP. It was also a period where productivity sharply declined – because the GDP slumped, but companies, especially in QLD, knew it was only temporary slump due to weather etc, and so did not lay off masses of staff. And so now as production starts up again, there is not the type of need to re-employ staff to so the work that you might find as an economy moves out of a quarter of negative growth – they are already working.

But the decline in employment growth since the peak spurt in November 2010 shows that there does appear to be a softness in the market. A softness, however that suggests the RBA will be unlikely to put on the interest rates break. (the usual economic play – something bad means something good)

The market has reflected this belief as well – and lingering thoughts that the RBA might increase the rates next month has completely disappeared.

It’s why the exchange rate decline a little bit in the past week:

But we’re still well over parity. Why are we still so high if it is unlikely for the cash rate to be increased? Well because while the growth is weak at the moment, the belief is that once the full effects of the floods and Cyclone Yasi are gone the growth will fire up – and so too will inflationary pressures (and thus the cash rate).

For the other reason, we need to visit our American cousins and see how they’re fairing in comparison:

And that horror is why Obama is very much a chance to be like George Bush Sr, and be a oncer. Bush Sr also had a nice military victory to boast of, just as Obama did with getting Osama bin Laden, but Bush Sr fell victim to Clinton and his “It’s the economy stupid” campaign. Obama if he is going to win in 2012, will need to fight on that same battlefield.

Labor will of course be fighting that battle as well – unlike Obama though it has (and will have) a good story to tell… it just needs to work out how to tell it.