Today the ABS released the Labour Force data for March 2010 and the data reveals that employment growth is very tentative and unemployment is rising. Unemployment rates in the populous states have risen. Further, labour force participation fell which makes the situation even more sombre. The bank economists have claimed that this is a picture of a near booming economy with wage inflation and skills shortages becoming the main focus. I consider their judgement to be seriously impaired and biased. Amidst all the talk about strong employment growth and wage breakouts about to happen – conditions in the Australian labour market are, in fact, very tepid as the impact of the fiscal stimulus wanes. With the declining fiscal stimulus and private spending remaining subdued – today’s data doesn’t represent a place we would want to be in for very long.
In a way this is an extension of yesterday’s blog where I argued that the gap between the outlandish statements coming from the media and other commentators about how the economy is tracking and the actual data is substantial. Today the ABS released the Labour Force data for February 2010 and the data reveals that employment growth stalled and unemployment rose again. The “markets” (those geniuses) had factored in a solid employment growth which only suggests they know how to extrapolate on recent data points. Further, labour force participation fell which makes the situation even more sombre. So amidst all the talk about employment going ape and wage breakouts about to happen – things have cooled somewhat as the impact of the fiscal stimulus wanes. Yes, its a monthly result and the trend is still mildly positive. But with the declining fiscal stimulus and private spending remaining subdued – today’s data doesn’t signal a steam train economy.
Today the ABS released the Labour Force data for January 2010 and there was quite a strong growth in employment reveals, albeit it was dominated by part-time growth. The employment boost confounded the “markets”, some of the so-called experts had “factored in” contraction (so I guess their clients are dudded by their incompetence again!). With participation constant, the net jobs growth translates into solid reductions in unemployment. Unfortunately, total hours worked plummetted so I suspect it will be a grinding part-time led recovery. But the good news is that unless something bad happens elsewhere in the World we are now well over the aggregate unemployment rate peak and surfing down the face!
Today the ABS released the Labour Force data for December 2009 and it confirms that the Australian economy is still recovering under the steam of the fiscal stimulus. Total employment has grown by three times more than expected and participation is constant. Which means that unemployment has started to fall although underemployment hasn’t budged. While the media commentators today (including myself) have been fairly upbeat I have been reminding the public in media interviews that I have done that broader labour underutilisation (sum of unemployment and underemployment) remains at 13.5 per cent. But optimistically the trend is now looking as though the aggregate unemployment rate may have peaked. So it is now to start looking beyond the peak.
I have been doing some work again on the costs of unemployment and this blog gives a snapshot of part of that research. One of the strong empirical results that emerge from the Great Depression is that the job relief programs that the various governments implemented to try to attenuate the massive rise in unemployment were very beneficial. At that time, it was realised that having workers locked out of the production process because there were not enough private jobs being generated was not only irrational in terms of lost income but also caused society additional problems, such as rising crime rates. Direct job creation was a very effective way of attenuating these costs while the private sector regained its optimism. In fact, it took about 50 years or so for governments to abandon this way of thinking. Now we tolerate high levels of unemployment without a clear understanding of the magnitude of costs that that policy position imposes on specific individuals and society in general. The single most rational thing a government could do was to ensure that there were enough jobs to match the available labour force. Mostly, they fail badly to achieve this level of sophistication.
Today and tomorrow I am hosting a workshop – ARCRNSISS Methods, Tools and Technologies workshop in Newcastle for the Spatially integrated social science research network that I am part of. This is a technical workshop on regional modelling which I host annually. So back to back with the CofFEE Conference last week means we have been very busy. I will write a blog about the work we do in the regional science area another day (it is very technical). But today the Australian Bureau of Statistics (ABS) published the November Labour Force Survey data and it shows that full-time employment is growing and the unemployment rate has fallen (by 0.1 per cent to 5.7 per cent). While underemployment is constant, the data suggests that the negative impact on the labour market may have peaked. But as I caution in this blog, regional disparities are huge and it is not the time to start talking about fiscal contraction.
In the last few days I have seen more calls from commentators for policy makers to take new initiatives to generate jobs and growth. Some of these calls have come from commentators and research centres that sit on the “progressive” side of the macroeconomic debate. Unfortunately, their proposals are always compromised by their demonstrated lack of understanding of how the monetary system operates. In my view these proposals actually undermine the need to advance an understanding that sovereign governments can create true full employment and should do so as a matter of urgency. By playing ball with the conservatives and choosing to focus on deficit outcomes these progressives divert the policy focus away from the real issues. In short, the federal budget deficit outcome should never be the focus of policy.
Today the latest Labour Force data came out from the ABS and it surprised everyone who watches these releases. Employment is up (full-time stronger than part-time); working hours are up; participation is up, unemployment is down and the demand-side outstripped the supply-side, so the unemployment rate falls by 0.1 percentage points. Everything about that is good. Several commentators are now saying that the RBAs decision on Wednesday to put the short-term interest rate up is now vindicated. I don’t think so. Things remain grim and that last thing we need now is any contractionary policy impulse.
The Labour Force data yesterday certainly raised some questions from journalists – both written and radio media. Some journalists are definitely starting to question the idea that everything is going okay and recovery is progressing. I did several media interviews yesterday and most were interested in the idea that focusing on the unemployment rate – which was unchanged – is an sure way to making a deluded assessment of how grim things are at present.
The glow from last week’s National Accounts figures is now gone with the yesterday’s Retail Sales data and today’s Labour Force data showing that the Australian economy is far from being healthy and might better be termed hanging on by the skin of its teeth with strong fiscal support. The data also confirms why I am now calling this the underemployment recession. I could use this blog to show further flaws in the Austrian School’s approach to the labour market but I will leave that theme until another time.