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Australian labour market – weak and in need of fiscal stimulus

The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for November 2016 shows total employment barely increased and the ABS said the trend to part-time work remains. Over the last 12 months, Australia has produced only 84.9 thousand (net) jobs with 107.2 thousand of them being part-time jobs. In other words, full-time employment has fallen by 22.2 thousand jobs over the same period. This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development etc. The teenage labour market remains in a poor state and was treading water in November. It requires urgent policy intervention. Overall, with weak private investment now on-going and real GDP contracting (in the September-quarter), the Australian labour market is weak and there needs to be a policy shift. We will learn next week when the Federal government makes its Mid-Year Fiscal statement whether they have taken heed of the message in the data over the last few months. Australia needs a rather sizeable fiscal stimulus. My bet is that the Government will not have the good sense to introduce this required boost to total spending. But the deteriorating data is staring us all in the face now! There is no room for nuance. It is at the stage where the Federal treasurer should resign and admit his failure (see below).

The summary ABS Labour Force (seasonally adjusted) estimates for November 2016 are:

  • Employment increased by 39,100 (0.3 per cent) with full-time employment increasing by 39,300 and part-time employment decreasing by 200.
  • Unemployment increased by 17,000 to 725,300.
  • The official unemployment rate increased by 0.1 points to 5.7 per cent.
  • The participation rate rose by 0.2 points to 64.6 per cent. Its behaviour has been quite erratic over the last 6 months. It remains well below its November 2010 peak (recent) of 65.8 per cent.
  • Aggregate monthly hours worked decreased 10.4 million hours (-0.62 per cent).
  • The latest quarterly broad labour underutilisation data was published this month. Underemployment fell by 40.7 thousand since May 2016 and was 8.3 per cent of the labour force. The total labour underutilisation rate (unemployment plus underemployment) fell by 0.2 per cent to 14.1 per cent. There were 1,059.4 thousand persons underemployed and a total of 1,784.5 thousand workers either unemployed or underemployed.
  • The monthly (unadjusted) broad labour underutilisation data for November 2016, however, showed that since October, total underemployment was 1,088.2 thousand persons and the underemployment rate had risen by 0.5 points.

Employment growth – fairly subdued

While the ABS recorded a rise of only 3.1 thousand persons employed in trend terms, it estimated that in seasonally-adjusted terms, that total (net) employment in November 2016 increased by 39,100 jobs with full-time employment increasing by 39,300 and part-time employment decreasing by 200.

I indicated several months ago that Australia was becoming a part-time employment nation. That trend has not been reversed by these figures.

The ABS said that in terms of its trend data:

Monthly trend full-time employment was largely unchanged in Australia in November 2016 …

Total trend employment increased by 3,100 persons to 11,949,300 persons in November 2016, reflecting an increase in part-time employment of 3,200 persons and a small decrease of 100 persons working full-time.

Over the past year we have seen a shift towards part-time employment, particularly in the first half of 2016. There are now around 138,300 more people working part-time than there were a year ago, and around 51,000 fewer people working full-time

In seasonally-adjusted terms, 126.2 per cent of the net jobs created in Australia in the last 12 months have been part-time.

The zig-zag pattern that we have observed over the last 36 months or so – where the employment estimates have been switching back and forth regularly between negative employment growth and positive growth with the occasional spikes – continues.

The following graph shows the month by month growth in full-time (blue columns), part-time (grey columns) and total employment (green line) for the 24 months to November 2016 using seasonally adjusted data.

It gives you a good impression of just how flat employment growth has been over the last 2 years. You can also see the dominance of part-time employment growth over the same period, especially in the last year or so.

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).

Full-time employment has risen slightly by 19.8 thousand jobs (net) while part-time work has risen by 29.8 thousand jobs.

The conclusion – overall there have only been 49.6 thousand jobs (net) added in Australia over the last six months while the labour force has barely increased (up 51.2 thousand). Employment growth has thus failed to keep pace of the a sluggish labour supply growth with the result that unemployment has risen by 1. thousand.

Since February 2008, employment has grown by a miserly 12.5 per cent, which is a very slow pace in historical terms for such a long period.

Overall – a fairly subdued labour market.

Given the variation in the labour force estimates, it is sometimes useful to examine the Employment-to-Population ratio (%) because the underlying population estimates (denominator) are less cyclical and subject to variation than the labour force estimates. This is an alternative measure of the robustness of activity to the unemployment rate, which is sensitive to those labour force swings.

The following graph shows the Employment-to-Population ratio, since February 2008 (the low-point unemployment rate of the last cycle).

It dived with the onset of the GFC, recovered under the boost provided by the fiscal stimulus packages but then went backwards again as the last Federal government imposed fiscal austerity in a hare-brained attempt at achieving a fiscal surplus.

The ratio began rising in October 2014 which suggested to some that the labour market had bottomed out and would improve slowly as long as there are no major policy contractions or cuts in private capital formation.

However, the peak in November is now gone and the ratio is once again in retreat or barely rising.

The on-going fiscal deficit is still supporting some growth in the economy as the spending associated with the mining boom disappears. But the deficit is clearly too small given the behaviour of the real aggregates.

The series rose by 0.2 points in November 2016 at 61 per cent and remains a staggering 1.9 points below the April 2008 peak of 62.9 per cent.

There is no good news here.

Teenage labour market – stagnating in November

The teenage labour market saw full-time employment fall by 400 jobs and part-time employment rise by 4.8 thousand (net) jobs in November 2016.

Total employment thus rose by 4.4 thousand (net), which while better than previous months, continues the poor performance of this segment of the labour market.

The following graph shows the distribution of net employment creation in the last month by full-time/part-time status and age/gender category (15-19 year olds and the rest)

Over the last 12 months, teenagers have lost 21.7 thousand (net) jobs overall while the rest of the labour force have gained 106.6 thousand net jobs. Remember that the overall result represents a fairly poor annual growth in employment.

Full-time employment for teenagers over the last 12 months has been declined – down by 30.4 thousand.

The teenage segment of the labour market is being particularly dragged down by the sluggish employment growth, which is hardly surprising given that the least experienced and/or most disadvantaged (those with disabilities etc) are rationed to the back of the queue by the employers.

The following graph shows the change in aggregates over the last 12 months. It is as if the teenagers have not had a stake in the labour market either way (blue bars barely visible).

To further emphasise the plight of our teenagers, the following graph extends the time period from February 2008, which was the month when the unemployment rate was at its low point in the last cycle, to the present month (November 2016). So it includes the period of downturn and then the so-called ‘recovery’ period. Note the change in vertical scale compared to the previous two graphs.

Since February 2008, there have been only 1,325.6 thousand (net) jobs added to the Australian economy but teenagers have lost a staggering 106.6 thousand over the same period. It is even more stark when you consider that 130.3 thousand full-time teenager jobs have been lost in net terms.

Even in the traditionally, concentrated teenage segment – part-time employment, teenagers have gained only 23.7 thousand jobs (net) even though 800.5 thousand part-time jobs have been added overall.

Overall, the total employment increase is modest. Further, around 60 per cent of the total (net) jobs added since February 2008 have been part-time, which raises questions about the quality of work that is being generated overall.

To put the teenage employment situation in a scale context the following graph shows the Employment-Population ratios for males, females and total 15-19 year olds since February 2008 (the month which coincided with the low-point unemployment rate of the last cycle).

You can interpret this graph as depicting the loss of employment relative to the underlying population of each cohort. We would expect (at least) that this ratio should be constant if not rising somewhat (depending on school participation rates).

The facts are that the absolute loss of jobs reported above is depicting a disastrous situation for our teenagers. Males, in particular, have lost out severely as a result of the economy being deliberately stifled by austerity policy positions.

In the latter months of 2015, with the part-time employment situation improving, there was some reversal in the downward trends in these ratios.

However, it appears that the ratios are now flattening out (females) or in further decline (males and total).

The male ratio has fallen by 12 percentage points since February 2008, the female ratio has fallen by 5.6 percentage points and the overall teenage employment-population ratio has fallen by 8.8 percentage points. That is a substantial decline in the employment market for Australian teenagers.

The other staggering statistic relating to the teenage labour market is the decline in the participation rate since the beginning of 2008 when it peaked in January at 61.4 per cent. In November 2016, the participation rate was just 52.9 per cent (a decline of 1.4 points since August, the most recent peak).

That is an additional 125.4 thousand teenagers who have dropped out of the labour force as a result of the weak conditions since the crisis.

If we added them back into the labour force the teenage unemployment rate would be 29.2 per cent rather than the official estimate for November 2016 of 17.9 per cent.

Some may have decided to return to full-time education and abandoned their plans to work. But the data suggests the official unemployment rate is significantly understating the actual situation that teenagers face in the Australian labour market.

Overall, the performance of the teenage labour market remains extremely poor. It doesn’t rate much priority in the policy debate, which is surprising given that this is our future workforce in an ageing population. Future productivity growth will determine whether the ageing population enjoys a higher standard of living than now or goes backwards.

I continue to recommend that the Australian government immediately announce a major public sector job creation program aimed at employing all the unemployed 15-19 year olds, who are not in full-time education or a credible apprenticeship program.

Unemployment increased by 17,000 to 725,200

The official unemployment rate rose 0.1 points to 5.7 per cent in November 2016 as a result of poor employment growth and a rising participation rate.

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 shows the national unemployment rate from February 1978 to November 2016. The longer time-series helps frame some perspective to what is happening at present.

After falling steadily as the fiscal stimulus pushed growth along, the unemployment rate slowly trended up for some months.

It is now above the peak that was reached just before the introduction of the fiscal stimulus. In other words, the gains that emerged in the recovery as a result of the fiscal stimulus in 2009-10 have now been lost.

Given the weak (negative) employment growth, the unemployment rate would be much higher if the labour force was growing as previous trend rates (see analysis below).

Broad labour underutilisation – 14.1 per cent

The monthly underutilisation series shows that (in unadjusted terms), broad labour underutilisation (the sum of unemployment and underemployment) stood at 14 per cent (males 12.1 per cent, females 16.1 per cent).

This rate has risen by 0.5 points since October 2016.

The breakdown is:

1. Unemployment 5.4 per cent (males 5.4 per cent, females 5.4 per cent).

2. Underemployment 8.6 per cent (males 6.7 per cent, females 10.7 per cent).

3. Total underemployment 1,088.2 thousand persons.

The ABS published its quarterly broad labour underutilisation measures for the November-quarter 2016 in this month’s data release.

In the August-quarter, total underemployment was 8.3 per cent (1,059.4 persons – down by 40.7 thousand or 3.7 per cent since May) and the ABS broad labour underutilisation rate (the sum of unemployment and underemployment) was 14.1 per cent (down by 0.2 percentage points).

This decline over the three months has to be seen in the context of the most recent month’s sharp increase, which may signal a deteriorating rather than improving situation into the future.

There were 1,059.4 thousand persons underemployed and a total of 1,784.5 thousand workers either unemployed or underemployed.

The following graph plots the history of underemployment in Australia since February 1978 to the November-quarter 2015.

The next graph shows the evolution of the broad underutilisation rate over the same period. You can see the three cyclical peaks corresponding to the 1982, 1991 recessions and the more recent downturn.

Unemployment was a higher proportion of the two earlier peaks but underemployment now dominates the current cycle (just).

The other difference between now and the two earlier cycles is that the recovery triggered by the fiscal stimulus in 2008-09 did not persist and as soon as the ‘fiscal surplus’ fetish kicked in in 2012, things went backwards very quickly.

The two earlier peaks were sharp but steadily declined. The last peak fell away on the back of the stimulus but turned again when the stimulus was withdrawn.

If hidden unemployment (given the depressed participation rate) is added to the broad ABS figure the best-case (conservative) scenario would see a underutilisation rate well above 16 per cent at present. Please read my blog – Australian labour underutilisation rate is at least 13.4 per cent – for more discussion on this point.

The next update will be for the February-quarter 2016 and will be published published in the March 2017 Labour Force release. In between those releases, the monthly estimates are available to guide our thinking.

Aggregate participation rate – rose by 0.2 points to 64.6 per cent but remains at depressed levels

The November 2016 participation rate rose by 0.2 points to 64.6 per cent. It had previously fallen by 0.4 pts in the August and September and was steady last month.

The participation rate remains substantially down on the most recent peak in November 2010 of 65.8 per cent when the labour market was still recovering courtesy of the fiscal stimulus.

The rising participation rate this month meant that the unemployment rose by 17 thousand even though total employment rose by 39.1 thousand.

The rising participation rate added an extra 40.8 thousand persons to the labour force (over the 15.3 thousand that were added as a result of underlying population growth).

In other words, if the participation rate had not increased the unemployment rate would have fallen to 5.4 per cent instead of rising to 5.7 per cent (from 5.6 per cent).

However, the participation rate remains at depressed levels.

What would the unemployment rate be if the participation rate was at the last November 2010 peak level value?

The following graph tells us what would have happened if the participation rate had been constant over the period November 2010 to November 2016. The blue line is the official unemployment rate since its most recent low-point of 4 per cent in February 2008.

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).

In recent months the gap between the lines has diverged which signals a deteriorating situation.

Total official unemployment in November 2016 was estimated to be 725.2 thousand. However, if participation had not fallen relative to November 2010, there would be 950.3 thousand workers unemployed now given growth in population and employment since November 2010.

The unemployment rate would now be 7.4 per cent if the participation had not fallen below its November 2010 peak of 65.8 per cent. The official unemployment in November 2016 was 5.7 per cent.

The difference between the two numbers mostly reflects, the change in hidden unemployment (discouraged workers) since November 2010. These workers would take a job immediately if offered one but have given up looking because there are not enough jobs and as a consequence the ABS classifies them as being Not in the Labour Force.

There has been some change in the age composition of the labour force (older workers with low participation rates becoming a higher proportion) but this only accounts for less than 1/3 of the shift. The rest is undoubtedly accounted for by the rise in hidden unemployment.

Note, the gap between the blue and red lines doesn’t sum to total hidden unemployment unless November 2010 was a full employment peak, which it clearly was not. The interpretation of the gap is that it shows the extra hidden unemployed since that time.

This gap shrinks as participation rises relative to the November 2010 peak.

Hours worked – fell by 0.62 per cent in November 2016

Seasonally-adjusted aggregate monthly hours fell by 10.4 million hours (0.86 per cent) in November 2016.

The following graph shows the monthly growth (in per cent) over the last 24 months. The dark linear line is a simple regression trend of the monthly change – which depicts a distinct negative trend

You can see the pattern of the change in working hours is also portrayed in the employment graph – zig-zagging across the zero growth line.

The day before the labour market data release

It is almost like we are back in the late 1990s, when growth was being maintained by private credit growth in the face of fiscal drag coming from the obsessive pursuit of surpluses.

At the time, Australian central bank and treasury officials came out and claimed that the private debt escalation was no problem because it was being backed by wealth accumulation.

Also at the time, an increasing proportion of the private debt was in the form of so-called ‘margin debt’, which entailed borrowing to purchase speculative assets (shares etc). It was also going to buy speculative investment real estate, provoked by our ridiculous negative gearing tax concessions (which further entrenches wealth inequalities).

The same line and trends were seen around the world. The sub-prime crash in the US quickly sorted out the validity of the argument and millions of Americans and others around the world (Spain, Ireland etc) are still licking their wounds as the ‘wealth’ seemed to disappear rather quickly.

Yesterday, our Treasurer was back in action – lecturing an audience in Sydney on why the falling household saving ratios, and record levels of household debt are no problem.

He pulled out the old canard.

In terms of the record levels of debt he said that wealth was rising:

This means that there are assets against these liabilities. In fact the aggregate asset holdings of the household sector are around five times greater than the debts of the household sector.

A conservative Treasurer is really in trouble when the bond market and investment bankers come out publicly rejecting his logic. After all, the continued (and unnecessary) practice of issuing public debt to match (not fund) the fiscal deficit provides these characters with their regular dose of corporate welfare.

But after the Treasurer ScoMo (Scott Morrison) – which in those words games where you substitute to get new words seems an easy reach to get Scumm (yes, I know, the spelling!) – made his speech, he received rather universal scorn.

One ‘investment expert’ (who the ABC news report (December 14, 2016) said “manages more than $1 billion worth of funds, did not hold back in his criticism”.

This ‘expert’ said of ScoMo’s analysis:

I think that is one of the most inane and stupid things I have ever heard.

Why?

Because “the very reason for the rise in asset prices is due to the debt used to buy it” and “When interest rates start going up — and they will as soon as, in some cases February for some of the banks — investors are going to find they won’t have a tenant … and they’ll have higher interest rates to pay, and that debt will come hometo roost.”

More euphemistically, another economist said that ScoMo’s remarks “probably is a little bit of a shallow statement”.

Another pointed out that ScoMo’s logic assumed housing prices never fall:

It’s a popular myth, but that’s all it is. It has happened several times in history and it’ll happen again.

Just check out Tuesday’s (December 13, 2016) latest release from the ABS – Annual property price growth lowest in over three years.

Housing prices stalled around the nation and fell in Perth and Darwin.

Our inane Treasurer is past his use-by date (which never was) and should resign immediately. The problem is that the next in line is just as incompetent.

Conclusion

I repeat my standard monthly warning – we always have to be careful interpreting month to month movements given the way the Labour Force Survey is constructed and implemented.

Today’s figures show that the Australian labour market remains in a weak state

Total employment barely increased and the ABS said the trend to part-time work remains.

Over the last 12 months, Australia has produced only 84.9 thousand (net) jobs with 107.2 thousand of them being part-time jobs. In other words, full-time employment has fallen by 22.2 thousand jobs over the same period. This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development etc. The teenage labour market remains in a poor state and was treading water in November.

The teenage labour market remains in a poor state and requires urgent policy intervention.

Overall, with weak private investment now on-going and real GDP contracting (in the September-quarter), the Australian labour market is weak and there needs to be a policy shift.

We will learn next week when the Federal government makes its Mid-Year Fiscal statement whether they have taken heed of the message in the data over the last few months.

Australia needs a rather sizeable fiscal stimulus. My bet is that the Government will not have the good sense to introduce this required boost to total spending.

That is enough for today!

(c) Copyright 2016 William Mitchell. All Rights Reserved

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    This Post Has 4 Comments
    1. Dear Bill,

      Can you please bring back those brilliant music related posts you used to make on Fridays ? The economy is a little bit depressing these days.

    2. I was musing as to whether the November figures might show what some might interpret as a small improvement, depending upon how you look at it. As I mentioned a few threads back, there has been a rush of SME’s reporting very strong November trading, though many have also said this has softened again so far this month.

      I have no formal economics training but having followed it as an interested layperson for almost a decade now, I recall many such strange results popping up from time to time with no really obvious driver. This quarter may well turn out to post a positive GDP figure, though we won’t know until next year of course. I still think that most evidence is pointing to the Australian economy being really quite ill and in definite need of fiscal stimulus.

      One thing that can be surprising is just how far down the road the can can keep on being kicked by those whose fat fortunes are dependent upon its endless kicking – I see the latest newcomer to the RBA board had or had a private venture designed to offset the glut of apartments in our biggest cities by offering loans to foreign investors while the major lenders have been tightening lending requirements. I have long mused that in the event that slump or crash in our massively overvalued housing market appeared on the horizon, we would simply sell every available housing unit to foreign speculators, f**k our own young people who can’t afford to house themselves as it is now. And of course, when around 95% of our oliticians hold investment property portfolios themselves………what else were we really expecting? Naturally-occurring justice of some sort?

      The egalitarian Australia I grew up in is DEAD. We have made the full transmutation to a society defined by haves and have-nots.

    3. hi bill,

      i remember some of your excellent pieces on argentina a while back.

      would be interesting to re visit the argy and venezuelan situation at present from a mmt perspective.

      curious to know what mmt would advise re venezuela

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