This is the ‘calm before the storm’ data release, although the calm is already pretty poor. It will get worse in months to come. The Australian Bureau of Statistics released of its latest data today (March 19, 2020) – Labour Force, Australia, February 2020 – which continues to show that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded for the start of 2020. The culprit in the coming months will be the coronavirus. But to date there is one culprit – the Australian government – which has been starving spending by its obsessive pursuit of a fiscal surplus. Employment growth was weak – 0.2 per cent and only outstripped the change in the labour force because participation fell by 0.1 points. As a consequence, unemployment fell by 26,400 as about that many workers exited the labour force. The fall in broad labour underutilisation from 13.9 per cent to 13.7 per cent is all due to the decline in participation. There were a total of 1,882.1 thousand workers either unemployed or underemployed. This is a deplorable result. My overall assessment is that the Australian labour market remains a considerable distance from full employment and that that distance is increasing. With the coronavirus about to dwarf everything, the prior need for a fiscal stimulus of around 2 per cent has changed to a fiscal stimulus requirement of several times that. There is clear room for some serious fiscal policy expansion at present and the Federal government should not delay any further.
The summary ABS Labour Force (seasonally adjusted) estimates for February 2020 are:
- Employment increased by 26,700 (0.2 per cent) – Full-time employment increased 6,700 and part-time employment increased 20,000.
- Unemployment decreased 26,400 to 699,100 persons.
- The official unemployment rate decreased by 0.2 points to 5.1 per cent because participation fell.
- The participation rate decreased by 0.1 points to 66 per cent.
- Aggregate monthly hours worked decreased by 3 million hours (0.17 per cent).
- Underemployment rose marginally (5.1 thousand) but the underemployment rate was steady at 8.6 per cent. Overall there are 1,183.1 thousand underemployed workers. The total labour underutilisation rate (unemployment plus underemployment) decreased by 0.2 points to 13.7 per cent. There were a total of 1,882.1 thousand workers either unemployed or underemployed.
Employment – modest rise overall in February 2020
1. Employment increased by 26,700 (0.2 per cent). This is mediocre.
2. Full-time employment increased 6,700 and part-time employment increased 20,000.
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 February 2020 using seasonally adjusted data.
The zig-zag pattern where employment growth has regularly been around zero remains evident.
The following table provides an accounting summary of the labour market performance over the last six months.
As the monthly data is highly variable, this Table provides a longer view which allows for a better assessment of the trends.
1. Total employment has outstripped the labour force change because participation has fallen by 0.17 points.
2. As a consequence unemployment has fallen by 18 thousand.
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 Federal government imposed fiscal austerity in a hare-brained attempt at achieving a fiscal surplus in 2012.
The ratio was constant in February 2020 at 62.6 per cent and remains below pre-GFC peak in April 2008 of 62.9 per cent.
To put the current monthly performance into perspective, the following graph shows the average monthly employment change for the calendar years from 1980 to 2020 (to date).
It is clear that after some lean years, 2017 was a much stronger year if total employment is the indicator.
It is also clear that the labour market weakened considerably over 2018 and that situation worsened in 2019.
2020 has not started well.
The following graph shows the average monthly changes in Full-time and Part-time employment (lower panel) in thousands since 1980.
The interesting result is that during recessions or slow-downs, it is full-time employment that takes the bulk of the adjustment. Even when full-time employment growth is negative, part-time employment usually continues to grow.
Remember: the average for 2020 is on two-months only (explaining the dive in part-time employment)
Unemployment decreased 26,400 to 699,100 persons because overall participation fell
The official unemployment rate decreased by 0.2 points to 5.1 per cent but this was due to the decline in labour force participation (see below).
The actual values were 5.290 per cent in January 2020 and 5.097 per cent in February 2020.
The policy settings are such (austerity bias) that unemployment is now stuck at elevated levels with an strong upward bias as a result of the coronavirus crisis.
Without a massive fiscal intervention, unemployment could easily hit 10 per cent by the end of the financial year (June).
It is also well above the level that would be associated with any inflationary impulses being sourced from the labour market
The Government has been deliberately holding unemployment at a level that will restrict wages growth and increase family hardship.
It has forced us to begin this next crisis in a much worse shape than the nation was in prior to the GFC. The consequences will be correspondingly worse.
The following graph shows the national unemployment rate from January 1980 to February 2020. The longer time-series helps frame some perspective to what is happening at present.
1. It is still 0.2 points above the level it fell to as a result of the fiscal stimulus (which was withdrawn too early) and 1.1 points above the level reached before the GFC began.
2. There is clearly still considerable slack in the labour market that could be absorbed with fiscal stimulus.
3. Its persistently elevated level is directly related to the fiscal austerity that the Federal government has in place. Worse is to come.
Broad labour underutilisation fell by 0.2 points to 13.7 per cent because overall participation fell.
The results for February 2020 are (seasonally adjusted):
1. Underemployment rose marginally (5.1 thousand) but the underemployment rate was steady at 8.6 per cent.
2. Overall there are 1,183.1 thousand underemployed workers.
3. The total labour underutilisation rate (unemployment plus underemployment) decreased by 0.2 points to 13.7 per cent.
4. There were a total of 1,882.1 thousand workers either unemployed or underemployed.
The following graph plots the seasonally-adjusted underemployment rate in Australia from January 1980 to the February 2020 (blue line) and the broad underutilisation rate over the same period (green line).
The difference between the two lines is the unemployment rate.
The three cyclical peaks correspond to the 1982, 1991 recessions and the more recent downturn.
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.
In the coming months these graphs will turn sharply upwards.
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 15 per cent at present. Please read my blog post – Australian labour underutilisation rate is at least 13.4 per cent – for more discussion on this point.
Aggregate participation rate – decreased by 0.1 points to 66 per cent
The fall in the labour force participation rate eased the pressure on official unemployment.
By how much would unemployment have risen if the participation rate had not fallen?
The labour force is a subset of the working-age population (those above 15 years old). The proportion of the working-age population that constitutes the labour force is called the labour force participation rate. Thus changes in the labour force can impact on the official unemployment rate, and, as a result, movements in the latter need to be interpreted carefully. A rising unemployment rate may not indicate a recessing economy.
The labour force can expand as a result of general population growth and/or increases in the labour force participation rates.
The following Table shows the breakdown in the changes to the main aggregates (Labour Force, Employment and Unemployment) and the impact of the rise in the participation rate.
The change in the labour force in February 2020 was the outcome of two separate factors:
- The underlying population growth added 24.6 thousand persons to the labour force. The population growth impact on the labour force aggregate is relatively steady from month to month but has slowed in recent months; and
- The fall in the participation rate meant that there were 24.3 thousand workers dropping out of the labour force (relative to what would have occurred had the participation rate remained unchanged).
- The net result was that the labour force increased by only 0.3 thousand (rounded).
1. If the participation rate had not have fallen, total unemployment, at the current employment level, would have been 723.3 thousand rather than the official count of 699.1 thousand as recorded by the ABS – a difference of 24.3 thousand workers (the ‘participation effect’).
2. Without the fall in the participation rate in February 2020, the unemployment rate would have been 5.3 per cent (rounded) rather than its current value of 5.1 per cent (rounded).
3. Hidden unemployment rose slightly in February 2020 – a sign of a weakening situation.
4. In other words, the entire drop in unemployment and the unemployment rate is due to the drop in participation – nothing therefore to celebrate.
Teenage labour market – full-time employment contracts further in February 2020
1. Total teenage net employment rose by 9.6 thousand in February 2020.
2. Full-time teenage employment fell by 4.9 thousand and part-time employment rose by 14.4 thousand.
3. The teenage unemployment rate fell by 0.4 points to 18 per cent.
The following Table shows the distribution of net employment creation in the last month and the last 12 months 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 16.2 thousand net jobs, while the rest of the labour force gained 256.3 (net) jobs. The overall shift in employment is fairly weak.
In terms of the current cycle, which began after the last low-point unemployment rate month (February 2008), the following results are relevant:
1. Since February 2008, there have been 2,367.6 thousand (net) jobs added to the Australian economy but teenagers have lost 75.7 thousand over the same period.
2. Since February 2008, teenagers have lost 125.9 thousand full-time jobs (net).
3. Even in the traditionally, concentrated teenage segment – part-time employment, teenagers have gained only 50.2 thousand jobs (net) even though 1124.1 thousand part-time jobs have been added overall.
To put the teenage employment situation in a scale context (relative to their size in the population) the following graph shows the Employment-Population ratios for males, females and total 15-19 year olds since February 2008.
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 absolute loss of jobs reported above has impacted more on males than females.
The male ratio has fallen by 10.7 percentage points since February 2008, the female ratio has fallen by 4.1 percentage points and the overall teenage employment-population ratio has fallen by 7.5 percentage points.
The other statistic relating to the teenage labour market that is worth highlighting is the decline in the participation rate since the beginning of 2008 when it peaked in February at 61.4 per cent.
In February 2020, the participation rate was just 54.6 per cent. This is a very unreliable statistic overall – it fluctuates widely on a monthly basis.
However, the difference between the 2008 level, amounts to an additional 94 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 26.4 per cent rather than the official estimate for February 2020 of 18 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 leaves a lot to be desired. The decline in full-time employment for teenagers was particularly worrying.
This situation 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.
Hours worked decreased by 3 million hours (0.17 per cent) in February 2020
The second consecutive month that working hours have fallen.
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 decreasing trend.
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.
This is the ‘calm before the storm’ data release and the situation will get much worse in months to come.
The February 2020 data reveals that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded.
Employment growth was weak – 0.2 per cent and only outstripped the change in the labour force because participation fell by 0.1 points.
As a consequence, unemployment fell by 26,400 as about that many workers exited the labour force.
The fall in broad labour underutilisation from 13.9 per cent to 13.7 per cent is all due to the decline in participation. There were a total of 1,882.1 thousand workers either unemployed or underemployed.
This is a deplorable result.
My overall assessment is:
1. The current situation can best be characterised as being in a weak and deteriorating state.
2. The Australian labour market remains a considerable distance from full employment and that that distance is increasing.
3. This persistence in labour wastage indicates that the policy settings are to tight (biased to austerity) and deliberately reducing growth and income generation.
4. With the coronavirus about to dwarf everything, the prior need for a fiscal stimulus of around 2 per cent has changed to a fiscal stimulus requirement of several times that.
5. There is clear room for some serious fiscal policy expansion at present and the Federal government should not delay any further.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.