The survey week for the – Labour Force, Australia, March 2020 – data, released by the ABS today (April 16, 2020) was before the major policy interventions (lockdown etc). In other words, the data released today is not likely to resemble where the economy was by the end of March or where it is now. Even so, the results are indicative of a slowing economy with weak employment growth failing to outstrip the underlying population growth. As a consequence, unemployment rose by 20,300. Those numbers will be dwarfed in the coming months. The broad labour underutilisation rate (sum of unemployment and underemployment) rose by 0.2 points to 14 per cent. There were a total of 1,924 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’s attempts to date have been seriously under-whelming. I estimate the Government will have to inject at least another $A130 billion into the economy (around 40 per cent more than it already has). Not good times ahead.
The summary ABS Labour Force (seasonally adjusted) estimates for March 2020 are:
- Employment increased 5,900 (0.05 per cent) – Full-time employment decreased 400 and part-time employment increased 6,400.
- Unemployment increased 20,300 to 718,600 persons.
- The official unemployment rate increased 0.1 points to 5.2 per cent.
- The participation rate remained steady at 66.0 per cent.
- Aggregate monthly hours worked increased 8.6 million hours (0.48 per cent).
- Underemployment rose by 16.5 thousand or 0.1 points to 8.8 per cent. Overall there are 1,205.3 thousand underemployed workers. The total labour underutilisation rate (unemployment plus underemployment) increased by 0.2 points to 14.0 per cent. There were a total of 1,924.0 thousand workers either unemployed or underemployed.
ABS New Portal for the Coronavirus crisis
The ABS has a new page – Measuring the labour market impacts of COVID-19 – which brings together an array of data sources which will help us assess what is going on more accurately.
With the March data released today, the ABS spokesperson said:
Today’s data shows some small early impact from COVID-19 on the Australian labour market in early March, but any impact from the major COVID-19 related actions will be evident in the April data.
It is also important to note that the Labour Force Survey reference weeks were early in March.
The ABS say:
It is important to note that the reference period for March was 1-14 March, which was before a global pandemic was declared and before the major actions in Australia to contain the spread of the virus.
They also provided this useful graphic time line, which shows the evolution of the policy response to the crisis to date.
This all means that where the labour market is now is not likely to be anywhere near where it was during the survey reference week in the first two weeks of March.
So a sort of relative calm before the storm, although I would not call the situation that Australia was in before the crisis hit as being calm at all.
And because the data is really revealing pre-crisis conditions, the fact that the results show deterioration is indicative that policy was failing even before the medical emergency struck.
And despite what the Government is saying today – the results have nothing at all to do with their fiscal intervention.
Some rough arithmetic
I have been asked a lot during media interviews in the last few weeks whether the current stimulus position of the Australian government, which is a bit over 10 per cent of GDP, is sufficient.
I always answer no, given that all the indications are that unemployment will rise and GDP growth will plummet.
Here is some logic and arithmetic, which I will expand on next week, which bears on the question.
Yesterday, I noted that the Australian Treasury has estimated that the Government’s $A133 billion Job Keeper wage subsidy intervention has in their view reduced the likely unemployment rate of 15 per cent to an expected 10 per cent by June 2020.
The crisis started with the unemployment rate at 5.2 per cent.
The estimates are one thing. But if you think about it, it means the Government has bought 685 thousand jobs for $A133 billion. I will have more to say about this next week.
But it also means, in rough figuring that the intervention was around 5 per cent short of what it had to be to protect jobs.
Meaning: the fiscal stimulus should be at least another $A133 billion or around 6.5 per cent of GDP.
Employment – full-time employment falls and total creeps up in March 2020
1. Employment increased 5,900 (0.2 per cent). This is mediocre.
2. Full-time employment decreased 400 and part-time employment increased 6,400.
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 March 2020 using seasonally adjusted data.
The zig-zag pattern where employment growth has regularly been around zero remains evident.
I expect that next month, the green line will plunge into the negative area.
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 fallen behind labour force growth, notwithstanding the decline in participation of 0.1 points.
2. As a consequence unemployment has risen by 9.9 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 March 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 fell by 0.1 points in March 2020 at 62.5 per cent as a sign that employment growth slowed dramatically and is heading south. The ratio 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).
1. It is clear that after some lean years, 2017 was a much stronger year if total employment is the indicator.
2. It is also clear that the labour market weakened considerably over 2018 and that situation worsened in 2019.
3. 2020 has not started well and the deterioration will get deeper in the months to come.
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.
The average for full-time employment is not representative given the positive spike in January. That is ‘long ago’ now in terms of the trends ahead and will be deflated in the months to come.
Unemployment increased 0.1 points to 5.2 per cent
The official unemployment rate increased by 0.1 points to 5.231 per cent as employment growth lagged behind the growth in the underlying population with participation steady.
Going into the coronavirus crisis, the Government’s policy settings were biased towards austerity (obsessive pursuit of surplus) and this meant that unemployment had been stuck at elevated levels.
There is now a strong upward bias as a result of the coronavirus crisis.
See my note above about possible unemployment dynamics. It is clear now that the fiscal intervention already announced in two stages by the Government will be insufficient given the scale of the non-government contraction.
If the Treasury estimates that unemployment could easily hit 10 per cent by the end of the financial year (June) are correct, then we know the Government will have failed the nation.
The following graph shows the national unemployment rate from January 1980 to March 2020. The longer time-series helps frame some perspective to what is happening at present.
1. As we enter a new phase of rising unemployment, the rate is still 0.3 points above the level it fell to as a result of the GFC fiscal stimulus (which was withdrawn too early) and 1.3 points above the level reached before the GFC began. So a bad starting point to the next crisis.
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 rose by 0.2 points to 14 per cent
The results for March 2020 are (seasonally adjusted):
1. Underemployment rose by 16.5 thousand.
2. The underemployment rate rose by 0.1 points to 8.8 per cent.
2. Overall there are 1,205.3 thousand underemployed workers.
3. The total labour underutilisation rate (unemployment plus underemployment) increased by 0.2 points to 14.0 per cent.
4. There were a total of 1,924.0 thousand workers either unemployed or underemployed.
The following graph plots the seasonally-adjusted underemployment rate in Australia from January 1980 to the March 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.
Teenage labour market apparently bucks trend in March 2020
1. Total teenage net employment rose by 19.2 thousand in March 2020.
2. Full-time teenage employment rose by 7.7 thousand and part-time employment rose by 11.5 thousand.
3. The teenage unemployment rate fell by 1.2 points to 16.7 per cent.
This is an extraordinary result and I suspect there will be revisions next month. It is not clear why the teenage labour market would have experienced one of the best months in years. Aberration is likely.
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 gained 9.7 thousand net jobs, while the rest of the labour force gained 227.7 (net) jobs. The overall shift in employment is fairly weak.
In terms of the now completed cycle, which began after the last low-point unemployment rate month (March 2008), the following results are relevant:
1. Since March 2008, there were 2,370 thousand (net) jobs added to the Australian economy but teenagers have lost 54.5 thousand over the same period.
2. Since March 2008, teenagers lost 118.4 thousand full-time jobs (net).
3. Even in the traditionally, concentrated teenage segment – part-time employment, teenagers have gained only 63.8 thousand jobs (net) even though 1128.9 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 March 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 8.6 percentage points since March 2008, the female ratio has fallen by 4.1 percentage points and the overall teenage employment-population ratio has fallen by 7.4 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 March at 61.4 per cent.
In March 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 84 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 24.3 per cent rather than the official estimate for March 2020 of 16.7 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 rose by 8.6 million hours (0.48 per cent) in March 2020
This will be the first main indicator of the impacts of the crisis. Firms typically adjust hours worked first to avoid laying off workers they have invested fixed costs in (hiring, training, etc). But that is in a normal downturn.
There is nothing normal about the coronavirus crisis – it has been sudden, and the scale of the lockdown measures widespread.
As such I expect the horus and persons adjustments to be almost simultaneous.
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. The economy has been underpeforming for nearly 2 years now.
Why? Thinks fiscal surplus obsession. You won’t be far wrong.
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.
Given the survey week for the March data release was before the major policy interventions (lockdown etc), the data released today is not likely to resemble where the economy was by the end of March.
The March 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 – 0.05 per cent and failed to outstrip the underlying population growth.
As a consequence, unemployment rose by 20,300. Those numbers will be dwarfed in the coming months.
The broad labour underutilisation rose by 0.2 points to 14 per cent.
There were a total of 1,924 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’s attempts to date have been seriously under-whelming.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.