Falling Unemployment Rate Masks Deeper Problems

There was some good news for the Australian jobs market this morning. At least that’s how it appeared at first glance.

ABS figures show the Aussie economy added 17,400 new jobs in August. That resulted in a slightly lower unemployment rate, dropping 0.1% to 6.2%.

A breakdown by state performance produced some mixed results.

New South Wales recorded the best unemployment figures, at 6%. Victoria and Western Australia each saw unemployment fall from 6.4% to 6.1%. At the other end of the scale, South Australia’s jobless rate topped 7.9%.

All these figures came broadly in line with expectations. Good news all round then, right? Well, not quite. Before we break open the champagne, some perspective first.

A falling unemployment rate doesn’t prove things are actually improving. That sounds counter-intuitive, but it makes sense when we peer closer at the data.

Let’s pay some credit to the economy first. Creating 17,400 new anything in this environment is an achievement in itself. Creating that many new jobs at a time of slowing economic growth is impressive.

What kinds of jobs are we talking about? Here too, the news was positive.

Of the 17,400 new jobs created, 11,500 were full time positions. That means two thirds of all jobs were full time. So far, so good.

All of that seems encouraging. So what’s the bad news then?

There are two things of particular interest to us. The first is that unemployment is rising in trends terms.

In seasonally adjust terms, the number of employed persons actually fell by 14,400. But most economists prefer looking at trend terms. That’s because it irons out some of the month to month dips and rises.

The trend terms show a different picture though. It shows the number of unemployed people rose by 6,000. There were 778,000 unemployed persons in August. That was up from 772,000 in July.

The reason for this comes down to a 0.1% dip in the participation rate. This rate measures the amount of people looking for work. All it means is that more people gave up looking for work during August.

That’s the first bit of bad news. The second is that total working hours fell during the month.

This, more than anything, is the real cause for concern…

What falling hours tells us about job quality

A big worry in the latest figures is that monthly hours fell on seasonally adjusted terms.

Total hours worked dropped 0.6 million hours to 1,623.8 million. Put simply, we’re working less on average, despite creating 17,400 new jobs.

What does this tell us? It could suggest a few different things.

On the one hand, it shows that part time work continues rising. Going back to July, roughly 70% of new jobs added during that month were part time jobs. These figures were lower in August, amounting to just over 30%. But that only reflects new, not existing, jobs.

Remember, the 17,400 new jobs don’t tell the whole story. It just shows us what number of new jobs were created. But there are a lot of other labour movements involved here too. Not every job is a new job. People move into different, existing positions all the time.

So while the number of new jobs was mostly full time work, it doesn’t account for existing jobs. That suggests part time work is growing, and that it’s outpacing full time work.

Equally, we know for certain that more people are working fewer hours.

For this we can look to the underemployment rate. This basically measures the number of people who’d like to work more hours given the opportunity.

ABS figures show that underemployment was unchanged at 8.4% in August.

The ABS counts anyone who works at least one hour as employed. It’s an absurd way to measure employment, but that’s beside the point.

What is important is that underemployment affects household incomes. Why? It shows that people would like to work, and earn, more than they currently are. That’s not to say there are millions of people working a sole hour each week. But it’s evident that many are working fewer hours than they’d like.

This is a bigger issue than you might think.  The ABS releases underemployment figures infrequently. But we do have data from this year to draw on.

In Victoria, the underemployment rate was 9.5% as recently as March 2015. Further, national estimates in September last year put the number of underemployed workers at 1 million.

That’s a lot of people who clearly feel their hours, and wages, aren’t up to scruff. And it puts every new full time job created in perspective.

Before we pat ourselves on the back then, let’s consider what this means.

Unemployment figures are only side of the picture

Without doubt the jobs market is undergoing dynamic shifts.

Jobs are growing, but working conditions are declining. We’re working fewer hours, and quite often for less money too. With underemployment so high, the message is clear then. People want more hours because their salaries are insufficient.

And there’s one final point worth making here too.

There’s a clear connection between employment and slowing wage growth. Wages are growing at their slowest rate in over two decades, at around 2%. That’s either a good or bad thing, depending on where you sit. It’s positive for businesses who can invest in jobs at lower cost. But it comes at the expense of wages and disposable incomes.

Why is that a problem? Aren’t more jobs better for the economy overall? Yes, but only in the context of rising disposable wages.

We already witnessed retail sales falling 0.1% in July. With working hours still declining, it doesn’t bode well for consumer spending.

That leaves us with a falling unemployment rate that looks good on paper. It also gives desperate policymakers some relief amid all the recent gloom. Beneath the façade though, the jobs market hasn’t improved. Every step forward is a step backwards seen from another angle.

Mat Spasic,

Contributor, Markets and Money

PS: Australia’s unemployment rate is holding steady, but for how long? Weak economic growth is forcing businesses to cut back on investments. Everything from infrastructure spending to jobs will take a hit. This will ramp up over the coming months, as Australia weak economic growth catches up with it.

Markets and Money’s Greg Canavan says that makes a recession this year unavoidable. Greg is one of Australia’s leading investment analysts. He says we’re on course for our first recession in 23 years.

In a free report, ‘Australian Recession 2015: Unavoidable’, Greg reveals how we’ve found ourselves in this position.

From falling GDP growth, to declining terms of trade, all signs point to a crash. Trade imbalances have been growing for the better part of a year. Government revenues are down, and household debt is up. It adds up to a recession that’s coming sooner than you think.

But there is a silver lining in all this. There are actions you can take now to lessen the blows of the coming recession.

Download your free copy today to learn how to protect your wealth from the coming crash. To find out how to download his free report right now, click here.

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money