- Another good labour market number, with jobs growth up 28,000 and the unemployment rate dipping to 5.6%;
- There have been plenty of jobs created this year, with the vast bulk full-time;
- The good news is that plenty more jobs are likely to be created in coming months;
- But a sustained period of strong economic growth will be required to create the full-time jobs the economy needs.
Hard work never killed anybody,
But why take the chance’.
Edgar Bergen was an American actor and comedian. He was probably best known as a radio performer between 1930-50, although he also appeared on TV and in movies. The above quote was one of his better-known quips, subsequently made more famous by Ronald Reagan, a well-regarded President who was not renown for working long hours.
The internet is full of jokes focused on not working hard. But for most people what is more serious is not working at all. A weak labour market is almost always a sign of a weak economy. So one of the clearest indicators of economic improvement this year has been the rise in jobs growth. The July employment numbers confirmed this trend. Around 190,000 extra jobs have been created over the past five months, essentially all full-time. The unemployment rate has dropped from nearly 6% earlier in the year, to its current level of 5.6%. Another good sign is that the participation rate is heading north (people are more likely to enter the labour force if they believe they can get a job). Finally, a stronger labour market is a feature of most state economies (although both the Territories have not done as well over the past year).
The other bit of good news is that there is likely to be more good news on the labour market in coming months. The number of job ads is rising. By our calculations, the level of job vacancies as a proportion of the labour force is approaching the salad days last seen pre-GFC. And employer hiring intentions are at high levels.
An improving labour market reflects both a rise in creating new jobs, but also a reduction in the number of cutbacks to existing roles. In line with their greater confidence about the economic outlook, firms are indicating that they are more likely to keep the size of their workforce intact. The retrenchment rate (the proportion of the Australian labour force retrenched in the past quarter) is around its lowest level in 3 years (the short history of the data). Workers are getting the vibe, with the proportion of employees expecting cutbacks at their workplace well down from the highs seen in 2014 (although above the lows of the pre-GFC and mining boom times).
Consumers have noted the improvement in the jobs market, with surveys indicating a reduction in their concern about unemployment. This reduced fear has led to a greater willingness to splash the cash in the shops, with retail sales having a good past couple of months. Continued strong jobs growth will be an important factor in determining the strength of consumer spending over the next 18-24 months.
While consumers are becoming less concerned about unemployment, this is different from saying that they are very confident about the labour market outlook. Despite the reduction, consumer concerns about unemployment are still around the long-term average level. And the proportion of workers quitting their jobs (a signs that workers believe that they can easily get another role) is still well below the level seen in the good times pre-GFC.
The reason for consumer caution can be seen in other indicators of the labour market. In particular, the underutilisation rate (the unemployment rate plus those working part-time jobs who want to work full-time) remains around the levels seen in the recession of the early 1980s. Many of the jobs created over recent years have been part-time, and it has only been this year the vast bulk of the new jobs have been full time. While the rise of part-time workers has been a long-term trend, the very high level of the underutilisation rate indicates there is plenty of people who have a job but what like to work more hours. To get the underutilisation rate down will require an extended period of strong growth in full-time jobs. And a lower underutilisation rate will be necessary to see a substantive pickup of consumer confidence (and therefore wages growth and spending in the shops) up.
The labour market indicators point to an economy that is currently on a roll. But the economy will need to stay stronger for longer to enable more full-time jobs to be created. This suggests that interest rates will need to remain low, something reinforced by the current strength of the $A. Financial markets are already largely on board with this thought, with a 50%-plus chance of a rate hike not priced until Q2 2018. If that turns out to be true, this will be the longest period without a change in monetary policy since at least 1990.
We live in interesting times.