Why the jobs market is like baked beans on toast

Fri, 16 Feb 2018  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/2447510-043200008.html 

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Why the jobs market is like baked beans on toast

The January labour force data were a bit like baked beans on toast.

Not horrible, but hardly the sort of thing that is going to inspire joy and optimism about the future. The unemployment rate remains at 5.5 per cent which is significantly above most estimates of full employment for Australia and is exactly the same as it was in May 2017.

In other words, there has been no progress in reducing Australia’s stubbornly high unemployment rate since the budget 8 months ago even though the government likes to crow about the level of job creation in recent times. Despite this bluster and noisy rhetoric about job creation, the fact is the unemployment rate remains uncomfortably high and no one is doing anything about it.

Most of the recent gains in employment, which at face value has been impressive, are merely a reflection of population growth and no more. Another disconcerting aspect of the labour force data was confirmation that total hours worked by all employees in the economy fall sharply in January. This is a sure sign that the economy is not all that healthy.

Usually when economic conditions are buoyant, employees are asked to work more hours before finally the employer adds to staff numbers. In Australia’s highly flexible labour market, when times are tough, firms tend to ask their employees to work less fewer hours rather than sacking them. This is what is happening now.

Total hours worked in the Australian economy is lower in January 2018 than in May 2017 and this is despite employment rising by close to 250,000 over that time.
The average hours worked per employee fell to a record low as a result, meaning that there is still a huge amount of spare capacity in the labour market, evidenced by very high underemployment and ongoing troublesome high unemployment.

The labour force data have important implications for the Reserve Bank and interest rate settings. At its most simplest, there is now close to zero probability of an interest rate rise any time soon. The economy could not digest it, not just because of the soft labour market conditions, but because house prices are falling, wages growth is dead and inflation is below target.

The case for interest rate cuts, which was strong because of those factors, is gaining momentum not least because of the stalling in progress in reducing the unemployment rate.

Next week sees the release of wages data. If these show annual wages growth mired around 2 per cent, the rate cut bandwagon may get a few more people on board, including the RBA. It will require a major about face for the RBA to move to an easing bias, but in recent months it has shown pragmatism and flexibility when confronted with new information on the economy.

The labour force data confirm the economy needs a shot in the arm if we are to get close to full employment, let alone matching the 4 to 4.5 per cent unemployment rate many of our competitors are currently enjoying.

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What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 

2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.

In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.

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