The Turnbull government is kidding itself when it claims the labour market is strong.

Tue, 15 May 2018  |  

This article first appeared n the Yahoo7 Finance web page at this link: https://au.finance.yahoo.com/news/cant-get-job-want-2-055935412.html 

-------------------------------------------------- 

The Turnbull government is kidding itself when it claims the labour market is strong.


The latest data show the unemployment rate at 5.5 per cent, which is little changed from when it took office in September 2013. And while employment was impressively strong during 2017, it has weakened in the last two months to register no net increase since January.

Indeed, in the March quarter of 2018, employment rose by just 36,000, the second weakest March quarter increase in employment since 2009 which was when the economy was dealing with the global recession.
What’s more, the bulk of the rise in employment over the prior 18 months or so merely reflects population growth, mainly from net immigration, and little more.

More evidence of the problems in the labour market is evident in the near record high level of underemployment – that is, the number of people who have a job but would prefer to work more hours. In February 2018, the underemployment rate was 8.3 per cent, little changed from the level of recent years. The 1.1 million people who are underemployed reflect a weak labour market from the perspective of their employers being unable to offer them more hours because their business (the economy) is simply not strong enough.

When looking at economic facts, context is important.

The underemployment rate has been above 8 per cent since August 2014. At the depths of the global financial crisis in 2008 to 2010, the underemployment rate peaked at 7.8 per cent, lower where it is today, and never before in history has the underemployment rate been above that level.

Conditions now are clearly weak.

With the unemployment rate stuck at 5.5 per cent in concert with the underemployment rate entrenched above 8 per cent, there is no surprise that annual wages growth is mired near record lows around 2 per cent. Despite these concerning aspects of the labour market, the Prime Minister Malcom Turnbull and Treasurer Scott Morrison are going to frame their election campaign on economic management and jobs.

The jobs numbers are talked up at every opportunity by government ministers, with rare references to the unemployment rate and record low wages growth.

This is a risky strategy for many reasons, not least because the labour market is softening and the track record of the Coalition on the labour market as it approaches its 5 year anniversary in office, is at best problematic.

Since the Coalition was swept to office in September 2013, the unemployment rate has never been below 5.4 per cent. In contrast, in the almost 6 years when the previous Labor government was in office, the unemployment rate was below 5.4 per cent for 48 months. Never once was the underemployment rate above 8 per cent when Labor were in power, where is appears entrenched under the Coalition.

In terms of wages, the annual increase labour price index has been at or below 2.5 per cent since the December quarter 2014. Never once during the previous Labor government did annual wages growth fall below 2.5 per cent and in fact, the average annual increase from the end of 2007 to the end of 2013 was a respectable 3.6 per cent. Little wonder the current wage, unemployment and underemployment dynamics are undermining confidence in the economy and the government.

The recent budget assumes the unemployment rate will not fall below 5 per cent. This is a reflection of poor economic policy as can been seen in the contrast of many other industralised countries which have unemployment rates around 4 to 4.5 per cent and even lower.

Even a 5 per cent unemployment rate will do little to encourage wages growth to recover to 3.5 to 4 per cent, where it should be when the workforce is fully employed. The economic case for some targeted and immediate infrastructure spending, in concert with greater funding for education, skills and training, would seem an essential foundation to get unemployment and underemployment lower over the medium term.

Unlike what we saw in the budget, tax changes that skew greater take home pay to low and middle income earners, which can be revenue neutral if carefully framed, would also see a relatively quick boost to national spending and economic activity and this would help skew the unemployment rate lower.

Company and income tax cuts that are phased in over many years will not help much, if at all, to repair the labour market. Unfortunately, the government thinks the labour market is in good shape and the budget did little to deliver a material reduction in unemployment and higher wages. That is likely to be a political problem as the election draws near.

comments powered by Disqus

THE LATEST FROM THE KOUK

My house price bet with Tony Locantro - an update

Mon, 01 Apr 2019

This article first appeared on the Yahoo Finance web page at this link: https://au.finance.yahoo.com/news/aussie-property-crash-looking-even-unlikely-heres-021138614.html 

----------------------------------------------------

My house price bet – I’m very happy and getting ready to collect

I recently made a bet with Tony Locantro, Investment Manager with Alto Capital in Perth on the extent to which house prices would fall over the next three years.

Just to reiterate, the bet centred on Locantro’s view that prices would drop 35 per cent or more by the end of 2021 from the peak levels in 2017, a forecast that looked absurdly pessimistic given the raft of factors that influence house prices over the course of years.

For Mr Locantro to win the bet, house prices measured by the Australian Bureau of Statistics on a quarterly basis in either Sydney, Melbourne or for the average of the eight capital cities would need to fall by 35 per cent or more from the peak levels by the time the December quarter 2021 data are released. The ABS released the latest residential property price data last week which presents an opportunity to see how the bet is unfolding, admittedly with three years to go until it is settled.

As everyone knows, house prices are falling in most cities, reversing part of the boom over several decades.

Get ready for a cash rate cut in April

Mon, 25 Mar 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/get-ready-cash-rate-cut-april-193244245.html

----------------------------- 

Get ready for a cash rate cut in April

The data is in and it is compelling.

The Australian economy is faltering and the risk is that it will weaken further if nothing is done to address this decline.Not only has there been recent confirmation of a per capita GDP recession – that is, on a per person basis the economy has been shrinking for two straight quarters – but inflation is embedded below 2 per cent, wages growth is floundering just above 2 per cent, house prices are dropping at 1 per cent per month and dwelling construction is in free fall.

Add to this cocktail of economic woe an unambiguous slide in global economic conditions, general pessimism for both consumers and business alike and a worrying slide in the number of job advertisements all of which spells economic trouble.Blind Freddie can see that there is an urgent need for some policy action. And the sooner the better.For the Reserve Bank of Australia, there is no need to wait for yet more information on the economy.

It has been hopelessly wrong in its judgment about the economy over the past year, always expecting a growth pick up “soon”. Instead, GDP has all but stalled meaning that inflation, which is already well below the RBA’s target, is likely to fall further.In short, no. It is not like a 25 basis point interest rate cut on 2 April and another 25 in, say, May or June will reignite inflation and pump air into a house price bubble.

Such a claim would be laughable if there are any commentators left suggesting this.