The Reserve Bank’s struggle over whether — and when — to cut interest rates has thrown up an interesting divide over jobs figures. The recent April employment data from the Australian Bureau of Statistics was leapt upon by the commentariat and economists to warn about a softening labour market, given the increase in the seasonally adjusted unemployment rate to 5.2% and the underemployment rate.
Except, the ABS prefers that people look at its trend series, not the seasonally adjusted series; that showed unemployment stable at a revised 5.1%. The trend estimate is what features on the ABS’s website dashboard of economic indicators and for some years it has been what the ABS emphasised in its media releases, ever since problems with its jobs sample began playing hell with the seasonally adjusted figures in mid-2014.
“The ABS produces trend estimates to provide a more reliable indicator of the underlying behaviour of the Labour Force series,” the ABS says. “Trend estimates were introduced into the Labour Force series in the mid 1980s and are available back to February 1978. Trend estimates are considered the best indicators of the underlying behaviour in the labour market.”
But even the Governor of the Reserve Bank, Philip Lowe, preferred to cite the rise in seasonally adjusted unemployment (to 5.2%) this week as he signalled a rate cut at the June 4 meeting of the RBA board, saying “some labour market indicators have softened a little: the unemployment rate ticked up to 5.2% in April; the underemployment rate has also moved a little higher as there are more part-time workers who are seeking additional hours; job advertisements have declined; and hiring intentions have come off their earlier highs.”
So, some tomato/tomayto statistical semantics? Except, the trend data for April were unequivocally strong — the strongest since last August in fact. The jobs market grew an annual rate of 2.5% in August last year, above the 2.0% average for the last 20 years. That slowed to growth of 2.3% in December and in February of this year, but by April annual growth was back up to 2.5% again.
There was another very solid bit of data as well — average hours worked rose 2.8% in the year to April against the long-term average of 1.7% and sharply up from the 1.5% growth in hours worked in December. The difference between trend and seasonally adjusted is significant given the Reserve Bank explicitly said it would be watching the jobs data.
From the RBA’s perspective, however, it may be that whether you use the stable trend data or the rising seasonally adjusted data, jobs growth isn’t strong enough to deliver falling unemployment, which is problematic when inflation is falling as well. And there are some concerns in the labour market: the March quarter construction data that came out on Wednesday showed construction work falling, no matter which way you measure it.
March was the third quarter in a row the value of construction has fallen, driven by falling residential construction — and hidden in the data was a worrying fall in infrastructure spending, with engineering construction slumping nearly 4% in one quarter.
Westpac senior economist Andrew Hanlan said he was surprised by the drop in public works and private infrastructure given the respective works in the pipeline — both the large states and federal government have been pumping up infrastructure spending for a couple of years now.
Construction employs more than 1.1 million workers, and in the past couple of years has provided a private sector back-up to the strong jobs growth provided by health, social care and education. But it’s on the decline. What could be better to stimulate construction jobs than some juice for the housing market via an interest rate cut?
Only, what do we do if, with interest rates at just 1%, we need another hit?
I struggle with this. I know that lenders can’t make money at 1% so the fees go up. I know that Japan got nothing out of interest rates that were even lower. Where to next? What I do not know and certainly do not believe is that the RBA has any bloody idea of what is afoot. I doubt Philip Lowe would know if his arse caught fire at present, because nothing he has said for over a year has turned out to have any relevance or accuracy.
Lowe’s (rather poignant) blindness to the disconnect between interest rates and household spending is based on the professional econocrat class’s failure to recognise how profoundly the labour market has changed. That low unemployment rate is less important than the underemployment rate. The labour market survey regards you as employed if you do one hour of paid work a week. Even the ABS bleating that ‘most of the survey does at least 15 hours a week’ is a pathetic matter of protesting-too-much. Unemployment rate is a dead, mocking metric now. The reality is that the growing gig economy – casual, no security or sick/annual leave etc – effectively removes great swathes of ‘the employed’ quietly from the traditional monetary policy/CPI link-mechanism. Gig work is increasingly a subsistence existence – serfdom, in other words. Stripping penalty rates from much of it is just another short-sighted act of fiscal mismanagement/budgetary suicide.
The Reserve cash rate lever is on the stops anyway, but even taking us into negative rates wouldn’t encourage many to start spending meaningfully again. We’re all maxed out on debt already and wary of even a housing tick up. Any extra discretionary cash that comes our way will pay down debt or be further soaked and skimmed, structurally, by the burgeoning tax-rort welfare middle class.
All those who like to poo-poo ‘Class War’…ain’t seen nuthin’ yet. That’s exactly where the horrifying numbers are, finally and unavoidably, shoving us all. Great groundwork work, John Howard and Peter Costello.
I couldn’t agree more. It’s blindingly obvious that; with a large part of the “employed” being underemployed and the wages of both the employed and underemployed stagnating, the economy will slow. Large parts of the population are hard pressed to make ends meet, let alone have discretionary spending , and this affects businesses, especially local businesses and retailers. To attempt to redress this by encouraging higher prices in the housing market is a joke – it will only put more pressure on households and reduce the money flowing to other businesses.
As to “class warfare”, somebody (i cant’t remember who) recently pointed out that the real class warfare at present is that perpetrated by the rich against the less well off 🙂
Yes – this protesting against ‘class war’ from the tax-rort welfare class is the bully’s classic play: pause briefly in your sustained belting of your victim, and while catching your breath for the next assault, mutter ‘for pity’s sake, won’t you end all this senseless violence…?’