Employment strength points to growing economy

Falling unemployment and a modest decline in under-employment over the last month have focused attention on what appears to be an improving Australian economy. Unemployment dipped down to 5.5%, but increasingly, attention is on the make-up of the employment level, with under-employment being the main focus. The participation rate was stable in September at 65.2%, a solid result. The tightening labour market – and the prospect of upwards pressure being placed on wages – has fed into increased expectations of higher interest rates sooner rather than later.

Falling to 5.5% in September, Australia’s unemployment rate has been progressing downwards since peaking in the current cycle in January 2015, at 6.4%. This is displayed in the chart below.

fig 1

To go straight to the dashboard and take a closer look at the data, click here.

The participation rate is more stubborn, and less prone to significant movements. While this is mainly because the inertia includes a large number of people in employment, as well as a smaller cohort that is permanently neither in work, nor seeking work. The participation rate is shown in the chart below, along with the split of full-time and part-time employment.

fig 2

To go straight to the dashboard and take a closer look at the data, click here.

The green line shows clearly the growth in the participation rate over the last year, but over the longer term, the decline in the participation rate came about as part time employment grew. Part time and flexible hours work for some, but they can also be a disincentive for others. At an economy wide level, it is a fine balancing act.

Underlying the sound headline employment data is 3.1% growth in annual employment for the year ended September 2017. As Jacob Greber pointed out in the Australian Financial Review, that amounts to 315,000 additional full-time jobs, the highest growth in more than nine years. Additionally, there were 55,000 part-time positions created over the same period.

This is good news for the economy because for some time there has been underlying weakness in job’s growth – most of it was part time, and there were plenty of that part time cohort that wanted more hours, but couldn’t get them. That situation appears to have reversed over the last year. 

This is good news for the individuals concerned, but it is also good news for the economy in general. Full resource utulisation – especially labour resources – is a key to continued economic growth.

Greber goes on to say that the drivers of rising employment growth are largely increased government infrastructure expenditure and ever-growing employment opportunities in the healthcare, aged care and other services sectors.

One could well ask, where are the jobs going to come from next year? The answer may lie in some expansion of private sector investment, a topic explored later in this edition of Statistics Count.

As the labour market tightens, wages are expected to be under pressure, with welcome improvements in wages expected to flow through into higher inflation over the next year. If that occurs, the labour market will be, at least in part, responsible for heralding the long-awaited rise in interest rates.