A dose of reality with the jobs data

There is just no escaping the fact that the labour market is doing much better than widely believed.

There was at least one alarming feature flowing from yesterday’s jobs number: The seeming inability of the nation, well the nation’s commentators, policymakers and economists, to celebrate what was in truth a fantastic outcome. 

Let’s face the facts: The labour force figures are volatile, they have been since inception. There is nothing new in that. The skill is in determining the underlying trend within that volatility, which is to determine whether a figure is truly anomalous, such as last month’s lift in the unemployment rate, or representative of something new. Like the recent surge in jobs growth in 2014.

In trying to do that, it makes no sense to say that we can’t believe the figures at all or that even the trend is no longer reliable. That’s sloppy. If that is the case this month then it must be the case every month. 

It’s not a question then, of whether that 121,000 gain was literal truth. That number is as reasonable and believable as any other month’s result. It’s as believable as that spike in the unemployment rate to 6.4 per cent (see my piece Take Australia's unemployment rate shocker with a grain of salt, August 13). We should take these numbers with a grain of salt because they are volatile.

Yet even taking the lower-bound estimate of jobs growth from the ABS, the economy still created 63,000 jobs in August. This is still a very strong number that confirms a marked uptick in job creation this year. This is the awful truth about Australia’s jobs figures. They show an undeniable and strong acceleration. Smoothing out the monthly volatility, and allowing for a sizeable correction from this month’s job gain, about 20,000 to 30,000 jobs are being created a month, compared to 5,000 in 2013. Importantly, this was an up-trend that was in place prior to this latest ‘unbelievable’ jobs spike.

There is quite simply no escaping the fact that the labour market and the broader economy are doing much better than widely believed. Two hundred and thirty six thousand jobs have been created so far this year. There are 126,000 people in full-time employment and 109,000 in part-time.

It’s a split that shows broad-based jobs growth. Indeed, annual employment growth is at its strongest in about three years. These are not figures that can be ignored just because you don’t like them, and they are consistent with three other developments.

1. The national accounts showing the economy growing above trend.

2. Inflation is elevated and already at the top of the bad -- this wouldn’t be happening if the economy was weak.

3. Jobs growth is also surging in the US, UK and New Zealand. Jobs growth in the UK is at a 40-year high.

Why is it so difficult to believe that if two nations who were brought to their knees during the GFC can post strong jobs growth, then Australia can’t? I think it more likely that economists don’t understand what’s going on in the Australian economy.

I explained in my piece, Australia's coming jobs boom (August 5), why analysts should have been expecting a marked lift in jobs growth, maybe it wasn’t 121,000 in August. Then again, maybe it was.

Either way the biases and problems that impacted the survey this month are with us every month. With that in mind, current trends suggest the unemployment rate looks set to drop to 5.5 per cent by mid-next year, by which stage the economy will have created nearly half a million jobs. 

Indeed, if the participation rate had stayed constant, then the unemployment rate would be 5.7 per cent today. By the way, that the participation rate rise is a very positive thing. We need greater participation, not less, and that rising participation rate is another consistent feature of recent results. If readers recall, it was the main reason I wasn’t worried about the lift in the unemployment rate last month and that proved to be the right call.

The sad truth is that the main reason yesterday’s numbers were so widely dismissed, is because they conflict with the prevailing view that the economy is weak.  A more balanced and reasonable assessment would be that the economy is not as weak as initially thought. That is after all, what all the evidence shows.

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