Today's Australian jobs data will be a piece of important economic news that will set the framework for the outlook for local interest rates and influence the general election which is now just six short months away.
A solid lift in employment would further undermine any expectations that interest rates will be cut while at the same time, add some starch to the government’s economic management credentials.
Most decent economists ply their trade with full employment as the ultimate policy objective. GDP only matters because if it is too weak, not enough jobs will be created and the unemployment rate will rise. Inflation matters mainly because it can lead to market distortions that sees the labour force underutilised, underpaid or obsolete. The budget balance and monetary policy are not set to register a surplus or deficit for the sake of it, or for interest rates to always go up or down. They are used from the perspective of having a counter-cyclical influence to cap any rise in the unemployment rate, build savings when the economy is at or near full employment and keeping inflation low and stable.
Before looking at what the data today might show, Australia’s labour market performance has been quite brilliant for well over a decade.
Jobs continue to be created at a steady pace. For every job lost that makes the headline news, dozens of new ones are being created.
It is a startling fact that not many countries share, that the annual change in employment in Australia has not been negative since the middle of 1993, the last recession. Over the last 20 years, the average annual increase in employment has been 194,000 or 16,100 a month, every single month, on average, for 20 years. Jobs are still being created.
The unemployment rate has been below 6 per cent for a decade.
One aspect of these terrific labour force statistics is that there has generally been steady productivity growth to go with them, particularly in recent years. These productivity gains have been accompanied by moderate and, what have proved to be, sustainable wage increases. For workers, not only are employment prospects continually rosy, but wage increases have outpaced the rate of inflation for more than a decade which has ensured on-going increases in purchasing power and living standards.
While nothing is perfect, the Australian labour market is in fantastically good shape.
In terms of the numbers today, the market is looking for a rise in employment of around 10,000 for February, which follows similar increases in recent months. This would be a little below the long run trend and suggests that the economy ended 2012 a little soft. The recent December quarter GDP figures confirmed that.
At the same time, the unemployment rate is widely forecast to tick up to 5.5 per cent, a level reached a couple of months ago but getting to a point where strong growth is needed to see it dip back towards 5 per cent.
Note that the recent labour force data showed unemployment near 12 per cent in the eurozone, 7.7 per cent in the US, 7.0 per cent in Canada and 6.9 per cent in New Zealand. Recall also that 1 percentage point on the unemployment rate in Australia represents around 120,000 people. Having an unemployment rate the same as the US would mean, for example, 275,000 people out of a job.
The low reading for Australian unemployment is a great reflection of just how well the economy is going and how well it has been managed over many years.
Including today’s data, there are only seven more labour force releases between now and election day on 14 September.
Here are two scenarios, both I reckon with roughly equal probabilities.
The first sees the data flow over that time reveal the unemployment rate creeping up to 6 per cent, with that high being revealed by the Bureau of Statistics just two days before polling day. At a time when the government is having trouble selling the message of just how well it has managed the economy, some legitimately bad news would sound the death knell.
The other scenario relies on the signs of stronger growth that we are seeing right now leading to a pick up in job creation. If there are further upside surprises on the economy, it is possible, that two days before polling day the unemployment rate is shown to 5.0 per cent or even less. This would give the government one last opportunity to reinforce its economic management credentials — low inflation, sustained economic growth and in this scenario, something close to full employment.
Which is why today’s data, and the six jobs reports after that, are so important for influencing the election outcome.
Stephen Koukoulas is an economist and financial market strategist who between October 2010 and July 2011, was economic policy advisor to Prime Minister Julia Gillard.
Follow @TheKouk on Twitter.