The overlooked truth in Australia's jobless recovery

Roy Morgan Research warns that businesses are rapidly reducing employment, accelerating pressure on interest rates -- the reverse of what the market thinks is happening.

Currency speculators are playing a dangerous game. The higher retail sales data in January -- Alan Kohler dubs it the breakfast recovery -- has sent the Australian dollar surging as traders now believe there will be no pressure to lower interest rates.

And the inflationary pressures reinforce that belief.

Unfortunately this week’s material from Roy Morgan Research on unemployment tells a different story. Roy Morgan defines unemployment more widely than the official figures, so the Roy Morgan unemployment rates are higher than the ABS. What is important is the trend. Roy Morgan trends are normally picked up by the ABS figures a few months later -- in this case around Joe Hockey’s ‘horror’ budget time.

Roy Morgan’s conclusions are alarming:

Australian unemployment in February increased by one per cent to 12.3 per cent of the population --1.561 million Australians.

This is the highest rate of unemployment in 20 years. An additional 1.080 million Australians (8.5 per cent) are under-employed which means, according to Roy Morgan, that over 20 per cent of Australians are unemployed or under-employed -- a new record high.

The February unemployment rise was driven by a large fall in full-time employment -- down by 397,000 to 7,318,000, some of whom transferred to part-time employment -- which was up by 187,000 in February to 3,786,000. An additional 121,000 Australians became unemployed. Not surprisingly the unemployment was concentrated among the young, where unemployment skyrocketed by 6.8 per cent to 28 per cent.

While that figure will come down in March when many young people return to studies, suddenly we see research confirmation of the real life youth experiences we are reading about in the depressed areas of all our capital cities and in regional areas.

So why did we all flock to cafes and restaurants in January and boost retail spending? Three reasons. First, many are feeling good about lower mortgage payments. Second, confidence returned after the election. Third, those aged between 35 and 65 saw virtually no change in unemployment so felt happy with the world -- particularly in NSW -- and so increased their dining out.

(We may also be looking at an underlying trend in community behavior to eat less at home.)

The bad news is that during economic downturns younger people are the first to lose their employment or have their hours reduced. The spike in youth unemployment is therefore often a leading indicator of higher unemployment for older age groups.

We are now seeing mass retrenchments from Qantas, Telstra and Alcoa, which will soon be followed by contraction in motor and motor parts. To that we add the fall in mining investment.

Australians understand dangers and so consumer confidence is down.

Into the mix we insert the inflationary pressures that come because too many Australian enterprises did not invest in past years so productivity has fallen.

In local terms lower interest are now simply wealth transfer from retirees to those with mortgages. But they will lower the dollar.

We are going to need a massive lift in infrastructure spending and labour laws that make it less onerous and risky to hire people. We also need to promote independent contracting.

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