Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Friday, 18 March 2016

Hours, underemployment & participation

Employment in detail

While the media focus has long since moved on from the Labour Force figures  - I looked at them in some detail yesterday here - given that some of the figures are only provided quarterly, it's worth having a bit more of a drill-down to see which of the states and territories are faring best, and which are not. 

I've been of the belief for some time now that because the lower dollar will massively benefit tourism in Australia and fuel a boom in international students, south-east Queensland can really begin to prosper once the resources investment cliff fades.

By which I mean mainly Brisbane and its adjacent coastal conurbations, not the state's mining and resources regions. 

The detailed figures don't lie, though, so let's take a look at what the real story is. 

1 - Underemployment

Not a month passes without observers making the comment that the unemployment figures "must be wrong". Of course, the figures aren't wrong at all, they are derived from a survey sample, and are reported accordingly.

Perhaps what the said observers mean is that the economy seems softer than the headline unemployment figures imply, which may well be the case as the underemployment figures show. 

Most states are showing a recent improvement on this metric, including New South Wales (NSW), Queensland (QLD) and Tasmania (TAS), but Western Australia (WA) is the midst of its decline in resources investment, and so WA is accordingly struggling on this measure.

As you can see underemployment is higher today that it was through most of the mining and resources construction boom phase, but not wildly so in the case of NSW and QLD. 

Underutilisation rates suggest a similar story, with NSW, QLD, and TAS improving (from a very ordinary base in Tassie's case, mind!), and WA in decline, reflecting the state lurching off its capex cliff. 

2 - Monthly hours worked

The monthly hours worked data show that only one state economy is really firing on most of its cylinders, that being NSW. 

The trend year-on-year growth in hours worked shows this more clearly. While QLD and VIC are both nicely in positive territory, NSW is presently miles out in front. 

3 - Participation

Finally, I saw on last night's news the usual reporting that the national unemployment rate fell to 5.8 per cent because people "gave up looking for work".

Dr. Chris Caton of BT Financial explains why this is an erroneous conclusion:

"Bear in mind that monthly movements in the participation rate are simply an arithmetic reflection of movements in the estimates of employment and unemployment. The monthly movement in participation is otherwise devoid of informational content. Bin all analysis that suggests that the unemployment rate only fell because participation dropped."

Australia's reported participation rate had been in an uptrend since October 2014, but struck upon a blip in February.

While WA remains the participation rate king, WA and TAS are trending down, while NSW and QLD once again scored well. 

The employment to population ratio has also actually increased solidly over the past year from 60.7 per cent to 61.3 per cent (this never gets mentioned on the nightly news, of course!), with WA and TAS again trending down, and NSW and QLD scoring well. 

The wrap

Overall, there are plenty of promising signs in the employment data for Queensland, while the New South Wales economy goes from strength to strength.

The good news is that nearly three quarters of the decline in mining investment is now in the rear view mirror. 

The bad news for residents of WA and the Northern Territory is that they are currently wearing the brunt of these declines.


Iron ore futures ripped to "limit up" in rising by 6 per cent today, amid rumous that Brazilian miner Vale SA could lose up to 100 million tonnes of iron ore output over the next three years, pending environmental licensing challenges.

Brazil's loss could be Australia's gain, and this should result in another nice kick up for the iron ore spot price tonight. 

Rebar futures also clonked into limit up in rising by 5 per cent with a near record volumes of contracts traded at 11.2 million (112 million tonnes).