Pete Wargent blogspot

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

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Friday, 17 June 2016

Beneath the cover plate...

Lily-livered labour force figures

Superficially good news in yesterday's Labour Force figures for May, with the trend unemployment rate at its lowest level in 32 months.

However, the underlying strength of the labour market has for some time now been generally weaker than implied by the headlines, with underemployment remaining some way higher than was the case in earlier years.

People often complain that the unemployment figures "must be wrong". 

They aren't - it's just one survey measure of the labour market as I looked in my "market myths" series of posts here - but the underlying measures offer a little more colour...

Part time workforce

Underemployed workers are defined as part time workers who want and are available for more work than they currently have, as well as full time workers who worked part time during the survey period for economic reasons (e.g. if there wasn't enough work available).

South Australia has by far the highest trend underemployment ratio, at a rather concerning 11.1 per cent, although the outlook Tasmania has improved a bit of this measure.

Underutilisation rates - a measure which expresses the ratio of unemployed and underemployed as a share of the total labour force - tell a broadly similar story. 

The economies of Sydney, Brisbane, and Melbourne aren't faring too badly.

But with mining employment continuing to dwindle, nationally underutilisation rates have recently been tracking higher than we have seen since the late 1990s.

So while it's great that the unemployment rate has not been rising, there is quite a lot of slack in the labour market.

Hours worked

New South Wales has seen employment growth exploding another +4.4 per cent higher over the past year, but total hours worked have actually begun to trend down over the past five months.

And since March 2015, hours worked in Western Australia have fallen hard, now down by 4.1 per cent over the past year.

The wrap

The above charts help in part to explain why the labour market is not nearly as strong as suggested by the headline figures, and why inflation and interest rates remain so low.

In short, lots of part time employment is being created, often in services positions, and there are a great many workers who would like more work if it was made available to them.

While realistically it's very hard to predict what will happen, this dynamic looks likely to persist for the next while as mining investment continues to unwind.