Easy street
A quick slightly deeper dive into the August jobs numbers this Sunday morning!
Interest rates rarely seem to be out of the news these days, and parts of the financial media has taken to referring to monetary policy as 'easy', or sometimes even 'ultra-easy'.
The evidence, however, suggests that interest rates are low when money's been tight, not easy.
As Bernanke himself has said, interest rates and the money supply aren't reliable indicators of the stance of monetary policy, while rates have tended to be low during depressions, and high during periods of hyperinflation.
Unemployment was falling for a number of years in Australia from 2015 to 2018, which at the time justified the stance of policy.
But as tighter lending brought the housing construction boom to an end, unemployment is now rising, and a jarring slowdown of growth in the economy has led to pointed criticism of the Reserve Bank for persistently undershooting the inflation target over a number of years.
Participation, sport
What's confounded observers and forecasters alike has partly been an explosion in the size of the labour force.
Having plodded along for some years, growth in the labour force suddenly exploded into life from 2017 onwards, and has increased by more than 600,000 in the past two years alone, from 13 million to well above 13.6 million.
Australia's participation rate began calendar year 2017 at 64.7 per cent, and now sits at the highest level on record at 66.2 per cent, largely driven by New South Wales and Victoria.
As such, even historically solid jobs growth hasn't been enough to make lasting inroads into the unemployment rate, while the leading indicators have almost unanimously cratered.
To wit, three charts.
Firstly, the good news: New South Wales saw its unemployment rate tick down to 4¼ per cent in August.
No too much wrong with this chart!
No too much wrong with this chart!
Alas, the same cannot be said of Queensland, South Australia, or Tasmania, where unemployment rates are running between 6 and 7 per cent.
Unfortunately the number of unemployed persons in Australia is no longer falling; and indeed it has been trending higher throughout calendar year 2019 to date.
Thirdly, and finally for today, mirroring flaccid trend growth in the number of monthly hours worked, the twin measures of underemployment and underutilisation have also begun to lift again.
For the youth labour cohort, the underutilisation rate is punishingly high at about 30 per cent.
While comparing measures between countries is always a bit dubious, international experience suggests that a return to more robust wages growth remains unlikely while so much slack is in evidence.
Little fiscal respite
There's not much sign of the government loosening the purse strings meaningfully, hence markets are pricing Australia's cash rate falling to 0.50 per cent in due course, commencing with a 25 basis points cut on October 1 in Melbourne.
Economists calling for an October cut range from Bill Evans at Westpac, to NAB, ANZ, Commsec and the CBA, AMP, Citbank, Goldman Sachs, and others.
Usually, when the major banks are calling for a cut, it happens.
It's not as though the jobs market has been running horrendously - annual employment growth is still tracking at +2.46 per cent up until August - but the forward-looking indicators have deteriorated sharply.
The detailed labour force figures will be released on Thursday this week, and will add some further texture at the industry and regional levels.
