Pete Wargent blogspot

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

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Friday, 16 September 2016

Unfulfilled desires!

Slack

Sincere apologies if you stumbled across this post looking for something a tad racier, as it actually relates to the inherent slack in Australia's labour force data for August 2016. 

Stick around, though, you never know you might learn something interesting!

The trend unemployment rate may be at a 37-month low in Australia, but that doesn't mean we're anywhere near heading back towards full employment.

And interest rate hikes are as far away as they ever where, with future markets pricing a cash rate that's likely to be around its present level through until at least 2019.

Underemployed

It's normal to have a certain level of underemployment and underutilisation, of course, even when the economy is firing. 

According to the ABS definition 'underemployed workers' are part time workers who want and are available for more hours of work than they currently have, and full time workers who worked part time hours during the measurement period for economic reasons.

Basically it refers to people that want to work more than they are but haven't been able to.

The increase in underemployment in Australia has largely been driven by the resources investment bust, and shows up most clearly in the figures for Western Australia. 

Elsewhere the trend in underemployment is fairly steady, but generally a couple of percentage points higher than in 2008. 


The 'underutilisation rate' on the other hand is defined by the ABS as being the sum of the number of people unemployed and the number underemployed, expressed as a proportion of the labour force. 

It can thus also be viewed as the sum of the unemployment rate and the underemployment rate, and it's a pretty decent measurement of labour market malaise. 

This metric shows that the southern states - that's Tasmania and South Australia - have high levels of underutilisation, tracking at around 17 per cent. 


The hours worked data series tells a similar story, with the economy still working its way through the last quarter of the mining investment cliff.

The wrap

The underutilisation rate in Australia nationally is presently running at just above 14 per cent. 

If this reading begins to head back towards the May 2008 level of about 10 per cent then perhaps inflationary pressures will return and interest rate hikes may become imminent.

However, the mining investment bust probably still has another 18 months to run, and there are other negative factors looming for the labour market, not least the closure of automotive assembly plants by Holden, Ford, and Toyota.