The latest labour force statistics have something for everyone: pessimists will point to the rise in the headline seasonally adjusted unemployment rate to 6 per cent; optimists will concentrate on employment continuing to grow, with another 15,900 Australians in work.
For businesses and investors, it’s the employment growth that should matter most as it means 11,578,200 of us have jobs and the ability to buy stuff. The potential domestic market of people with pay packets has grown by 110,700 in the past six months after flat lining through 2013.
It’s an opportunity for Joe Hockey to talk up the economy, the improved confidence since he’s got his sweaty palms on Treasury, of Australia being open for business and hiring. It must have been the promised demise of the carbon tax.
But for consumer confidence, it’s the deadline threat of rising unemployment that’s likely to get the most attention. Those hopes of unemployment peaking at 5.8 per cent have been dashed. The Reserve Bank governor last week confirmed the view that the economy will grow below trend this financial year and thus not create enough extra jobs to soak up a growing workforce. The Treasurer’s forecast of it rising to 6.25 per cent is back on the cards.
It’s an opportunity for Joe Hockey to be gloomy about the economy, to stress the need for fundamental budget and whole-of-government reform to build a stronger, more resilient economy and repair the damage of the Labor years. It must have been the carbon tax.
Charting a course between those who see what they want to see in the numbers, there is hope being held out by the NAB business confidence survey that business does intend to hire more, that the missing ingredient of employers being willing to take the risk of taking on more workers is about to be found.
The graph from AMP Capital chief economist and head of investment strategy, Shane Oliver, shows a pretty neat correlation between the NAB survey’s employment intentions and what shows up in employment growth six months later. The outlook therefore is promising for jobs growth to continue and perhaps even pick up some speed.
Oliver believes that at 6 per cent, unemployment is at or close to its peak, but it’s unlikely to start falling until next year. That puts him in the relatively optimistic camp.
But he also points to the mixed nature of today’s Australian Bureau of Statistics release when the poor second half of 2013 is included:
“While total employment is up 0.9 per cent over the last year, full-time jobs growth is running at just 0.5 per cent year on year in contrast to part-time employment growth which is running at 1.7 per cent year on year. This is a sign of caution on the part of employers when hiring new staff.
“Jobs growth is clearly continuing, but at 0.9 per cent it’s not strong enough to bring the unemployment rate down and so it’s been stuck in the 5.8 to 6.0 per cent range for 9 months now.
“The good news though is that leading labour market indicators such as ANZ job ads and the hiring component of the NAB business survey point to stronger employment growth ahead.”
However, there is another complication: the mismatch between business and consumer confidence. Another AMP graph marrying the NAB business confidence and the Westpac/Melbourne Institute consumer sentiment surveys show the divergence of between the two over recent months when they generally keep company, at least in direction if not in scale.
The gap between the two is the worst it’s been since the depths of fear unleashed by the global financial crisis.
As previously suggested here, politics is playing an inordinate role in consumer confidence as the Abbott government’s ability to scare Labor voters drags down overall consumer sentiment.
The last time there was this big a divergence between the business and consumer outlook, business was more pessimistic and consumers proved to have better perspective – we didn’t have the recession that the business reading would indicate.
Hopefully this time it will be business that has it right. This week’s NAB survey had May’s poor retail sales figures under its belt and still produced a rise.
As various RBA heavies have been telling us, the conditions are in place for more risk taking. Our population is growing strongly, there’s a major rise in housing construction happening, our trading partners are expanding at about trend or better, export volumes are soaring and money is certainly cheap – maybe too cheap.
And there is always the fact that employment is a lagging indicator anyway. That’s why the June NAB hiring intentions tell us much more about the future than June’s ABS labour market report.
It would be nice if our politics started providing more confidence and certainty, rather than division and whatever-the-hell-is-happening-in-the-Senate-this-half-hour. Maybe it is the carbon tax.
Michael Pascoe is a BusinessDay contributing editor.