The Turnbull government is kidding itself when it claims the labour market is strong.

Tue, 15 May 2018  |  

This article first appeared n the Yahoo7 Finance web page at this link: https://au.finance.yahoo.com/news/cant-get-job-want-2-055935412.html 

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The Turnbull government is kidding itself when it claims the labour market is strong.


The latest data show the unemployment rate at 5.5 per cent, which is little changed from when it took office in September 2013. And while employment was impressively strong during 2017, it has weakened in the last two months to register no net increase since January.

Indeed, in the March quarter of 2018, employment rose by just 36,000, the second weakest March quarter increase in employment since 2009 which was when the economy was dealing with the global recession.
What’s more, the bulk of the rise in employment over the prior 18 months or so merely reflects population growth, mainly from net immigration, and little more.

More evidence of the problems in the labour market is evident in the near record high level of underemployment – that is, the number of people who have a job but would prefer to work more hours. In February 2018, the underemployment rate was 8.3 per cent, little changed from the level of recent years. The 1.1 million people who are underemployed reflect a weak labour market from the perspective of their employers being unable to offer them more hours because their business (the economy) is simply not strong enough.

When looking at economic facts, context is important.

The underemployment rate has been above 8 per cent since August 2014. At the depths of the global financial crisis in 2008 to 2010, the underemployment rate peaked at 7.8 per cent, lower where it is today, and never before in history has the underemployment rate been above that level.

Conditions now are clearly weak.

With the unemployment rate stuck at 5.5 per cent in concert with the underemployment rate entrenched above 8 per cent, there is no surprise that annual wages growth is mired near record lows around 2 per cent. Despite these concerning aspects of the labour market, the Prime Minister Malcom Turnbull and Treasurer Scott Morrison are going to frame their election campaign on economic management and jobs.

The jobs numbers are talked up at every opportunity by government ministers, with rare references to the unemployment rate and record low wages growth.

This is a risky strategy for many reasons, not least because the labour market is softening and the track record of the Coalition on the labour market as it approaches its 5 year anniversary in office, is at best problematic.

Since the Coalition was swept to office in September 2013, the unemployment rate has never been below 5.4 per cent. In contrast, in the almost 6 years when the previous Labor government was in office, the unemployment rate was below 5.4 per cent for 48 months. Never once was the underemployment rate above 8 per cent when Labor were in power, where is appears entrenched under the Coalition.

In terms of wages, the annual increase labour price index has been at or below 2.5 per cent since the December quarter 2014. Never once during the previous Labor government did annual wages growth fall below 2.5 per cent and in fact, the average annual increase from the end of 2007 to the end of 2013 was a respectable 3.6 per cent. Little wonder the current wage, unemployment and underemployment dynamics are undermining confidence in the economy and the government.

The recent budget assumes the unemployment rate will not fall below 5 per cent. This is a reflection of poor economic policy as can been seen in the contrast of many other industralised countries which have unemployment rates around 4 to 4.5 per cent and even lower.

Even a 5 per cent unemployment rate will do little to encourage wages growth to recover to 3.5 to 4 per cent, where it should be when the workforce is fully employed. The economic case for some targeted and immediate infrastructure spending, in concert with greater funding for education, skills and training, would seem an essential foundation to get unemployment and underemployment lower over the medium term.

Unlike what we saw in the budget, tax changes that skew greater take home pay to low and middle income earners, which can be revenue neutral if carefully framed, would also see a relatively quick boost to national spending and economic activity and this would help skew the unemployment rate lower.

Company and income tax cuts that are phased in over many years will not help much, if at all, to repair the labour market. Unfortunately, the government thinks the labour market is in good shape and the budget did little to deliver a material reduction in unemployment and higher wages. That is likely to be a political problem as the election draws near.

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THE LATEST FROM THE KOUK

Do we need to be worried about Australia's economic outlook?

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This article first appeared on the Yahoo7 Finance web site at this link: https://au.finance.yahoo.com/news/need-worried-australias-economic-outlook-060611703.html 

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Do we need to be worried about Australia's economic outlook?

The Reserve Bank of Australia reckons that the next move in official interest rates is more likely to be up than down. RBA Governor has said so in recent weeks as he talks up the prospects for the economy over the next year or two.

This is disconcerting news for everyone out there with a mortgage or a small business loan, especially in a climate where the business sector is doing it tough and when wages growth is floundering near record lows. The good news is that the RBA is likely to be wrong and the next move in interest rates could be down, such is the run of recent news on the economy. Failing an interest rate cut, the hard economic facts suggest that any interest rate rises are a long way into the future and if they do come, there will not be all that many.

At this point, it is important to bring together the issues that would need to unfold to see the RBA pull the lever to hike interest rates.  At the simplest level, the start of an interest rate hiking cycle would need to see annual GDP growth above 3.25 per cent, the unemployment rate falling to 5 per cent and less, wages growth lifting towards 3 per cent and more and underlying inflation increasing to 2.5 per cent.

This is where the RBA expectation for higher interest rates is on very thin ice.

An investor’s perspective of the budget

Mon, 21 May 2018

This article first appeared on the FIIG website at this link: https://thewire.fiig.com.au/article/2018/05/14/.Wv932WJ7Bn8.linkedin 

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An investor’s perspective of the budget

As some of the dust settles from Treasurer Scott Morrison’s budget, the clean air reveals the biggest issues boil down to significant cuts in income tax; an earlier return to surplus; and a path to lower government debt.

The government announced this seemingly incongruous policy mix – lower taxes and yet lower government debt – because revenue has been flowing into the Treasury coffers at a pace significantly above the level assumed in the mid year Economic and Fiscal Outlook update in December last year.

Lower tax and lower government debt are, at face value, good news. Most individuals would prefer paying less tax, while economic prudence and sound policy should see government debt levels reduced when the economy is growing at a decent pace.

But the good news on tax and debt is based on a number of premises that are open to debate.

The surplus forecast needs the economy to remain strong

Important to the analysis of the budget are the following assumptions from Treasury:

• The economy picks up steam and grows consistently by 3 per cent
• The unemployment edges down to 5 per cent
• Annual wages growth accelerates from 3.25 to 3.5 per cent

These favourable economic conditions are essential for the revenue inflow to remain strong enough to fund the tax cuts, see the budget return to surplus in 2019-20 and debt levels decline.