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 

-------------------------------------------------- 

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.

comments powered by Disqus

THE LATEST FROM THE KOUK

The RBA is failing on the most basic measures and it’s time it was held to account

Fri, 19 Oct 2018

This article first appeared on the Business Insider website at this link: https://www.businessinsider.com.au/rba-policy-failure-stephen-koukoulas-2018-10 

-----------------------------------------------------

The RBA is failing on the most basic measures and it’s time it was held to account

How’s this for an economic plan?

The RBA cuts the official cash rate to 0.5 per cent and on the back of that, the unemployment rate drops to 4.75 per cent on a sustained basis, underlying inflation hits the mid-point of the 2 to 3 per cent target range and annual wages growth lifts to 3.25 per cent.

This is what a range of credible economic models suggest would happen with such a simple and transparent monetary policy move from the RBA. And what’s more, it is free to implement!It would be, on all measures, a good economic outcome.

So why is the RBA not going to do it?

What kind of monetarist poltergeist has possessed them it is now a bad idea to try and hit their inflation target, put tens of thousands more Australians into work, and stoke a much-needed rise in wages growth? 

Why is the RBA the only central bank on the world seemingly obsessed with peripheral issues when the inflation target has been missed so comprehensively for so long?

The bond market is crashing - and it'll affect you

Mon, 08 Oct 2018

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/bond-market-crashing-itll-affect-232320713.html 

------------------------------------------------ 

The bond market is crashing - and it'll affect you

There are two very important trends unfolding in financial markets.

One is the surge in government bond yields, the other is the free-fall of the Australian dollar.

To the bond market first.

In the US, bond yields – or interest rates – have jumped sharply since Donald Trump was elected President and he took the decision to lock in trillions of dollars of government borrowings to fund a range of tax cuts. When Trump was elected, the 10 year bond yield in the US was around 1.9 per cent, with the 2 year yield around 1.0 per cent. Now, with the US budget being trashed and inflation pressures building, those yields have jumped to around 3.2 and 2.9 per cent, respectively.

Part of this surge in yields is linked to the US Federal Reserve hiking interest rates in reaction to the extreme sugar hit to the economy from the extraordinary fiscal policy easing. It is also engaging in quantitative tightening, which is unwinding the money printing that was instigated in the wake of the banking crisis.

The other part of the jump in US yields is linked to expectations of an inflation surge as the economy is flooded with borrowed government money.