The week that was
Yet another mediocre labour force report on the Australian economy with the unemployment rate edging up to 5.6 per cent in February to be higher now than in May 2017. Making matters all the more problematic was the rise in underemployment rate (defined as people with a job who want to work more hours) to 8.4 per cent. There is clearly a huge amount of spare capacity in the labour market right now. As the chart below shows, the trend growth in employment is slipping, from well above 30,000 per month in the middle of 2017 to under 20,000 in the early part of 2018.
This labour market fragility is no surprise when one recalls the data out earlier in the month which showed GDP growth for 2017 at a sub-par 2.4 per cent – some 0.5 to 0.75 percentage points below trend. But the problem on growth was not just 2017, for the past 8 years, annual GDP growth has averaged just 2.5 per cent which indicates a substantial output gap and ongoing disinflationary pressures.
The week ahead
With the health of the labour market front and centre of the debate over the economy and the outlook for official interest rates, next week’s job vacancy data will shed more light on the demand for labour. Since the low point in 2013, the number of job vacancies has been trending higher, albeit as a moderate pace. The market consensus is for another moderate rise in the number of job vacancies, even though the hard data on economic growth has been generally disappointing since the start of the year.