Australian unemployment is at a 3-year low but it's not because the economy is strong

The Mask. Credit IMDb / New Line Cinema

Even forgiving well documented concerns about the veracity of the Australian Bureau of Statistics (ABS) seasonally adjusted jobs figures, it’s clear that Australian labour market conditions are fairly weak at present, at least compared to what we’ve become used to.

So far this year, employment growth has averaged just 4,300 per month, a fairly large deceleration from the rapid, and somewhat questionable, average of 28,600 seen in the 12 months to November last year.

Despite lacklustre employment growth, the unemployment rate has continued to decline over the same period, falling to 5.58% in October, the lowest level seen in nearly three years.

That, usually, would suggest that labour market conditions are strengthening, and with it the economy.

However, that’s not the case on this occasion. Far from it, in fact.

According to the Commonwealth Bank, it’s largely because of a cyclical decline in labour force participation due to weak labour economic conditions in Australia’s mining states.

The participation rate measures the proportion of Australians aged 15 to 64 years who are either employed or not employed but currently looking for work.

It currently sits at 64.4%, the lowest level seen in over a decade.

Male participation stands at 70.2%, just a whisker away from the record-low level seen earlier this year, while that for females sits at 58.8%, the lowest level since June 2015.

Kristina Clifton, an economist at CBA, says this is largely being driven by older unemployed workers in Western Australia and Queensland simply giving up trying to find new work.

“Much of the recent decline has occurred in the mining States of WA and QLD, and for the 55-64 year old age group,” she said in a research note released on Tuesday.

“With employment growth very weak in these two states, it suggests that the discouraged job seeker effect is at play.

“Older workers who have lost mining-related jobs are choosing to leave the work force rather than look for another job,” she says, adding that it’s largely as a result of men exiting the labour force.

These charts put that into visual form, showing changes in participation levels by location, gender and age.

Here’s the change in the past year by state and territory.

And for men and women.

And finally by age.

Pretty convincing that the drop in participation is being driven by older men from Australia’s mining states and territories, but why should you care?

According to Clifton, had participation held steady this year, rather than declined, it would have seen the national unemployment rate remain above 6%.

This, she says, is masking underlying weakness in the labour market.

The 6% plus figure is probably more reflective of where labour market conditions stand right now.

Alternate indicators are currently very weak with underemployment — those employed but who would like to work more — sitting at the highest level on record while wages are increasing at the slowest pace on record.

Throw in the fact that most of the drop in participation over the past year is due weak economic conditions, rather than demographics, in Clifton’s opinion, and it points to an economy that is not growing quickly enough to generate any meaningful employment growth.

We’ll get further information relating to this on Thursday when the ABS releases its November jobs report, including quarterly underemployment and underutilisation figures.

It’s also a remainder to look beyond the unemployment rate to gauge what’s truly happening in the labour market.

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