Ever since Australia’s unemployment hit 6% in January 2014 the labour market in Australia has been viewed as one area of the economy that’s holding back activity.
But since then another 280,000 Australians have become employed. That’s close to 16,000 new jobs per month. Add in today’s release which shows 7,300 new jobs added in June and the total number of employed people in Australia has reached a new record high of 11,768,553 seasonally adjusted.
But here’s the conundrum. Even though the unemployment rate has dipped from the peak of 6.4% to 6%, it’s still in an uptrend.
So what do we focus on? Is the labour market strong or is it weak?
For me the most important thing to consider in terms of economic activity is that more people are in work than ever before. Leaving aside the ABS statistical quirks, the trend is clear and enduring. More people working means more people spending and that equals more money circulating throughout the economy.
The unemployment rate doesn’t rise unless the jobs created aren’t enough to absorb new people into the workforce. So the unemployment rate is not irrelevant.
But two other indicators I watch are also signalling an improvement in the overall employment market.
The first is the big fall witnessed in the employment to population ratio, which was reversed and is trending up again.
The second is total hours worked, which had dipped below trend, has increased along with jobs.
The question of whether this strength can be maintained in the face of the Chinese economic slowdown, the end of the mining boom, and other major headwinds facing Australia is a good one. There are those who say we are replacing high paying mining jobs with service sector work. And that’s true too.
Australia’s employment market really is, to borrow a phrase from Ben Chifley, the “light on the hill” for the economy. The undeniable fact is that contrary to many predictions for labour market weakness it remains strong.