Employment data can be an important bell weather of broader economic activity. Rising unemployment is generally associated with declining economic activity while the opposite is generally the case with a strengthening labour market associated with a growing economy. As with everything to do with this current experience, nothing is simple and traditional rules have been turned on their head.
Despite declining economic growth and lower forecasts for Gross Domestic Product (GDP) for 2024 discussed elsewhere in Statistics Count, the record low national unemployment rate continued in September with the unemployment rate falling 0.1 percentage points to 3.6 per cent on a seasonally adjusted basis.
If the world were not topsy-turvy, this would be a stunning result and subject to very different commentary.
As it was, the Australian Bureau of Statistics commented:
“With employment increasing slightly, by around 7,000 people, and the number of unemployed people falling by around 20,000, the unemployment rate fell to 3.6 per cent in September. It is important to remember that a fall in unemployment does not always mean much higher employment.” [emphasis added]
In that important context, the ABS pointed out that:
“…the fall in the unemployment in September mainly reflected a higher proportion of people moving from being unemployed to not in the labour force with the participation rate falling 0.2%to 66.7% from last month’s record high of 67.0 %.” [emphasis added]
The chart below shows how the Participation Rate dipped in September.
Now it might be minor and it may just be one month, however, the participation rate can be a leading indicator of shifts in employment.
As several commentators suggested when the data came out, perhaps some of this apparent easing in the labour market can be seen in the situation for younger workers.
Writing in the Australian Financial Review on 21st October, Michael Read identified the number of unemployed people aged 15 to 19 had risen by almost 20,000 since that number bottomed in October 2022.
That has caused the jobless rate among young people to tick above 11 per cent, from its recent bottom of 9.4 per cent, diverging from the stubbornly low 3.6 per cent total national unemployment rate.
Justin Fabo, a Macquarie Bank Economist, commented that rising youth joblessness was the “canary in the coal mine” when it came to the jobs market. There were multiple instances over previous decades when higher unemployment among young people preceded a broader downturn.
The drivers for younger people being first to feel the chill winds of unemployment are complex and various. In general, younger people have less underlying security of skills, knowledge and tenure, are more likely to be in precarious work and in many cases, are cheaper to terminate and engage than older workers.
Equally significant, younger people may be more inclined to have less security of work as they traverse their early adult lives. They may thus seek out work that is necessarily more precarious and marginal in the economy and therefore may be more likely to be the first to experience the zephyrs of employment uncertainty.
Mind you, that doesn’t necessarily mean a downturn in youth employment is the first sign of a change in the employment seasons, but if you’re looking for signs of impending softness, it’s something to keep your eye on.
Another indicator of labour market activity and its possible future direction is the hours worked during the month.
Monthly hours worked were down 0.4% in September, flowing a decline of 0.5% in August.
As it released the data, the ABS commented that:
“…the recent softening in hours worked, relative to employment growth, may suggest an easing in labour market strength, though it also follows particularly strong growth over the past year. As seen in the Job vacancies data, demand for workers has fallen slightly, but the labour market continues to be relatively tight and resilient.”
The hours worked also impacts productivity, something policy makers keep a close eye on. The sensitivity being that when wages increase without associated gains in productivity, the orthodox measures suggest that can add to inflationary pressures. This is a narrow view of productivity (measured in terms of outputs per unit cost of labour) because it implies wages are the cause of what might be a far more structural economic malaise, like business investment stalling, failure to adopt technologies and related innovations or government infrastructure spending failing. Those factors drive productivity, which is routinely measured from a labour inputs perspective.
At present there is no evidence of a wage price spiral, but recent data does suggest a continued decline in productivity.
The Productivity Commission quarterly bulletin for September identifies productivity declines in most industries, with hours worked outpacing output growth.
a. Hours worked by industry uses the hours actually worked by industries in the quarterly labour account. Bubble sizes indicate relative GVA weights of the industry in the June 2023 quarter. Industries are represented by their Australian and New Zealand Standard Industrial Classification (ANZSIC) letter code. A=Agriculture, forestry and fishing, B= Mining, C= Manufacturing, D=Electricity, gas, water and waste services, E=Construction, F= Wholesale trade, G=Retail trade, H=Accommodation and food services, I=Transport, postal and warehousing, J=Information, media and telecommunications, K=Financial and insurance services, L= Rental, hiring and real estate services, M=Professional, scientific and technical services, N=Administrative and support services, O=Public administration and safety, P=Education and training, Q=Health care and social assistance, R=Arts and recreation services, S=Other services.
Source: Commission estimates based on ABS (2023, Australian National Accounts: National Income, Expenditure and Product, June 2023, Cat. no. 5206.0, table 1) and ABS (2023, Labour Account Australia, June 2023, industry summary table).
The Productivity Commission reported that:
“15 out of 19 industries experienced a decline in labour productivity over the 2023 June quarter (blue circles). Most industries saw large increases in hours worked, with output staying flat or rising slightly, leading to a decline in productivity. The largest decline in productivity occurred in the arts and recreation services industry (-7.6%), which was also the industry with the largest increase in hours worked (9.3%), but output only rose by 0.9%.
“This story was borne out in 12 industries in which hours worked outpaced output growth (figure 2), while three sectors saw more hours worked and a decline in output. Only the transport, postal and warehousing industry (sector I) experienced an increase output that exceeded an increase in additional hours worked.”
An over-emphasis on the labour inputs to productivity is of interest but is not the entire story. Detailed consideration of the multiple factors contributing to productivity should now be a national priority.
Overall, at this stage in a challenging economic environment, record low unemployment is a good story, but there is plenty to keep an eye on, particularly in terms of wages growth, which will be updated in the next Wage Price Index data published in November, and some better attribution of the drivers of softer productivity growth over the last year.
