Unemployment rises – Australian economy softening further

We are assiduous followers of the NAB Business survey and the Westpac Consumer survey and their respective sub-components. If we were locked out of all other data we are certain these two surveys could point us in the right direction in terms of reading the Australian economic tea leaves. Unfortunately the tea leaves have been pointing to a deterioration of the employment outlook here in Australia for some months now as the employment data from the ABS highlighted today.

While we would like to there is unfortunately no way to put a positive spin on the outcome. While the total number of Australian’s employed fell by only 100 in July,  which was short of the market’s expectations of a 10,000 increase, it is the fall in full-time employment that is really concerning. Full time employment, which is classified by workers working more than 35 hours, fell by 22,200 while part-time employment rose by 22,100. In fact total hours worked only grew by 0.2% with the trend growth in hours worked slowing to 0.1%, its lowest level since August 2009.

After remaining largely unchanged when rounded to 1 decimal place over the past four months, despite showing increasing signs of bottoming when looking a little closer at the numbers, the unemployment rate jumped to 5.1% suggesting that we have passed the low point for the unemployment rate in this cycle. We have thought for some time that businesses have been hoarding labour, ever since the global recovery started as it was previously so hard to come by, and the RBA kept telling them there was a boom on and it would only be a matter of time before the wave of spending washed over them. Unfortunately the non-mining economy remains weak and appears to be getting weaker leaving businesses little choice but to look to cut their most liquid cost, labour.  

Now our favorite leading indicator of employment, the NAB business survey’s employment index, has been pointing to a slower pace of employment growth since the start of 2011 and unfortunately at its latest reading in July fell 7 points to -1.9 which is below the level reached at the height of the natural disasters in January.

At a time of global economic and market turmoil even a small rise in the unemployment rate is likely to result in consumers becoming increasingly concerned over their job security, a concern which was already growing ahead of the released as seen in the Westpac-Melbourne institute unemployment expectations survey. This has the potential to ignite the next leg down in the negative feedback loop we are currently seeing with further weakness in retail and housing likely to place increased pressure on employment leading to a further deterioration in the outlook for retailers and domestic spending more broadly.

importantly in the context of the outlook for employment we know from the experience from other developed nations over the past half decade or so is that unemployment rates start to increase around 12 to 18 months after house prices stopped rising. According to the RP Data-Rismark house price index the first time house prices fell post the GFC was June last year.

The Australian economy has held up superbly in aggregate over the past 4 years but unfortunately this data reinforces our fear that things are getting worse. Thank goodness the RBA has not acted on their rhetoric and tightened rates recently.

Your in data the Lighthouse Research Team

 greg@lighthousesecurities.com.au

www.twitter.com/gregorymckenna

This blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If you do need economic, investment or financial advice we are happy to help.

Please Email the team at Lighthouse at info@lighthousesecurities.com.au or Greg directly on greg@lighthousesecurities.com.au

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