Jobless Rate Eases - Chief Economist Alan Langford's Response

MEDIA RELEASE

Alan Langford
Chief Economist
0439 961 232 10 June 2010
08 9449 6354

Jobless Rate Falls Again on Back of Solid Growth in Full-Time Employment

Fast Facts:
* Headline jobless rate down by 0.2 of a percentage point, to 5.2 per cent.
* Strong rise in full-time employment for a third month in a row, more than
offsetting falling part-time employment.
* Economy-wide total hours worked also up strongly, and
* Underemployment rate also down.

Analysis:

Despite the publication of some soft indicators of economic growth in recent weeks, the Australian economy's underlying strength is reflected in yet another robust labour market report.

Although the labour market is a lagging indicator of what happened in the economy in the past, rather than a pointer to the future, a strong labour market nevertheless makes households more likely to consume. Moreover, if most householders are confident of their job security, they are more likely to commit to big-ticket expenditures, including the family home.

A falling unemployment rate can, and does, mask pockets of underemployment when the labour market is soft, because a person is classified as employed, and therefore by definition not unemployed, if they work as little as 1 hour per week. An underemployed person is willing and able to work more hours a week than they are, but are working less hours for economic reasons, most commonly because their employer does not have enough work for them, but does not want or need to lay the worker off all together.

Until late last year, the modest rise in the unemployment rate in the face of a soft economy in late 2008 and early 2009 was in fact masking a sharp rise in underemployment, falling full-time employment and a contraction in total hours worked. But full-time employment and total hours worked are now both trending higher, while the underemployment rate has peaked and is falling steadily.

If it wasn't already apparent that Australia had well and truly escaped the clutches of recession in most other advanced economies in the wake of the GFC, today's labour market report confirmed both that Australia was almost alone in defying the gloom, and then rebounded strongly on the back of an equally strong recovery in commodity prices. However, the latest bout of nervousness about the risk of contagion from Greece's massive budget shortfall is already being felt in Australian capital markets, and will be felt more widely if conditions get worse before they get better, and/or if China's growth falters badly.

If not for the risk of a worsening of contagion from Greece, today's strong labour market data would increase the risk of the RBA raising the cash rate again sooner rather than later. The publication on the 28th of July of the June quarter consumer price index is the next big local reading on whether the RBA needs to snug interest rates a bit higher, but even that blockbuster release will take a back set to global financial market developments if they worsen in coming weeks.

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SOURCE: Bankwest