Employment still weak in December 2013

Employment conditions in Australia have been weak throughout 2013 and the December result was no different. In fact conditions in the labour market continue to worsen. Much of the ‘action’ is hiding behind the headline unemployment rate and employment totals. In this post, I’ll look at the December data and what’s happening behind the scenes.

Summary of Employment in Australia (trend data)

Source: ABS 

The December data highlights the continued poor employment situation. For the month there was a decline of 8.6k FT employed persons and an increase of 8k PT employed persons, resulting in a virtually unchanged total number of employed persons.

The total number of unemployed persons ticked up in December by 1.4k persons. I’m using trend data here for all my analysis to avoid the large fluctuations in the seasonally adjusted data. But the direction is the same no matter which data type you use.

As a result, the labour force was only slightly changed this month (+800 persons) which resulted in a slight uptick in the unemployment rate (from 5.78% to 5.80%). Whilst that’s not a robust employment report, it’s not a complete collapse either, right?

But the unemployment rate is not indicative of what is really going on behind the scenes in the Australian labour market.

Firstly, total employment growth remains well below trend.

Over the full year (Dec ’13 v Dec ’12), total employed persons grew by a mere 0.4% or +45k persons. This is sitting well below the ten (10) year average growth of +215k persons.

Source: ABS 

Growth in total employed persons is not keeping pace with population growth (the underlying population growth added to the Labour Force).

Source: ABS & The Macroeconomic Project 

Since August 2011 (the most recent point where the red line dips below the blue line, above), average population growth added to the labour force is just over 200k (each month v same month prior year). The average annual growth in total employed persons is 125k over that same period (and declines to only +45k growth as of Dec 13 v Dec 12) – and this is made up of FT and PT employed persons. The difference between the two lines represents persons either counted as unemployed, or persons who have left the labour force. I’ll come back to this later. But for the moment, the gap between population growth and employment growth is widening – and not in a good way.

Secondly, the (low) employment growth over the last year has been due to part time employment.

Over the last year, the composition of employment growth has deteriorated significantly. In December 2012, total employed persons grew by +160k persons, made up of growth of 104k FT and 56k PT employed persons. Even that growth was still well below the 10 year average growth rate. As of December 2013 that situation has worsened – FT employed persons declined by -62k persons, but, thankfully, PT employed persons grew by +108k persons, bringing the total up to +45k growth in total employed workers. From an income and spending perspective, this will likely dampen economic growth.

The current direction of the trend remains a worrying feature, especially when you break down total employment growth into its FT and PT components;-

Source: ABS 

The decline in FT employed persons is accelerating. This trend has been place since November 2012 – thirteen months. The trend in PT employment appears to have turned in the last two months as well – and it may be a little too early to call that. Part-time employment is still growing, but since October 2013, that rate has started to slow somewhat.

This situation is best demonstrated by looking at the state by state growth in total employed persons;-

Source: ABS 

Despite powering house prices, growth in ‘total employed persons’ in NSW is negative on both an annual and six month basis (becoming worse). The numbers in the chart above don’t do the situation justice. In NSW, FT employed persons declined by -51k while PT employed persons grew by 45k over the year (with a total of -5.8k annual decline in total employed). Over the last six months the situation has deteriorated much further with -55k FT employed persons and only +17k growth in PT employed persons. Yet the NSW real estate market powers higher. Go figure.

States such as VIC show a worsening employment situation as well, due mostly to low FT growth and declining PT jobs growth.

Although the QLD result looks strong, the growth is mostly all in PT jobs, with -3.6k FT jobs and +38.8k PT jobs growth over the last year. This situation is almost identical in WA with -2.2k FT employed persons and +17k growth in PT employed persons over the last year (Dec ’13 v Dec ’12).

The ‘total employed persons’ data does not show the underlying shift that has been taking place between FT and PT employment in Australia. The share of PT employment in Australia has continued to grow and it reached a new high in December 2013. Over 30% of those employed are now PT employed.

Source: ABS 

Thirdly, the growth in the total number of unemployed persons now exceeds the growth in total employed persons.

Over the year Dec ’13 v Dec ’12, the total number of unemployed persons has grown by +56k persons versus +45k growth in total employed persons. The total number of unemployed persons now exceeds the levels reached during the GFC. In reality, the total number of unemployed persons remained at reasonably elevated levels post GFC, really only “recovering” until early 2011. Since then, the total number of unemployed persons has continued to grow.

Source: ABS 

Note that the rate of growth (red line) in the total number of unemployed persons has been slowing down since May 2013. Does this mean that unemployment, and the economy, will start to turn a corner soon? The curious thing about the current labour market is that growth in total employed persons (FT plus PT growth) is slowing down (worsening). At the same time, growth in unemployed persons is slowing down as well (declining, but at a slower rate). It seems counterintuitive that slowing growth in employed persons isn’t showing up as increasing growth in unemployed persons. Over the last year, the unemployment rate has “only” ticked up by 0.4%pts from 5.4% to 5.8%.

Finally, the decline in the Labour Force Participation Rate (LFPR) is hiding structural, and possibly cyclical, changes in the labour market.

The LFPR has been declining from its peak of 65.8% since Dec 2010.

Source: ABS 

Earlier, we saw that the gap between the population component of the labour force growth and the growth in total employed persons was becoming wider. As at Dec 2013, the difference between the growth in labour force due to underlying population growth and total employed persons was 169k persons. This group are either counted as ‘unemployed’ or are counted as leaving the labour force. Both events are happening. The growth in total unemployed persons over the same time was +56k persons. The remaining 112k persons represent the decline in the LFPR. Another way to calculate that is by multiplying the difference (decline) in the participation rate between Dec ’13 and Dec ’12 (from 65.2% to 64.7%) by the working age population for Dec ’13. You get the same answer.

You can use this approach to look at what the unemployment rate would have been if the participation rate hadn’t declined. If the participation rate in Dec ’13 was the same as Dec ’12, and given the current level of employment growth, the unemployment rate could be as high as 6.7% (rather than the actual 5.8%). You only get this answer if you add the entire decline in the LFPR (112.6k persons) to the current total number of unemployed persons (716k) and express that as a % of the larger labour force size. There are a number of reasons why people are leaving the labour force. To characterize them all as ‘discouraged’ workers is potentially missing the structural changes that are impacting the LFPR i.e. retiring baby boomers. I’ll go into this in more detail in another post.

Using the unemployment rate as a gauge of the performance of the labour market doesn’t highlight the very large issues facing the economy. As FT jobs are swapped for PT jobs, there is an impact on income, spending and taxation revenue. This is likely to exacerbate the already challenging business conditions. More unemployed persons and less people in the workforce will also impact income, spending and government revenue and spending – especially at a time when the government is trying to cut spending in order to cut the budget deficit. More structural, demographic change to the labour force will impact the taxation and spending base of the budget going forward.

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