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Economic Update: Mixed news for the working class man (and woman)

Updated: Feb 21, 2022

The job market data for October was extraordinary. Jobs growth for the month was at a massive 180,000 (explained by businesses being able to re-open in Melbourne). The unemployment rate was 7% (it has been around this level for the past 3 months). The Treasury and RBA are looking for the unemployment rate to peak at about 8% around the end of this year.

The longer-term goal should be to get the unemployment rate back down to 'full employment', the level consistent with most people who want a full-time job being able to get one. Previously the RBA has nominated 4.5% as the rate consistent with 'full employment'. It will be a hard target to achieve quickly. Even before COVID-19 the unemployment rate was struggling to get under 5%.

COVID-19 has hit some sectors particularly hard. Hardest hit has been Accommodation and Food Services where there were 150,000 fewer jobs in August than there were at the end of last year. There has been sizeable job losses in 'other' services (such as personal care) and manufacturing. There are fewer jobs across all age groups, although the youngest workers (those under 35 years old) have unfortunately suffered the worst.

The number of job ads (relative to the size of the labour force) is below the ratio of much of the past twenty years. Similarly, the number of unemployed per job vacancy is near its highest level in almost twenty years.

And not only have employers not been hiring, they have been firing. The retrenchment rate was at a high level in the September quarter (albeit down from its COVID-19 peak). It will be interesting to see whether it rises again as the insolvency regime is reactivated, or when Jobkeeper ends. The proportion of employees expecting more job cutbacks is higher than normal but the employee quit rate is low.

Despite the weak state of the jobs market, a surprisingly high proportion of firms are indicating problems finding skilled labour. Some of that may reflect the border restrictions in WA, creating problems for firms trying to find miners or areas of construction. In recent years, employers (particularly small and medium-sized firms) have indicated problems of finding skilled tradies. More generally the high level of infrastructure work has created plenty of demand for types of skilled employees (such as engineers).

Better news should be more regularly heard from the second half of next year. It looks increasingly likely that a vaccine will enable the (domestic) economy to be fully open. This should help boost consumer and business spending. And if it doesn't Governments will provide further fiscal support. The important question by then is how much additional effort will be required to get the economy roaring back to full employment.

Original post by Bank of Queensland



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