The ABS handed us another puzzle yesterday — the September jobs report told us that employment growth wasn’t keeping up with population growth (you need about 15k jobs per month to keep up) but that the unemployment rate fell to a 6yr low of ~5%.
So which is it? Is the labour market tight, or is it flaking out?
Perhaps it’s both. Perhaps the truth was that the participation rate was never really so high — so the true unemployment rate was a bit lower. This makes some sense: GDP growth has been meaningfully above trend in H1’18, so we might have expected the unemployment rate to fall. So what we are seeing is the unemployment rate catching down to the truth, as the participation rate settles down.
Trend employment growth still looks okay, but my guess is that this is slowing down. This is consistent with the soft headline jobs number (+5.6k).
I’m cautious about interpreting the jobs numbers. The survey isn’t designed to measure the number of people with jobs. It is designed to measure the unemployment rate. While we are talking about data-quality: the variation in the participation rate defies credibility. Taken together, i think the employment-to-population ratio (above chart) is the best measure — as it doesn’t swing around with the participation estimates.
On this measure, the labour market is fantastic. We have ~74% of working age people in jobs: a larger share of the working age population than even at the peak of the triple boom (financial, housing and mining) in 2008!
The problem is that, like everywhere else, the link between the unemployment rate and inflation is broken (or at least, the NAIRU is lower). This is the main message of RBA Depute Gov Debelle’s speech, The State of the Labour Market.
Looking forward, my hunch is that it’s all slowing down a bit — as the housing downturn spreads out like molasses across the economy. And global headwinds are picking up too — the IMF is nudging down global growth downgrades and our key trading partners are having trouble with the US tightening cycle.