Nigel Stapledon - Australian School of Business

Nigel Stapledon

From its lows of just over 4% in early 2008, unemployment  rose sharply to close to a peak of 5.9% in June 2009 before resumption of the resources boom and fiscal stimulus saw it decline back just below 5% in early 2011. Since then there has been a clear trend rise to its current level of 5.7%.

The Treasury estimates have the ‘full employment’ unemployment rate in the range 4.5-5%. Against that benchmark, there is an increasing amount of slack in the economy.

The leading indicators, e.g. ANZ job ads, point to unemployment continuing to rise. It is likely to break over 6% in the second half of the year.

Employment growth is positive but has been and remains at well below the rate needed to match the influx of new workers into the job market. The best measure here is hours worked which is currently showing a (slightly flattering) trend growth rate of 0.8% against long-term trend or required growth of 1.7%.

Mining investment might still be high but it is now declining and causing a decline in construction activity which is just starting to emerge in the employment numbers. With prices squeezing profitability, cost-cutting is the name of the game now.

With the news from China not at all encouraging, if anything there is prospect of a sharper pull-back in mining investment.

Another factor at play is the lagged effect of structural decline in manufacturing which has accelerated in the past 12 months. It will not be reversed by the recent fall in the $A. Firms will need to see it lower and sustained at a lower level before their expected level of the $A will change sufficiently to reverse the trend to closing operations in Australia. On the other hand, tourism might benefit in the short term as particularly some domestic travellers shift to local market.

It is not clear at all that the slack in mining and mining construction will be taken up by housing construction. While interest rates are low, the offset is that the increased risk of unemployment will cause some potential home-buyers to defer a large investment in housing.

Dr Nigel Stapledon, Australian School of Business