Major red flag for Aussie economy
HAS the bottom has fallen out of the job market? That's how it looks according to the latest data from ANZ for May.
As the next graph shows, the number of job advertisements plunged by 8.4 per cent in May. That's a lot, for a series that is usually very stable.
It is frightening looking data, but ANZ, which collects the data, has some explanations for why it looks so bad. They blame Easter (which fell in April) and the election. Apparently numbers did bounce back in the last week of the month.
"If the last week of May is indicative, then job ads will rebound strongly in June," ANZ head of Australian economics David Plank said.
But it would need to be an extreme rebound to erase such a strong fall in May. The May fall is the biggest one-month fall since January 2010, and in that 2010 blip, the overall trend was up. Now the trend is down, and a big fall in May is unlikely to be a blip because it fits with a lot of other things we know about the Australian economy.
After all, the Reserve Bank was just forced to cut interest rates to record lows. They do that because the economy is going poorly, not because it is going well. Economic growth has been pitiful recently - under 2 per cent for the past year. Wages growth is just 2.4 per cent and if inflation wasn't so low, wages would be falling in real terms. So things are bad, and the latest job ads plunge confirms that narrative.
The big reason to look at the ANZ job ads series, though, is to find out what hints it contains for the vitally important labour force data - the unemployment rate and the underemployment rate. Today we get the latest labour market numbers, and the signs from the ANZ job ads series suggest they will be bad.
Remember earlier this year? Unemployment was the one bright spot in the Australian economy. For a long time it was steadily getting better and even fell below 5 per cent. But in March that changed. The unemployment rate rose to 5.1 per cent and then to 5.2 per cent in April, as the next graph shows.
The steep decline in the job ads series can give us a bit more certainty that the good times in the unemployment market are behind us. That would confirm a general atmosphere of gloom around the Australian economy. The retail sector is already in recession, according to the NAB business survey. And the positive post-election vibes around the housing market seem to be wearing off too, with clearance rates slumping back down in the most recent weekend.
The RBA was, earlier this year, concerned about the "tension" it saw between everything else in the economy, which was bad, and the labour market, which it thought was good. The latest data shows that tension has gone utterly slack. The labour market is clearly worsening. (To be honest it was never as good as they believed, they just weren't paying enough attention to wages and underemployment.)
The RBA used that tension as an excuse not to cut rates earlier. The recent developments in the labour market make that decision look rather foolish. You want to make rate cuts in advance of the problems cropping up, not afterwards, because they take time to have their effect. The RBA will probably spend the rest of the year scrambling to catch up by cutting interest rates at least one more time.
There is one thing on the horizon that can help turn things around, and that's the $1080 tax refund for middle income earners that will come out later in the year. That should give the economy a boost of spending it very much needs, and it will work quickly. Will it be enough? It's time for the government to start putting more money into the economy and stop worrying about the surplus so much. The $1080 is just a start.