As we return from our summer break to the sounds of a cretinous attempt by Scott Morrison to launch a culture war over Australia Day, the news on the economic front is rather more interesting. With a decision on whether to hold an election early or late being considered, there is little economic news that suggests waiting until May will improve their chances of victory.
Last week the latest job vacancy figures released by the bureau of statistics presented a perfect example of the confused state of our economy, and why our wait for improved wages growth looks set to continue.
The figures showed that there has been a slight slowing – both in quarterly and annual growth terms:
Given job vacancies are a leading indicator (because a job vacancy now will be a new job filled later on) it is not a great sign that the quarterly growth of job vacancies has now fallen for four straight quarters and is at its lowest level since May 2016.
But we should not get overly panicky. The job vacancy rate, which compares the number of vacancies to the size of the labour force is actually at its highest rate ever of 1.82%:
That is absolutely a good thing as it flows through into a low level of unemployed per job vacancy.
Across the nation there were just 2.8 unemployed in November fighting for each job vacancy – well down on previous year. In NSW, just two unemployed, and 2.3 in Victoria are competing for each job:
And yet the unemployment rate should actually be lower given this amount of vacancies.
The “Beveridge curve” measures the job vacancy rate against the unemployment rate – the more vacancies, the lower the level of unemployment should be. Given the relationship between the two rates over the past 25 years, the current number of job vacancies would usually see the unemployment rate around 4% rather than the current 5.1%:
The question is why over the past two years the unemployment rate has not fallen as fast as it would be expected.
Partly it is due to the continued ructions in our economy – the shift to services, the end of mining boom jobs. This can make it slower for people to move to where the jobs are or be trained in the jobs that are needed.
The other problem is the type of jobs being advertised. Over the past two years vacancies in administration and support have accounted for 37% of the growth of all vacancies. That is a huge amount given in February 2017, that industry only accounted for 13% of all vacancies.
It has seen a big increase in the percentage of all vacancies coming from that industry:
That doesn’t explain everything – and certainly there has been generally good growth of vacancies in all industries – but it demonstrates that just looking at total job vacancies can hide a fair bit of information. Sure, a sizeable proportion of work in admin and support is low skilled, but that doesn’t mean it’s a job for everyone.
The other problem is underemployment. As the job vacancy rate rises you would expect to see the underemployment rate fall, but it hasn’t:
Should the growth in job vacancies continue to slow, this means the chances of underemployment falling also diminish. And should underemployment remain high, the chances of wages growth improving are negligible – and certainly not before a May election.
But some good news – the Reserve Bank is now likely to cut interest rates.
Whereas last year investors thought the next move would be an increase, now there is around a 50% likelihood of a rate cut by this time next year:
The bad news is you won’t notice it.
The RBA is most likely to cut the cash rate because banks are increasing their own interest rates. The gap between the discounted mortgage rate and the cash rate is now greater than it has ever been:
Banks claim that this is because their funding costs have increased – and certainly their short-term costs have risen sharply of late:
But what has not risen of late is economic activity. The latest building approvals figures out last week showed the biggest annual fall in private sector building approvals since the GFC:
The retail trade figures for November also showed a big drop in the seasonally adjusted annual growth rate suggesting the recent improvement could be at an end:
So the last thing the Reserve Banks want is higher interest rates further slowing spending.
It highlights the oddity of the government boasting of its return to a budget surplus as a sign of good economic management.
Yes, there has been a nice pick-up in company tax revenue, but a surplus actually reduces economic activity – it slows economic growth. The demand in the economy at the moment remains well below the levels observed during the mining boom – when there actually was a need for a surplus to take some heat of the economy.
At the moment the economy doesn’t have much heat at all, and with the cash rate at record lows and set to go lower, the Reserve Bank, not the government, is the one mostly keeping the fires burning.
As Morrison tries to decide when to head to the polls there is little in the economy to give him cause to smile. Sure, a budget in April might still see a surplus projected for 2019-20, but it is unlikely to be accompanied by an economic picture that voters will feel a surplus is what they need.
• Greg Jericho is a Guardian Australia columnist
