Jobs growth indequate

Reported by AAP
Thursday, July 11, 2013

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Mark BourisMyths bustedHome loans can seem a bit complicated and overwhelming. But it doesn't have to be. Mark Bouris clears up some common misconceptions.

Not enough jobs.

That's the simple explanation for the rising unemployment rate.

It hit 5.7 per cent in June, up from what we all thought was 5.5 per cent in May, but which has now been revised up by the Australian Bureau of Statistics (ABS) to 5.6 per cent.

No one should ever read much into the monthly changes in employment and unemployment.

The survey-based figures are simply too volatile.

Any plausible-sounding explanation for a rise or fall in one of the key measures one month has a good chance of looking downright silly when this month's zig is followed by next month's zag.

But the trends are clear.

In the past year, the unemployment rate has risen to 5.7 per cent from 5.2 per cent.

Part of that can be explained by a larger proportion of the population active in the jobs market, either employed or counted as unemployed, which rose to 65.3 per cent from 65.2 per cent between last June and this June.

But even if that proportion - the so-called participation rate - had stayed steady, the jobless rate would still have risen to 5.6 per cent.

There's no getting around it - the economy just isn't producing enough jobs.

At the current rate of population growth, and assuming the participation rate stays steady, a monthly rise of about 17,000 will be needed just to stop the jobless rate from rising.

But the latest trend estimates from the bureau put the rate of growth at just 7,500 - less than half what's needed.

This should not be a surprise to anyone.

The rate of growth in the economy's production of goods and services is quite respectable by international standards.

But it's less than what's normal for Australia.

And, because economic growth and employment growth go hand in hand, employment growth is also below what's normal for Australia.

So, we need more growth.

The question for the Reserve Bank of Australia is whether the delayed impact of interest rate cuts over the past couple of years, combined with the Australian dollar's long-awaited move toward a less growth-choking level, will do the trick.

And no one knows the answer to that question.

But there is a chance that the answer is no, they won't be enough.

June quarter inflation figures are due the week after next (July 24).

If, as seems likely, they show inflation is under control, they will confirm the RBA has scope to cut the cash rate again to give the economy a better chance of getting back up to par, without having to worry about igniting an inflationary wildfire.

26/07/2014 04:15Sydney, Australia. 26 July,2014
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