Under-employment and unemployment

In spite of the global financial crisis, Australia’s unemployment rate is holding steady at around 5.8 per cent. Although high, it compares favourably to the continued rising unemployment in other countries such as New Zealand where the rate is 8.5 per cent or the United States: 10 per cent.

However, the Australian Bureau of Statistics has provided a breakdown of hours worked in the economy with this month's labour force data. On its estimates, Australians are working more than 35 million fewer hours than they were a year ago. This fall in working hours, with employment holding fairly steady over the past year, seems to confirm what the fall in full-time jobs and the compensating rise in part-time employment implied: that the downturn in Australia has revealed itself as under-employment rather than unemployment. If this is so we may yet see significant falls in consumer spending even in the absence of the expected rise in unemployment.

The Reserve Bank has made clear it is moving from loose monetary policy with an easing bias (expansionary) to loose with a neutral bias. Commentators have been quick to see this as the Bank signaling that rates are on the way back up. While this may ultimately prove to be correct, we need to see how employment performs before we make the call on increases to interest rates in the next few months.

Despite the welcome smattering of recent good news, the economy is still fragile. I would be keeping an eye on business investment which, due to tight credit conditions is still weak, and some areas of construction like multi-dwelling complexes, which is also showing signs of weakness.