Australia | Oct 21 2008
By Andrew Nelson
The last few months have seen many an economist recheck his (or her) numbers for just about everything, moving from blissful optimism in July to almost Chicken Little-like doom saying currently. While a number of commentators have begun predicting the still buoyant job market in Australia is due for big falls, CommSec is finding it difficult to get some of the gloomier forecasts to add up.
For one thing, let’s keep in mind that it was only a few months ago when businesses from coast to coast were complaining that it was difficult to find and keep staff. This begs the question: are these hard won and keenly sought after employees that easy to now let go?
CommSec’s Chief Equities Economist Craig James thinks the real risk is that hysterical talk has a way of becoming self-fulfilling prophecy. As the current economic contraction begins to bite, an environment now characterised by fear and uncertainty could well support unreasonable action as reasoned analysis. He thinks it needs to be kept at the forefront of people’s minds that the incessant talk of recession is a long way off from accurately describing what are still reasonably solid economic fundamentals in Australia.
Specifically, he notes recent speculation that unemployment may rise from current levels near 4% to 10% by the end of next year. James is finding it “extraordinarily difficult to replicate” such a scenario with his economic modelling.
The worst case scenario in his book is a modest lift in the jobless rate to around 5%, which is a similar result to the economic slowdowns experienced in 1986, 1996 and 2001, noting that there have only been five periods over the past 30 years when the unemployment rate rose by more than half a percent. In the two recessions of 1982/83 and 1991, he notes unemployment rose by around 5% points, while in the other slowdowns, the jobless rate only rose by between 0.6% and 1.2%.
The current rate stands at 4.3%, up recently from the 34-year low of 3.9%, the participation rate is hovering near record highs and the current annual average growth rate is at 2.6%, well ahead of the decade average of 2.2%. Given these numbers, if the annual average growth rate dropped to 1.5% over 2009, unemployment would tick up to 4.6%.; if it dropped to 1% we’d be looking at an unemployment rate of 5.2% and if the growth rate zeroed out, we’d still only be looking at 6%.
James points out that for the latter scenario to eventuate, we would need to see some massive job losses, with the participation dropping 0.5% points. However, with young people still in high demand, with high immigration rates still being fuelled by labour demand and with businesses still actively seeking staff, such an outcome ranges from unlikely to impossible.
When he looks at the doomsday scenario of 10% unemployment by late 2009 to early 2010, it would require monthly job losses averaging 35,000 over the next 16 months. This would mean over 400,000 jobs would need to be lost , the annual job rate growth would need to be minus 3.5% over the six months from August 2009 and the participation rate would fall 1%.
Not likely!
Sure, domestic and global economies are slowing and there will be some local job losses, but James expects businesses to hoard the workers that they have fought hard to hire, while the current environment shouldn’t see any significant slowdown in the employment growth rate. So with the jobless rate not expected to increase very much, this appears one factor that can be taken out of discussions about the state of the retail environment or housing demand.