Henry, among others, has argued for a long time that the official unemployment figures significantly underestimate the level of under- and unemployment. For this reason, it is disingenuous to do serious analysis, and make correct policy, based on erroneous figures.
If you believe the official ABS Labour Force statistics, since the beginning of 2006, the Australian economy has added over 200,000 jobs, pushing the unemployment rate from 5.3% in January to 4.6% in October. However, this trend was reversed (sort of) in October, with the seasonally adjusted figures showing a fall in employment of 32,000. Oddly enough, the jobless rate also fell (to 4.6%), largely due to a significant fall in the participation rate (to 64.7%).
Stripped of their seasonal adjustment, the figures show a static, rather than rapidly cooling labour market: in October, employment is steady, the unemployment rate is steady and the participation rate was relatively steady at 65%. According to the ABS figures, the labour market is either static, or cooling – either way it is a change from the massive job growth we have so far in 2006.
The latest Roy Morgan Unemployment Estimate supports the theory that the labour market is cooling, but that most of the losses in employment have been in the drought-ravaged rural and regional areas. It also posits that the unemployment rate is a more believable 7.7%.
David Uren points out in today’s Oz: “Westpac says its own calculations on employment designed to overcome volatility in the official numbers show jobs growth is still accelerating.”
Michael Blythe, chief economist at the Commonwealth Bank, says it all: “A somewhat puzzling set of numbers… Either the economy’s weak and employment’s falling or the economy’s strong and unemployment’s falling.”
Henry has argued that the actual rate of under- and unemployment is closer to 15% than 4.6%. When the figures underestimate unemployment by such a great margin, monthly variations are proportionately much larger than what they should be. While this may make the results more newsworthy, and more easily trumpeted by our leaders, it does the nation’s economic advisers and policy-makers a disservice.
When the unemployment figures were released yesterday, the market forecast of another interest rate rise fell, bonds rallied and the Australia dollar fell. It is imperative that the Government accept that the ABS unemployment figures severely underestimate the level of unemployment so that the media, the markets and the Reserve Bank can make sensible analysis.
Read more at Henry Thornton.