Preliminary fourth quarter US GDP growth figures are released this Wednesday, and are expected to show a significant downturn from previous quarters. The average market expectation is for annualised fourth quarter growth of 2.5%, which would be the slowest in several years.

A drag on GDP growth in the USA is the sharper than expected fall in inventory growth, which in turn implies a weaker housing market and a slowdown in demand within the manufacturing sector.

Last week’s housing data provided some good if gloomy headlines for the slumping housing sector, but many consider the fall in housing starts necessary to drive down the excess supply in housing. This week’s existing and new home sales data, due on Tuesday and Wednesday respectively, will provide more of an insight into the market.

Outside of housing and the related manufacturing, the US economy appears healthy with consumers continuing to spend, due to the strong labour market, and strong income gains, which will in turn give the housing sector a boost – eventually. US consumer confidence is holding up, so far at least.

Domestically, this morning sees the release of the results of the annual Underemployed Persons survey from the ABS. As Henry’s readers would know well, underemployment can be almost as large a problem as actual unemployment. Clearly the Roy Morgan Unemployment Estimate is more accurate than the ABS measure in determining unemployment; but underemployment is a separate, and even harder to measure, problem.

Henry has attempted to construct a more realistic measure of un- and under-employment in Australia (see Labour Market), but it really is a riddle wrapped up in an enigma. We are still hard at work constructing a measure that properly measures this social menace, and will report back.

The ABS has been undertaking variations on the underemployed worker survey, and the results are fascinating. As this graph shows, during the late 1980s, the rate of underemployment was relatively low, but shot high during the recession we had to have.

It seems that underemployment is far less responsive to an improvement in economic conditions than unemployment. While the amount of unemployed workers has halved since the 1991/2 recession, the amount of underemployment has remained stubbornly at the same level.

Today’s figures for 2006 show that, despite the unemployment rate being at a 30-year low, there remains over half a million underemployed Australian workers. This maintains the trend set over the past decade and a half – although unemployment has more than halved, underemployment has stayed on a similar level. Clearly this indicates that there remains quite a significant level of unutilised labour, despite the apparent low unemployment.

Read more at Henry Thornton.

Peter Fray

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