Unemployment figures released this morning showed a 0.3% fall in the jobless rate in April, from 5.7% to 5.4%, confounding analysts who had predicted a jump to 5.9%.
Although there remains scepticism over the ABS’s sample size, full-time employment apparently jumped by 49,100 with a net gain of 27,300. It’s good news for the Rudd Government’s roosters who will be crowing relentlessly this afternoon. Still, with a slew of economic indicators now trending to the upside, could we be seeing the first shoots of an economic recovery?
Crikey asked a group of leading economists for their considered take on this morning’s data:
Associate Professor Steve Keen, University of Western Sydney: It surprises me. When you have a government stimulus of that scale, it’s best to think of a lake, representing the amount of money in the economy, with its levels gradually sinking. People aren’t paying down their debts. When you chuck an iceberg in, it can rise temporarily but you’ve got to chuck in lots of icebergs to keep the levels from sinking overall. While the number surprises me, it doesn’t change my overall view on what will happen over the next year. We have a huge level of deleveraging taking place and as the private sector starts to reduce its debt levels and pays down outstanding debt there’s nothing that can be done to stop unemployment rising. My forecast for unemployment is still over 10%.
John Quiggin, University of Queensland: Obviously there’s the usual problems with month-on-month figures. Still, it’s good news because it wipes out most of the jump in unemployment from March. Taken in combination with a lot of other positive news, it tends to suggest that the kinds of Doomsday scenarios that some people were spruiking a month ago have been staved off in Australia. But still, I fully expect to see unemployment rise over the course of the year. Globally the free-fall in the financial system has been halted, at least for the moment, and this month’s number strengthens the case that the stimulus package has worked its way into the economy and has softened the impact of the decline. Certainly, commentators that were quick to jump on last month’s figures deserve all they get this time round. It strengthens the case for the government to say that what was needed was an immediate policy response, rather than a do-nothing approach.
Adam Carr, Senior Economist ICAP: It was a great result but I haven’t changed my assessment as such. I still think the next move will be up at the end of the year. I think the RBA will keep rates on hold, at least until they see the second quarter CPI number. With hints of recovery in the global economy, I actually think that the next interest rate move will be up at the end of the year. The monthly numbers though, might be a bit dodgy. But it’s probably unlikely that unemployment actually rose 1% in the space of a couple of months when you’ve got lending figures picking up, building approvals up and strong retail sales. I think this result makes the employment numbers a bit more believable and more consistent with the other indicators that we’ve been seeing.
Bill Evans, Westpac chief economist: We think that the labour market numbers are misleading. All the lead indicators still point to considerable deterioration. We sometimes get these one-off monthly rogue numbers and this appears to be one of them. The stimulus package is working to a degree however the dominant force will be a sharp increase in consumer saving. I still think the RBA is going to pause on rates, and that will last for a few months. I think the general feeling that the global economy is bouncing back will be significantly questioned in the second half of the year. The negative environment in Australia, and the constraints of the credit crisis, will come through and they’ll be ample scope for the Reserve Bank to keep cutting rates. We’re still predicting an unemployment rate of 8% for the middle of next year.
Julie Novak, Institute of Public Affairs: Obviously we know that these figures are highly variable. However, I would caution that with the IMF and the OECD forecasting that the global economy will face an entrenched period of weakness, that the long-term forecast of unemployment around 7% or 8% is going to hold up. The Federal Budget will probably retain forecasts of that magnitude. It’s obvious that the Rudd Government will make hay of it, but we really want to see what the long-term consequences of government activity will be. The stimulus had an impact in terms of pushing forward housing activity but I think the problem will be in the next few months after if the budget pares back the first home owners grant. There might also be some paring back of their other programs that might actually dampen activity. You want to be considering the long-term implications of government decisions and that should be the goal of any economic analysis.