wealth management

Big Money: Why yesterday’s rising unemployment rate isn’t as bad as it looks

Myriam Robin /

Until yesterday, it’d been a good week for economic news.

We’ve seen solid gains in consumer and business sentiment since the election, and the sharemarket has posted modest gains since Friday (the ASX200 is up 1% in a week).

But the unemployment rate isn’t looking good. Data released by the ABS yesterday showed the unemployment rate in August had risen to a four-year high of 5.8%. The participation rate also fell from 65.1% of the labour force to 65%. This means there were fewer people actively looking for work, which should lead to lower unemployment figures if all things were equal. The fact that unemployment rose shows a labour market doubly deteriorating.

This, needless to say, isn’t good.

Economists have been predicting unemployment will rise for some time now as the mining investment boom draws to an end. Yesterday’s figures were in line with those expectations. And the expectations are that it will get worse. The RBA is predicting an unemployment rate of 6.25% by the end of this fiscal year. Some economists are predicting worse.

But it wasn’t all bad news.

Hours worked were up for the third consecutive month.

This means many businesses aren’t laying off staff because they’re struggling for customers. But they are working existing staff for longer instead of hiring anyone new. This isn’t great, but at least it shows there’s work to be had.

Businesses are generally reluctant to fire people in response to monthly fluctuations in market conditions. Managers, where they can, would rather cut hours if there’s not a lot of work to be done. So rising hours worked is a good sign for the economy, even though it comes at the expense of job-seekers.

The other thing to remember is that unemployment is a lagging indicator. While undoubtedly important, it’s a snippet of how the economy was a month ago rather than how it is. That’s not just the fault of data collection. If a business decides conditions are good enough to hire more staff, it’ll generally take at least a few weeks for them to get someone in the role. In the meantime, they’ll work existing staff for longer, which is what we saw in yesterday’s figures. Given work hours have been rising for three months, this indicates businesses are uncertain about increasing their cost base even though their business has need for new workers.

Yesterday’s unemployment rate thus says more about election uncertainty in August than it does about our economy today.

With sharemarkets and confidence on the rise, we should expect the figures to stay steady or get better next month as businesses digest the election result.

So, yesterday’s unemployment rate result was bad. But not as bad as it looked. As long as things like consumer sentiment keep improving, things should turn out okay.

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Myriam Robin

Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.

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