Interpac Business and Migration Solutions Melbourne Australia

(October 12, 2011)

Another labour force release by the Australian Bureau of Statistics, another quick headline on the seasonally adjusted figures surprise, another knee-jerk market reaction and another round of embarrassment for market economists with the thankless task of trying (and generally failing) to predict the monthly gyration.

Which is why it pays to look beyond the whippy seasonally adjusted numbers to the trend figures and realise that nothing has changed – employment growth is flat.

Jobs growth has been slowing all year and is now officially static. With 11,441,800 people in work, a difference of 100 is nothing.

The seasonally adjusted unemployment rate eased a notch to 5.2 per cent, but the trend version was steady at that level. Nothing’s really changed – except that our dollar jumped on the alleged reasoning that the blip in the seasonally adjusted figures might stay any Reserve Bank rate cut next month. More likely, today’s figures won’t be much of a factor. The RBA tends to take a broader view.

When Wayne Swan delivered his budget speech in May, the promise of 500,000 more jobs over the next two years seemed modest compared with the greater growth over the previous two years. Now that target looks like a major challenge.

An often-overlooked part of the reason is the slowing of our population and workforce growth. Net overseas migration (NOM) peaked at 315,700 in 2008 – that’s a lot more people adding to demand for goods and services, as well as being able and willing to work. That year also was the last hurrah of our credit boom before the GFC took hold.

In the latest ABS count, for the year to the end of March, net overseas migration was only 167,100. That makes a huge difference to demand and supply, whether it’s retailers complaining about slower sales growth or housing speculators eying stabilising prices. 

A nation inevitably feels a population growth rate sliding from 2.2 per cent to 1.4 per cent. Just as the ride up to 2.2 per cent from the 1.4 per cent of 2005 was part of our boom’s cause and effect, the cooling of the rate has ramifications throughout the economy.

The outlook is for net overseas migration to start to rise again. On budget night, the Department of Immigration and Citizenship said NOM was running at “around 160,000”. Immigration Minister Chris Bowen said it will run in the 170,000 to 180,000 range “over the next few years”, but subsequent to that, the government has agreed to a sharp liberalising of tertiary international student visa restrictions in an effort to bail out our financially challenged universities.

(Perversely, that tertiary liberalisation is happening at the same time as visa restrictions on international secondary students have been significantly tightened, but that’s another story.)

With life being breathed back into the student business, the resources capital investment boom still growing and the aging workforce in many key roles requiring at least more temporary work visas, plus the deteriorating employment outlook in the North Atlantic nations, my guess is that NOM will soon enough be running around the 200,000 mark again.

What concerns the RBA most right now is capacity restraints and the impact they may have on inflation. With employment, unemployment and the workforce all fairly steady, it’s not much of an issue.

The more detailed industry breakdown in today’s numbers show growth in public administration, professional, scientific and technical services, health care and construction.  Manufacturing was the only industry in a down trend while the rest were more or less flat to a little off.

I can imagine the RBA mandarins coming to the conclusion that their workforce comments in the board minutes of the last year remain current. So far, tightening is limited to the resources sector and those who service it. Otherwise, unemployment remains around 5 per cent.