Unemployment rises, showing slack in the economy

Thursday, 11 July 2013  Media Alerts

The number of people unemployed in Australian has increased to 5.7 percent. A senior academic at the Australian School of Business says this shows that there is a clearly rising trend and an increasing amount of slack in the economy.

Dr Nigel Stapledon from UNSW's Australian School of Business, says "the leading indicators such as job ads point to unemployment continuing to rise over the next few months. It is likely to break over 6% in the second half of the year."

The number of Australians employed increased by 10,300 to 11.6 million in June, fuelled by part-time jobs which grew by 14,800 to 3.5 million last month, according to the Australian Bureau of Statistics. He says "employment growth is positive but has been and remains at well below the rate needed to match the influx of new workers into the job market - therefore the actual unemployment percentage has shown a rise despite more people in jobs. The best measure here is hours worked which is currently showing a slightly flattering trend growth rate of 0.8 percent against a long-term trend of 1.7 percent."

The seasonally adjusted unemployment rate jumped 0.2 percentage points, as 23,700 Australians became unemployed, according to the ABS.

Dr Nigel Stapledon says "mining investment might still be high but it is now declining and causing a decline in construction activity which is just starting to emerge in the employment numbers. With prices squeezing profitability, cost-cutting is the name of the game now. With the news from China not at all encouraging, if anything there is prospect of a sharper pull-back in mining investment."

He adds that another factor at play is the lagged effect of structural decline in manufacturing which has accelerated in the past 12 months. "It will not be reversed by the recent fall in the Australian Dollar. Firms will need to see it lower and sustained at a lower level before their expected level of the dollar will change sufficiently to reverse the trend to closing operations in Australia," he says. "On the other hand, tourism might benefit in the short term as particularly some domestic travellers shift to local market."

He says it is also not clear that the slack in mining and mining construction will be taken up by housing construction. "While interest rates are low, the offset is that the increased risk of unemployment will cause some potential home-buyers to defer an investment in housing. Quite simply, if people are worried about their jobs, they won't hunt out a mortgage for a new home, never mind how good the rates are."

For further comment contact Dr Nigel Stapledon on 02 9385 9703
Media contact: Julian Lorkin: 02 9385 1574