Free | Global Macro & Strategy

Macro in a minute: The stunning Aussie employment recovery

The latest employment data for Australia has just been released. The unemployment rate decreased to 5.5%, however the number of employed persons actually decreased by -30,600, as the Participation rate decreased slightly to 66.0%.

Now whilst there will no doubt be some negative headlines around this – probably saying that the end of Jobkeeper was the cause of the drop in employed numbers even though the ABS themselves are saying their analysis did NOT identify a clear aggregate impact from the end of JobKeeper – we need to keep this all in perspective, and actually recognise how stunningly successful the recovery in the jobs market has been in Australia.

The predictions were dire

One of the major uncertainties in the depths of the COVID pandemic last year was the impact it would have on unemployment, and what lasting scars this may have on the Australian economy. With the shuttering of businesses during lockdowns, unemployment spiked sharply higher, even with the extraordinary Government programs such as Jobkeeper which was designed to help keep employees attached to employers until the economy could re-open again.

With forecasts of unemployment reaching over 10%, the peak came in substantially lower at 7.48% in July 2020. Since then, with the initial gradual – and then somewhat more accelerated – reopening of the economy, plus the ultra-accommodative mix of monetary and fiscal stimulus, the employment data has consistently improved in stunning fashion.

The jobs recovery has been extraordinary

The visuals tell the story. The charts below show employment data in Australia, and we’ve used a 15 year timeframe to provide that longer term historical context.

  • The orange line shows the unemployment rate. The latest reading of 5.5% is less than 0.3% above the pre-pandemic levels.
  • The blue line shows Job Advertisements at a 13 year high
  • The purple line shows the participation rate has fully recovered and is back up around the pre-pandemic levels; and
  • The red line shows the actual number of employed persons up around those pre-pandemic highs again.

Whilst there are always some specifics under the surface that could be used for some finger wagging , there is no doubt that at the aggregate level, Australia has done an extraordinary job in coming out of this pandemic with employment back to pre-pandemic levels in such a short space of time.

By comparison, the US is no where near gaining back all the jobs lost in the past year. Some of this is blamed on the continued extra benefits for unemployed people, which is causing a disincentive for some parts of the workforce to return. This in turn has caused supply side issues, which in turn has led to price increases (inflation). As usual, toxic politics in the US plays a huge role in this.

The bottom line for investors

Whilst the horse bolted many months ago in terms of the sequential improvement (inflection) in employment data from the COVID lows, the implication for longer term investors of the current employment data is that it just helps put to bed those fears of a much longer jobs recovery which would have led to a slower pace of recovery in both economic growth and corporate profits. In other words, its one less risk we need to be concerned about, and that’s always a good thing.

 

Author: Graham Parkes

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