For a more comprehensive roundup of the week, listen to Stephen’s full report here.
After discussing last week the fine line between a ‘glass half full’ view of Australian economic prospects and a ‘glass half empty’ view, the latest employment and job vacancy data imply intriguingly that the economy is growing more strongly than all forecasters have allowed. If job vacancies continue to expand at the pace indicated in the latest monthly ANZ job advertisement series, up another 1.8%, or in ABS quarterly job vacancies survey, up another 2.6% in the three months to November 2014 to the highest level in two-years, employment growth may be sufficient to reduce Australia’s unemployment rate through 2015. Rising employment and a falling unemployment rate will in turn start to accelerate household income growth and growth in household spending. Business confidence will improve and non-mining investment spending will grow more strongly and the economy grows above long-term trend, even in the face of falling mining investment spending.
There are signs that this virtuous cycle of improving employment leading to more spending and in turn priming even more jobs growth may have already started. According to the monthly labour force data, employment rose in December by a much-stronger-than-expected 37,400 (consensus market forecast was 5,000), after increasing an upwardly-revised 44,900 in November and by 16,700 in October. Over the final three months of 2014 employment rose by an impressive 99,000, compared with only 1,700 in Q3 2014, 18,800 in Q2 2014, but a better 94,300 in Q1 2014.
On the latest three month improvement in employment there are also tentative signs that the unemployment rate may have peaked at 6.3% back in October 2014, declining to 6.2% in November and 6.1% in December. Around the six main states, the unemployment rate is down from its recent peak in all but one, Western Australia where the unemployment rate was up to 6.0% in December from a 2014 low reading of 4.8% back in March. The biggest declines in unemployment rate from 2014 peak readings are in Queensland, 6.1% in December from a peak of 7.0% and Tasmania, 6.7% in December from 7.6%. The smallest improvements from 2014 peak readings are in New South Wales, 5.9% in December from 6.0% and Victoria, 6.5% in December from 6.8%.
It is only Western Australia where employment and the unemployment rate are deteriorating, understandably as that state is at the epicenter of falling mining investment spending. In all other states it appears that non-mining spending is growing sufficiently to generate employment growth enough to bring down unemployment.
If the unemployment rate is declining rather than rising from the beginning of 2015 another area of the economy that will show less deterioration than forecast currently is the Federal Government’s Budget. The relative improvement in the Government’s budget position may be comparatively small, but enough perhaps to reduce the need for budget spending cuts even with a pervasive view that the budget needs balancing over time.
Other positive data surprises early in 2015 corroborating the better employment data include the very strong November home building approvals data, up 7.5% after lifting 11.5% in October and better than expected November international trade data – a deficit of $A925 million against expectations of a $A1,600 million deficit and with the value of exports lifting 0.6% in the month despite sharply lower export prices.
The Australian economic outlook is perhaps not quite as finely balanced as it was even a week ago. The strength of employment and the falling unemployment are both big positive surprises. More data is needed to be sure that economic conditions have improved, but the economic cup seems to be tipping from half full to five eighths full.