The latest unemployment rate should be met with cheers rather than gloom about it putting off a rate cut. We don’t need higher unemployment to get a rate cut and both the government and the Reserve Bank should seize this opportunity to lock in historically low unemployment as the norm.
I am by nature somewhat of a glass half-empty type. I mostly blame it on following sports teams which have a greater talent for disappointment than success.
So it was peculiar last week that my immediate reaction to the latest unemployment figures was one of joy while the general response was gloom.
In September, unemployment was a mere 4.1% while underemployment fell from 6.5% to 6.3%.
This is absolutely good news. Historically good.
Think of it like this: if you entered the labour force in October 1974, in your first 576 months of being in the labour force to January 2022, unemployment was below 4.2% just five times.
In the 33 months since then it has been below 4.2% 32 times.
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Right now a higher percent of adults are employed than ever before (records go back to 1966):
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The surge in women working full-time means the share of all adults working full-time is as high as it has been since the 1990s recession:
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We have had very strong migration over the past two years and yet unemployment is lower than anyone of working age has experienced, and more adults are working than ever before. That is astonishing.
The underutilisation rate, which counts both unemployment and underemployment, is also lower now than it was before the pandemic:
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That talk of a recession a few months ago seems distant – at least on the employment front.
Is everything hunky dory? Of course not. The non-market sectors of education, healthcare and social assistance are contributing most of the increase hours worked, while employment growth in the “market sector” (ie those industries less reliant on government funding) is limp:
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Partly this is an inevitable response after the unsustainable growth that occurred after the pandemic. But it also shows that raising interest rates 13 times does slow the economy.
Ahh, I’ve said it! Now we get to reason for the gloom – interest rates.
The low unemployment rate means the likelihood of the next rate cut is further off than it was a month ago (or even just last week):
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As someone fortunate enough to be paying off a mortgage, I would love a rate cut. As someone who is not a sociopath, I am not going to be sad if more people having a job means I’ll have to wait a few more months before my mortgage repayments drop.
The rates will inevitably come down – there is zero current prospect of them rising – and inflation is also down. Despite the Reserve Bank thinking the current level of unemployment is lower than it needs to be to stop inflation rising, inflation is falling.
Importantly, (as Ross Gittins has also noted) the current level of unemployment is not like the mining-boom blip of early 2008 when the unemployment rate went below 4.2% for three months. It’s been this low for nearly three years.
This is not an aberration – it is the rule. And it should be the ceiling of what both governments and the Reserve Bank view as a standard level.
The almost universal belief that the low unemployment level means no rate cut is actually rather weird given all this low unemployment has not brought with it any wages breakout.
The most regular wage data we have is enterprise agreements lodged fortnightly with the Fair Work Commission. That data shows wage growth peaked a year ago:
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But fears – real or otherwise – of inflation trump all right now.
On Wednesday the IMF raised its predictions for inflation at the end of next year to 3.6% – surely another blow to a rate cut. But as Peter Hannam, who was one of the few to not lose his head, wrote, this was hardly news – the predictions just lined up with the most recent RBA estimates and are due to the energy rebate coming off.
And while the IMF had increased its estimate for inflation from six months ago, the estimate for average inflation growth through the year is lower than was estimated 12 months ago:
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Are we really going to sound the alarm because inflation is expected to average 3.3% next year?
It really is time for people to calm down.
Markets and commentators mostly responded to the low unemployment figures as proof that interest rates won’t be cut because they just assume that low unemployment means stronger wages growth and higher inflation.
But wages growth over the past two years has not risen at a pace that would prevent inflation being below 3%.
This has not prevented those who lust for higher unemployment purely to satisfy their economic models wishing the RBA and government would do what they could to get unemployment up to 4.5%.
For myself, I will continue to be happy that unemployment is low and instead worry that those with a job can get a decent wage rise and those looking for work can stop being forced to live in poverty.
A rate cut? That would be nice, but much better news is that more Australians work now than ever before – and we should celebrate it.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
