The Problem With High Household Debt

The Bank for International Settlements has published their 87th Annual Report, to March 2017.  They say there are encouraging signs of economic recovery, but point to risks from high household debt and over-reliance on monetary policy.  They call for a rebalancing of policy towards structural reform.

They underscore the risks which result from over investment in housing, and excessive credit and make the point that in Australia, Canada, Sweden and Switzerland, household debt rose by 2–3 percentage points in 2016, to 86–128% of GDP. True growth comes from productive economic investment, not ever more housing debt, which becomes a real problem should interest rates rise.

They say that high levels of debt servicing will have a dampening impact on future economic growth.

It is well recognised that household borrowing is an important aspect of financial inclusion and can play useful economic roles, including smoothing consumption over time. At the same time, rapid household credit growth has featured prominently in financial cycle booms and busts. For one, household debt – or debt more generally – outpacing GDP growth over prolonged periods is a robust early warning indicator of financial stress.

The adverse effects of excessive credit growth can also be magnified by the economy’s supply side response. For example, banks’ stronger willingness to extend mortgages may feed an unsustainable housing boom and overinvestment in the construction sector, which may crowd out investment opportunities in higher-productivity sectors. Credit booms tend to go hand in hand with a misallocation of resources – most notably towards the construction sector – and a slowdown in productivity growth, with long-lasting adverse effects on the real economy.

Additional risks to consumption arise from elevated levels of household debt, in particular given the prospect of higher interest rates. Recent evidence from a sample of advanced economies suggests that increasing household debt in relation to GDP has boosted consumption in the short term, but this has tended to be followed by sub-par medium-term macroeconomic performance.

It is possible to assess the effect of higher interest rates on debt service burdens through illustrative simulations. These capture the dynamic relationships between the two components of the DSR (the credit-to-income ratio and the nominal interest rate on debt), real residential property prices, real GDP and the three month money market interest rate. Crisis-hit countries, where households have deleveraged post-crisis, appear relatively resilient to rising interest rates. In most cases  considered, debt service burdens remain close to long-run averages even in a scenario in which short-term interest rates increase rapidly to end-2007 levels. By contrast, in countries that experienced rapid rises in household debt over recent years, DSRs are already above their historical average and would be pushed up further by higher interest rates.

Bust the regional city myths and look beyond the ‘big 5’ for a $378b return

From The Conversation.

Investing in regional cities’ economic performance makes good sense. Contrary to popular opinion, new researchout today shows regional cities generate national economic growth and jobs at the same rate as big metropolitan cities. They are worthy of economic investment in their own right – not just on social and equity grounds.

However, for regional cities to capture their potential A$378 billion output to 2031, immediate action is needed. Success will see regional cities in 2031 produce twice as much as all the new economy industries produce in today’s metropolitan cities.

Drawing on lessons from the UK, the collaborative work by the Regional Australia Institute and the UK Centre for Cities spotlights criteria and data all Australian cities can use to help get themselves investment-ready.

Build on individual strengths

The Regional Australia Institute’s latest work confirms that city population size does not determine economic performance. There is no significant statistical difference between the economic performance of Australia’s big five metro cities (Sydney, Melbourne, Brisbane, Perth and Adelaide) and its 31 regional cities in historical output, productivity and participation rates.

So, regional cities are as well positioned to create investment returns as their big five metro cousins. The same rules apply – investment that builds on existing city strengths and capabilities will produce returns.

No two cities have the same strengths and capabilities. However, regional cities do fall into four economic performance groups – gaining, expanding, slipping, and slow and steady. This helps define the investment focus they might require.

For example, the report finds Fraser Coast (Hervey Bay), Sunshine Coast-Noosa and Gold Coast are gaining cities. Their progress is fuelled by high population growth rates (around 2.7% annually from 2001 to 2013). But stimulating local businesses will deliver big job growth opportunities.

Rapid population growth is driving the Gold Coast economy, making it a ‘gaining’ city. Pawel Papis from www.shutterstock.com

Similarly, the expanding cities of Cairns, Central Coast and Toowoomba are forecast to have annual output growth of 3.2% to 3.9% until 2031, building on strong foundations of business entries. But they need to create more high-income jobs.

Geelong and Ballarat have low annual population growth rates of around 1.2% to 1.5%. They are classified as slow and steady cities. But their relatively high creative industries scores, coupled with robust rates of business entries, means they have great foundations for growth. They need to stimulate local businesses to deliver city growth.

Get ready to deal

Regional cities remain great places to live. They often score more highly than larger cities on measures of wellbeing and social connection.

But if there’s no shared vision, or local leaders can’t get along well enough to back a shared set of priorities, or debate is dominated by opinion in spite of evidence, local politics may win the day. Negotiations to secure substantial city investment will then likely fail.

The federal government’s Smart Cities Plan has identified City Deals as the vehicle for investment in regional cities.

This collaborative, cross-portfolio, cross-jurisdictional investment mechanism needs all players working together (federal, state and local government), along with community, university and private sector partners. This leaves no place for dominant single interests at the table.

Clearly, the most organised regional cities ready to deal are those capable of getting collaborative regional leadership and strategic planning.

For example, the G21 region in Victoria (including Greater Geelong, Queenscliffe, Surf Coast, Colac Otway and Golden Plains) has well-established credentials in this area. This has enabled the region to move quickly on City Deal negotiations.

Moving past talk to be investment-ready

There’s $378 billion on the table, but Australia’s capacity to harness it will depend on achieving two key goals.

  • First, shifting the entrenched view that the smart money invests only in our big metro cities. This is wrong. Regional cities are just as well positioned to create investment returns as the big five metro centres.
  • Second, regions need to get “investment-ready” for success. This means they need to be able to collaborate well enough to develop an informed set of shared priorities for investment, supported by evidence and linked to a clear growth strategy that builds on existing economic strengths and capabilities. They need to demonstrate their capacity to deliver.

While there has been much conjecture on the relevance and appropriateness of City Deals in Australia, it is mainly focused on big cities. But both big and small cities drive our national growth.


You can explore the data and compare the 31 regional cities using the RAI’s interactive data visualisation tool.

Author: Leonie Pearson, Adjunct Associate, Regional Australia Institute

NSW state budget swollen by property boom

From The New Daily

Bloated by nearly $10 billion in stamp duty from the hot Sydney property market and asset sales, the New South Wales state budget delivered on Tuesday looks like a political winner for the Gladys Berejiklian government.

While the state enjoys the nation’s lowest unemployment rate at 4.8 per cent, 3.5 per cent local economic growth and negligible net debt, new Treasurer Dominic Perrottet reported a 2016-17 surplus of $4.5 billion from total revenues of $78 billion.

“We are the envy of the Western world,” Mr Perrottet told the budget lock-up media briefing.

The results were boosted by stamp duty receipts of half a billion dollars from the recent sale of the state’s electricity poles and wires and the demand-driven astronomical prices of Sydney property now at $7.2 billion in 2017-18.

While former federal treasury head Dr Ken Henry once described state property transfer taxes as a distorting influence on the efficient use of land, NSW and other mainland states have become addicted to it.

Stamp duty on a $2 million house in NSW currently costs the buyer $95,763, a big windfall for the state.

Also addictive is the state’s dependence on payroll tax, currently at $8.6 billion rising to just on $10 billion a year by 2021.

Payroll tax, easy to collect, nevertheless has been described by economists as a tax on jobs.

NSW also mainlines on gambling for its big revenues, collecting $800 million from club poker machines, $766 million from pub pokies, $111 million from racing, $363 million from lotteries and $278 million from Star Casino.

Grand total from gambling: $2.3 billion.

Mr Perrottet, a proclaimed Christian and father of four, says he supports a national approach to the anti-social impacts of gambling.

The Turnbull government and federal Treasurer Scott Morrison are unlikely to have any sympathy for Mr Perrottet’s complaint that NSW is being short-changed on GST distribution by $15 billion over the next four years.

“Right now GST from NSW taxpayers is subsidising inefficient Labor states, some of whom seem more interested in increasing the size of their bureaucracies, rather than undertaking reform,” Mr Perrottet said in his ‘bearpit’ budget speech.

Housing in NSW ‘still unaffordable’

While Premier Berejiklian promised a game changer on housing affordability, her government’s budget does not deliver systemic change.

Instead, it offers a planning red tape-cutting blitz to boost supply and “a fair go for first home buyers” in the form of stamp duty exemptions from July 1 for new and existing properties up to $650,000, with discounts up to $800,000.

Following the recent federal budget lead, foreign investors have been constrained with an investor transfer duty surcharge increase.

While welcoming the state budget’s bias to local first home buyers, property affordability analysts say low interest rates and relentless demand pressure from population growth will continue to drive Sydney’s sky high property prices.

Infrastructure ‘equivalent to 124 Harbour Bridges’

With the NSW population projected to increase to 11 million by 2056, the state’s already congested city road systems are now a big political problem.

Through its asset recycling program, property sales and privatisations, the state’s ‘Restart NSW’ fund is bankrolling $73 billion in capital works over four years, including the contentious Westconnex toll road now cutting through suburban houses in western Sydney and the stand-alone privately operated Sydney Metro fully automated commuter train with the track now under construction from Sydney’s north west, under Sydney harbour and through the CBD to the south west.

Mr Perrottet made this declaration about the infrastructure spend: “That’s equivalent to building 124 Harbour Bridges – a once-in-a-generation investment that will transform our state forever.”

The capital works include already announced new schools and hospital upgrades, but announced on Tuesday was a $720 million upgrade for the Prince of Wales Randwick hospital in Sydney’s eastern suburbs.

While wage growth in Australia has been flatlining in recent years with a depressive impact on economic growth, the NSW government is insisting on maintaining its 2.5 per cent cap on public sector wages.

With the Reserve Bank governor Dr Philip Lowe this week saying employee demands for higher wages were now justified, Mr Perrottet would not be moved, also insisting that departmental efficiency dividends would continue to be imposed.

In a blatant move for political popularity the state will now fund a non-means tested $100 per child payment for sporting activity, said to be justified by the obesity epidemic.

Significantly for a state budget, this one is presented with an “outcomes” template for the first time, similar to Oklahoma in the US.

NSW Treasury secretary Rob Whitfield, a former banker, says benchmarking performance alongside the budget numbers will help to change the state’s political culture to accountability for its primary function – service delivery.

Residential property prices rise 2.2 per cent

Residential property prices rose 2.2 per cent in the March quarter 2017, the fourth consecutive quarter of growth, according to figures released today by the Australian Bureau of Statistics (ABS).

Program Manager for Prices Branch, Marcel van Kints, said; “While residential property prices rose in most capital cities this quarter, Sydney and Melbourne continue to drive the national result.”

The price rises in Sydney (3.0 per cent) and Melbourne (3.1 per cent) were partially offset by falls in Perth (1.0 per cent) and Darwin (0.9 per cent).

Through the year growth in residential property prices reached 10.2 per cent in the March quarter 2017. Sydney recorded the largest through the year growth of all capital cities at 14.4 per cent, followed closely by Melbourne at 13.4 per cent.

The total value of Australia’s 9.9 million residential dwellings increased $163.1 billion to $6.6 trillion. The mean price of dwellings in Australia is now $669,700.

This ongoing rise may go counter to some recent data, although we note the CoreLogic data this week also shows rises in most centres, after recent softer data.

But of course the ABS data is prior to the recent regulatory interventions. As the HIA puts it:

“There is evidence that since March 2017 dwelling price growth has slowed following the introduction of additional restrictions by APRA and increased barriers to foreign investor participation imposed at federal and state level”.

So the next ABS series, due out in 3 months will be the one to watch.  Why do we need to wait so long for this data? The ABS is very slow to generate this particular series.

 

 

 

Amazon should bring Whole Foods to Australia

From The New Daily.

A leading economist has welcomed Amazon’s shock $US13.7 billion takeover of Whole Foods, saying it could be very good news for Australian grocery shoppers.

UNSW Professor Richard Holden, who spent a decade teaching and researching at top US universities, said he hoped Amazon would open Whole Foods supermarkets in Australia, as the sector is ripe for a new premium competitor.

“As someone who lived in the US for 10 years and shopped at Whole Foods every second day, it would be great for the consumer if they came to Australia,” he told The New Daily.

Amazon announced on Saturday it had signed a binding $US42-a-share merger contract with Whole Foods, which has 460 supermarket outlets across the US, Canada and the UK.

This was a radical shift in strategy for Amazon. Almost overnight, it went from an almost entirely online retailer to an enormous bricks-and-mortar grocery powerhouse.

With last year’s launch of AmazonFresh, an online grocery delivery service, it’s clear CEO Jeff Bezos wants Amazon to change grocery shopping forever.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Mr Bezos said in a statement.

“Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

All physical stores will continue to operate under the Whole Foods brand, Amazon confirmed.

Professor Holden said the premium supermarket chain, which specialises in healthy, vegan and eco-products, could be expanded to Australia after AmazonFresh officially launches here in 2018.

“Coles and Woolworths seem to charge fairly high prices, so if someone was to come in with a premium offering like Whole Foods, then they’re not trying to battle into a market where people are used to paying extremely competitive prices,” he said.

“It’s certainly a market where a premium offering like Whole Foods might appeal, and where prices are already, shall we say, not low.”

Professor Holden said his experience of shopping at Whole Foods regularly while living in the US was overwhelmingly positive.

“They have a lot of organic food, really high-quality produce, a lot of incredibly good prepared meals as well. It’s like shopping at David Jones food hall, basically, but for everything,” he said.

“If you had to pay incredibly high prices, that would be one thing. But they’re really not that bad, compared to Australian prices.”

Whole Foods will join AmazonFresh for groceries, Amazon Prime for TV shows and movies, Kindle for e-books, Audible for podcasts and audiobooks, Echo to rival smart assistants like Apple’s Siri, and IMDb for movie reviews, among many other subsidiary companies.

Maria Prados, vice-president at online payments platform Worldpay, said in a statement that Amazon’s purchase was a “clear sign of its intention to disrupt the grocery industry globally”.

“From the ‘Dash’ buy button, to the launch of the AmazonFresh service last year, the eCommerce giant has been taking clear steps to build its position in the grocery sector. And investing in a physical presence could be the key to Amazon’s success in this space,” Ms Prados said.

‘Canberra to blame’ for next month’s sky-rocketing energy bills

Household budgets, already under pressure from flat incomes, underemployment and rising mortgage rates, face further cost of living pressures with the latest hikes in power prices, as highlighted by the New Daily.

Power bills will soar by hundreds of dollars next month in east coast states, and experts blame policy uncertainty in Canberra.

Two major retailers, Energy Australia and AGL, have announced they will hike prices substantially from July 1. A third, Origin Energy, is expected to follow soon.

Energy Australia will increase power bills by almost 20 per cent, roughly $300 more a year, for households in South Australia and New South Wales. Gas prices will go up 9.3 per cent in NSW and 6.6 per cent in SA, adding between $50 and $80 to annual bills.

Queensland customers will be least affected, suffering only a 7.3 per cent ($130) increase to residential power bills. This is due mainly to the Palaszczuk government forcing the state government-owned distribution network to take a hit to profits.

A week earlier, AGL, the country’s third-biggest energy provider, said it would push up electricity by 16.1 per cent and gas by 9.3 per cent next month in NSW, QLD, SA and the ACT.

Victorians and Tasmanians have escaped bill shock for now, but only because their prices operate on a different schedule. Annual price changes in those states will be announced in December, kicking in on January 1.

Dylan McConnell, energy expert at Melbourne University, said years of policy uncertainty resulted in barely any new generators being built to replace the withdrawal of ageing coal and gas-fired power stations.

This has forced the National Energy Market (which supplies to NSW, QLD, SA, VIC, TAS and the ACT) to rely more heavily on expensive gas-fired generators to fill gaps in supply.

“We’ve had an effective ‘capital strike’, where policy uncertainty has resulted in a lack of investment and delays with respect to upgrades, maintenance and new installations – whether that’s new renewables, new storage, new anything – forcing us to rely on older, gas-fired technology,” Mr McConnell told The New Daily.

“At the same time we’ve had the gas market open up LNG exports, which has put substantial pressure on gas prices.

“These higher gas prices have flowed through to electricity prices, mainly because of the way the price-setting mechanism works in the wholesale market. Basically, gas is the marginal generator a lot of the time, and it’s actually become more of the marginal generator. That means the effect is more acute.”

energy prices australia

If the sun stops shining on solar panels, the wind stops blowing on turbines and demand exceeds what traditional generators can supply, gas-fired turbine generators are fired up to plug the gap – at great expense to consumers.

Energy Australia and business groups have implored Canberra to embrace the recommendations of Chief Scientist Dr Alan Finkel, who published an energy policy review last week.

Energy Australia chief customer officer Kim Clarke said the Finkel review was a “good, solid blueprint” for Canberra to follow.

“A sensible next step is for governments to engage industry and other stakeholders on the Finkel package of reforms to discuss the best way forward,” Ms Clarke said in a statement.

The Finkel review confirmed that policy uncertainty has constrained the building of much-needed ‘dispatchable’ energy sources – that is, the kind of generators that can be switched on and off quickly to meet the increasingly more volatile energy usage habits of Australians.

“Uncertainty related to emissions reduction policy and how the electricity sector will be expected to contribute to future emissions reduction efforts has created a challenging investment environment,” Dr Finkel wrote.

In the absence of reliable power sources (which, Dr Finkel notes, could have included battery-stored solar and wind energy), generators have had to rely more heavily on gas turbines to create electricity, with the result that consumers pay more.

“Ageing generators are retiring from the NEM, but are not being replaced by comparable dispatchable capacity. Policy stability is required to give the electricity sector confidence to invest in the NEM.”

While Dr Finkel was at pains to say he was “technology neutral”, he predicted the future belonged to solar, wind and battery storage, not so-called lower-emission fossil fuels.

His main policy recommendation was his Clean Energy Target – effectively a watered-down carbon price – that would facilitate “an orderly transition to a low emissions future” and encourage investors to build new generators.

“It puts downward pressure on prices by bringing that new electricity generation into the market at lowest cost without prematurely displacing existing low-cost generators. It further ensures reliability by financially rewarding consumers for participating in demand response and distributed energy and storage.”

Dr Finkel’s report has sparked a war inside Coalition. Prime Minister Malcolm Turnbull and Energy Minister Josh Frydenberg are locked in a bitter debate with an estimated 20-25 anti-renewable Coalition MPs led by former prime minister Tony Abbott.

Other contributing factors to price hikes, noted by many experts, has been heavy investment in poles and wires, opportunistic price gouging by retailers, and the fact that many companies are both retailers and wholesalers (which has dried up liquidity for energy derivatives, especially in South Australia).

Looking Back to Move Ahead

From The IMF Blog.

While advances in science and technology are rapidly propelling human achievement into the future, Ian Goldin says history shows us how to handle the changes occurring in the world today.

In this podcast, Goldin, Professor of Globalization and Development at Oxford University in the United Kindom, discusses his recent book, Age of Discovery, which compares present-day upheavals with the social and political instability of the 15th Century.

“We are now at a crossroads for humanity,” he says. “This could be the best century ever for humanity, but it’s also a very dangerous time. This duality is manifested in longer human life spans, poverty reduction, and higher literacy, but also by intolerance, fears of terrorism, and environmental concerns.”

Goldin says the 1500’s brought an explosion of genius and creativity across Europe and the world with advances like the Guttenberg printing press. This period also saw destruction and extremism, like religious wars and persecution, because policymakers had difficulty keeping up with the information revolution. Today’s growing influence of social media, globalization, and inequality, mean those disadvantaged by change also feel locked out of opportunities.

“It is not those places where change is occurring that are revolting against change; it is the places that are left behind,” he says.

As societies and policymakers seek change, so should global financial institutions, which need to continue asking whether the right structure is in place to help people deal with disruptions.

“We need to focus on how we can solve 80 percent of the problems with 20 percent of the actors, and they won’t always be governments,” he says. “They could be pharmaceutical or energy companies, cities or states. We are going to have to be more flexible when deciding with whom we engage.”

 

Two to Tango—Inflation Management in Unusual Times

From The IMFBlog.

Monetary and fiscal policies interact in complex ways. Yet modern institutional arrangements typically feature a strict separation of responsibilities. For example, the central bank targets inflation and smooths business cycle fluctuations, while the fiscal authority agrees to respect its budget constraint and to support financial stability by maintaining the safe asset status of its debt. This gives governments the freedom to pursue a multiplicity of economic and social objectives (in IMF parlance, inclusive growth).

This separation of responsibilities typically works well, but can come at a cost as it limits the potential benefits that arise when fiscal and monetary policy work together. While in normal times the forgone benefits may be small, in more extreme situations the benefits of coordinated policy are much larger.

By looking at the case of low inflation in Japan, we illustrate—in particularly difficult circumstances—how vital it is for these policies to work together. Good coordination between monetary and fiscal policy is key and calls for policies that are:

  • comprehensive—exploiting the full range of synergies between monetary, fiscal, and appropriate structural policies; and
  • consistent—anchoring long-term expectations by demonstrating a clear commitment of monetary, fiscal and structural reform policies toward common objectives.

Japan’s low inflation

Japan is an obvious candidate for taking better advantage of the synergies between monetary and fiscal policies. Inflation is well below target after decades of depressed nominal GDP growth, despite the Bank of Japan’s efforts to push the boundaries of monetary policy innovation—including the introduction of yield curve control in September 2016.

However, a lack of consistency in fiscal policy has undermined the effectiveness of monetary policy. Fiscal plans have been caught between the short-term need to help monetary policy escape the low inflation target, and the very clear medium-term priority of reducing Japan’s large and unsustainable burden of public debt.

Setting objectives

 The government could build credibility by introducing a policy framework wherein policy actions are data-dependent—so as to promote the achievement of crucial policy objectives, such as inflation or price level targets. If the government feels compelled to tighten certain policies sooner, they should introduce temporary offsetting measures to continue to support progress toward reflation. The resulting higher nominal GDP growth would also have the added benefit of helping reduce the real burden of the debt.

Of course, such conditional policies potentially carry fiscal risks: if the requisite target is not met, then continued fiscal stimulus could imperil debt sustainability. A consistent and comprehensive approach therefore also requires a framework to manage public sector balance sheet risks that mitigates the financial stability risks from a potential loss of safe asset status for Japanese government bonds.

So, as well as being oriented toward key policy objectives, deficits must be offset by real future surpluses. To avoid the appearance of policy inconsistency, the government should tighten fiscal policy gradually, and consistently with the economic cycle. Such an approach should also include structural reforms that boost future surpluses, for example, measures that close wage gaps.

Credible policies

 We should also be clear that fiscal policy should be sustainable, taking as given that the central bank has designed monetary policy to achieve the inflation target. It may seem tempting to instead spend without the promise of (or even ruling out) future tax raises, in the hope that the price level rises to equate to the real values of debt and future surpluses. But this idea, which invokes the so-called Fiscal Theory of the Price Level, assumes that the safe asset status of government debt is guaranteed.

The risk of such a policy, which relies on the shaky assumption that Japanese consumers have very particular expectations of future policy, is that a bond market scare occurs and government bonds lose their safe asset status.  This would then relegate monetary policy’s role to that of guaranteeing fiscal solvency (by guaranteeing the promised nominal payments on government bonds), precluding its use in stabilizing inflation and anchoring inflation expectations. This would destroy policy credibility.

The debate on Japan’s consumption tax increase is a good example to illustrate the importance of consistency and credibility. The planned consumption tax increase has been postponed twice: once from 2015 to 2017, and again until 2019, in fear of a negative impact on growth. This policy reversal and the associated lack of a credible anchor has reduced the effectiveness of fiscal policy.

In our view, a pre-announced, gradual increase of Japan’s consumption tax rate, offset by temporary fiscal measures when necessary, remains a preferred option. The gradual increase should continue until the tax rate reaches a medium-term level that ensures fiscal sustainability. This approach will help raise inflation expectations and has high revenue potential given the relatively low level of revenue collected from the consumption tax in Japan, compared with VAT collections in other Organization for Economic Cooperation and Development countries. In the process, Japan should preserve its single rate, which makes its consumption tax system simple, and constitutes an important structural advantage.

Lessons learned

 The experience of low inflation in Japan has a clear message for the interaction between monetary and fiscal policy. And that message is in such extreme circumstances, macroeconomic policies will only be successful if they take full advantage of the synergies of different policies working together.

Australian underemployment is the highest in modern times

From The New Daily.

Underemployment is at its highest level since records began in the 1970s, but you won’t have heard it on the TV.

Thursday’s headlines were instead dominated by news that Australia’s official unemployment rate had fallen from 5.7 per cent in April to a four-year low of 5.5 per cent in May, based on the popular ‘seasonally adjusted’ measure.

Economists and politicians seized on this unexpected surge in full-time employment as a sign that the labour market and the broader economy were improving.

“Fifty-thousand Australians went out to get a job in May and they got one under the economic policies of the Turnbull government,” Treasurer Scott Morrison told Parliament.

“The unemployment rate now has fallen to 5.5 per cent, lower than what we inherited from the Labor Party back in 2013.”

Mr Morrison was using the seasonally adjusted measure, the usual number quoted by politicians and journalists.

However, the measure preferred by the Australian Bureau of Statistics – trend – had the unemployment rate unchanged at 5.7 per cent.

Worse still, the ABS itself drew special attention to the fact that the share of workers wanting more hours was at the highest level since modern records began in 1978. This was widely ignored.

underemployment chart abs

The trend estimate of underemployment worsened from 8.7 per cent in December-February to 8.8 per cent in March-May, which means 1.1 million Australian workers are crying out for more hours.

ABS chief economist Bruce Hockman said this figure was an important reminder of “spare capacity” in the labour market.

“The underemployment rate is an important indicator of the spare capacity of workers in Australia, and has risen for the sixth consecutive quarter to a historical high of 8.8 per cent,” Mr Hockman said.

The ABS prefers trend estimates because it says they are less volatile than seasonally adjusted numbers.

Thursday’s record-high underemployment was a symptom of growing casualisation, which many believe has deleterious effects on wages, job security and conditions.

The ABS defines a person as underemployed if they are part-time and want more hours, or if they are usually employed full-time but were forced for economic reasons to work part-time the week they were surveyed by the bureau.

Even during the 1990s recession the underemployment rate never exceeded 7 per cent.

And despite the headlines welcoming the creation of “50,000” new full-time jobs, the long-term trend of destruction of full-time positions saw no abatement in the latest quarterly data.

full time jobs vanishing

Since the late 1970s, the share of men with full-time jobs has fallen from 95 per cent to 80 per cent. Women have suffered too, with their share of full-time jobs falling by roughly the same amount, from 66 to 53 per cent.

You won’t have heard that in Question Time.

Trend Unemployment Unchanged, Again, But…

The May 17 trend unemployment remained at 5.7% according to ABS figures released today. Full time employment grew again, and participation was higher, but the trend underemployment rate, which is a quarterly measure of employed persons wanting more hours, increased from 8.7 per cent to 8.8 per cent between February and May 2017. Further pressure on household incomes.

Significant state variations remain, with trend unemployment in SA at 7.1% and NT at 3.2%; the former rising, the latter falling.

Monthly trend full-time employment increased for the eighth straight month in May 2017, according to figures released by the Australian Bureau of Statistics (ABS) today. Full-time employment grew by a further 19,300 persons, while part-time employment increased by 5,900 persons, underpinning an increase in total employment of 25,200 persons.

“Full-time employment has increased by around 124,000 persons since September 2016, with particular strength over the past five months, at around 20,000 persons per month,” said Chief Economist for the ABS, Bruce Hockman.

Over the past year, trend employment increased by 194,200 persons (or 1.6 per cent), which is still below the average year-on-year growth over the past 20 years (1.8 per cent). It has increased since December 2016, when the year-on-year growth was at 0.8 per cent and reflected relatively low employment growth through most of 2016.

The trend monthly hours worked increased by 2.9 million hours (0.2 per cent) to 1,677.7 million hours in May 2017. Most of this increase was hours worked by full-time workers.

The trend unemployment rate in Australia remained at 5.7 per cent in May 2017. The trend underemployment rate, which is a quarterly measure of employed persons wanting more hours, increased from 8.7 per cent to 8.8 per cent between February and May 2017.

“The underemployment rate is an important indicator of the spare capacity of workers in Australia, and has risen for the sixth consecutive quarter to a historical high of 8.8 per cent,” Mr Hockman said.

The trend underutilisation rate, which includes both unemployment and underemployment, remained at 14.5 per cent in May 2017.

Trend series smooth the more volatile seasonally adjusted estimates and provide the best measure of the underlying behaviour of the labour market.

The seasonally adjusted number of persons employed increased by 42,000 in May 2017. The seasonally adjusted unemployment rate decreased by 0.2 percentage points to 5.5 per cent, and the seasonally adjusted labour force participation rate increased slightly to 64.9 per cent.

“The trend unemployment rate has been relatively stable over the past 18 months, at around 5.7 to 5.8 per cent, while the seasonally adjusted rate has also been relatively constrained, between 5.5 and 6.0 per cent,” Mr Hockman said.

Significant state variations remain, with SA at 7.1% and NT at 3.2%.