Underemployment hits 12-month high

Labour force

Employment fell by 46,300 in October. Part-time jobs fell by 5,900 with full-time jobs down by 40,400.

The participation rate rose from a 15-month low of 64.5 per cent to 64.7 per cent.

The unemployment rate rose from 4.6 per cent to a 6-month high of 5.2 per cent.

Hours worked fell by 0.1 per cent to 1,729 million to be down 0.4 per cent on a year ago.

The underutilisation rate rose from 13.9 per cent to an equal 10-month high 14.7 per cent. The underemployment rate lifted from 9.2 per cent to a 12-month high of 9.5 per cent.

Unemployment across states in October: NSW 5.4 per cent (September: 4.6 per cent); Victoria 5.6 per cent (4.8 per cent); Queensland 5.1 per cent (4.9 per cent); South Australia 5.3 per cent (5.1 per cent); Western Australia 3.9 per cent (4.1 per cent) – a 9-year low; Tasmania 5.1 per cent (4.8 per cent); Northern Territory 3.9 per cent (4.2 per cent); ACT 6.6 per cent (4.1 per cent) – a 23-year high.

Employment across states in October: NSW +21,700; Victoria -49,600; Queensland -7,800; South Australia +2,400; Western Australia -4,400; Tasmania -2,100; Northern Territory +3,600; ACT -4,900.

What does it all mean?

• The Australian labour market has begun healing in November after prolonged Delta virus induced lockdowns in Australia’s south-east contributed to the cumulative loss of 333,700 jobs between August and October. Leading indicators of labour demand have rebounded sharply since mid-October as employers positioned their businesses for the re-opening of the NSW, ACT and Victorian economies. In recent weeks, policymakers have pivoted from ‘zero Covid’ strategies to ‘living with Covid’ as vaccination rates hit 80 per cent thresholds, enabling greater mobility as social distancing measures were eased.

• In October, employment fell by 46,300 with full-time jobs accounting for 40,400 of the total job losses. Hours worked edged lower by 0.1 per cent and the participation rate rose from a 15-month low of 64.5 per cent to 64.7 per cent as workers resumed work or started looking for employment as government virus restrictions were wound back. But the swelling of the labour force saw the unemployment rate increase from 4.6 per cent to a 6-month high 5.2 per cent, which is near pre-pandemic levels. And key measures of spare capacity – underemployment and underutilisation – both lifted sharply amid ongoing Delta lockdowns with workers wanting to work more hours. In fact, the underemployment rate hit a 12-month high of 14.7 per cent.

• The timing of the October labour force report has been a key factor in determining today’s outcomes. In fact, the Bureau of Statistics (ABS) reported that the survey was conducted between September 26 and October 9, meaning that the deterioration of labour market conditions in late September, amid continuing Delta outbreaks, was likely captured in the data. Also, the impact of the economic reopening of the NSW (October 11), ACT (October 15) and Victorian (October 22) economies was potentially more muted than if the survey was conducted over the first two weeks of October, as is usually the case. The ABS reported that the survey period was brought forward a week due to it being a Census year, though this was accounted for in the seasonal adjustment of the figures.

• The timing of the survey saw NSW jobs lift by 21,700 in October, but Victoria shed 49,600 positions and the ACT lost 4,900 jobs ahead of their economic reopenings. Of course, the November jobs numbers are expected to be very strong, as signalled by very positive recent job vacancies and advertisements data.

• The turnaround in the Aussie job market is likely to be swift with the National Skills Commission earlier this week reporting that national skilled internet job vacancies hit 13-year highs of 250,882 positions in October. And online job advertiser SEEK posted the highest number of job advertisements in over 23 years last month. News, however, that SEEK’s measure of applications per job ad fell by 5.4 per cent will worry business owners readying themselves for the Christmas trading rush and reopening of international borders.

• A ‘worker drought’ is already proving to be problematic across some sectors of the economy with reported skills shortages for IT, trades, agriculture, retail, hospitality and tourism workers. And of course, the so-called ‘Great Resignation’ could yet become a feature of the Aussie job market with 28 per cent of SEEK respondents considering changing jobs in the next six months.

• Today’s employment report has landed at a pivotal juncture for the Australian economy. A strong bounce-back in economic activity is already underway, as evidenced by near-record high business confidence, improving consumer sentiment and strengthening high-frequency measures of consumer spending and labour demand. While foreign worker shortages have helped tighten the labour market, the imminent reopening of international borders could in fact boost labour supply and curtail wage pressures.

• The Reserve Bank (RBA) has made it ‘crystal clear’ that wages probably need to be growing at an annual rate of 3 per cent for inflation to sit sustainably in the middle of its 2-3 per cent inflation target. But with spare capacity likely to persist in the labour market following the Delta shock, policymakers don’t expect this goal to be reached until late 2023. With around 60 per cent of salary agreements based on long-term contracts and the public sector enduring a prolonged pandemic pay freeze, the hurdle to lift wages appears high.

• That said, Commonwealth Bank (CBA) Group economists expect wages to rise faster than the RBA’s forecasts on the back of a buoyant economy in 2022. The September quarter Wage Price Index (WPI) is issued next week with CBA Group economists expecting wages to lift by 0.6 per cent in the quarter with the annual pace jumping from 1.7 per cent to 2.2 per cent. If this materialises, the rate-hike debate will become even more interesting.

Published by Ryan Felsman, Senior Economist, CommSec