Unemployment increases but read beyond the headlines

The unemployment data released by the Australian Bureau of Statistics this week showed that on a seasonally adjusted basis the national unemployment rate increased from 5.1% in September to 5.4% in October 2010.  Importantly, this result does not tell the whole story.

National unemployment rates Oct-82 to Oct-10

Unemployment rate

Source: rpdata.com, ABS

The number of unemployed persons increased by 5.2% over the month which at face value looks like a bad result however, the employment participation rate has risen to 65.9%, its highest level on record. The increase in participation saw the total size of the labour force (i.e. those actively seeking employment) jump by 5.2% over the month also.

So with the greatest proportion of Australian’s in history actively working or looking for work there has been an increase in the number of unemployed persons.  Another reason why people should not be too concerned with the result is that despite the large injection of new workers the number of employed persons actually increased over the month, up by 0.3%.

Whilst month to month results can be volatile and a spike in the participation has clearly affected the October results it is important to realize that employment conditions are improving.

Over the 12 months to October 2010, full-time employment has increased by 3.5%, part-time employment is up by 3.2% and total employment has increased by 3.4%.  Conversely, the number of unemployed persons has fallen by -3.4%, the size of the labour force has increased by 3.0%, the unemployment rate has fallen from 5.7% to 5.4% and the participation rate has increased from 65.4% to a record high of 65.9%.

Annual employment growth – full-time vs part-time

Full vs part time employment growth

Source: rpdata.com, ABS

With Australia’s economy well positioned and cuts to migration meaning fewer new workers we expect that over the coming year the unemployment rate will trend lower.  The by-product of a tighter jobs market and a lower level of migration will be increasing pressure on wages as employers seek to hold on to their talent.

The surprise overall increase in the unemployment rates during the month will impact the likelihood of further interest rate hikes this year.  Data released this week highlighting the number of job advertisements suggests that the rate of jobs growth is likely to slow in coming months further strengthening the likelihood of interest rates remaining on hold until early next year at the earliest.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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3 Responses to Unemployment increases but read beyond the headlines

  1. Alex Barton November 15, 2010 at 2:16 pm #

    The RBA will most likely continue to lift interest rates into 2011 as this resources boom fires up parts of the economy and creates a dangerous two speed environment. High inflation is some parts, deflation in others. This is a difficult balancing act for the RBA, and probably the first real test of their mettle. If Australia’s economy does expand by over 3% this year, and next year as predicted, we might see Australian employers adding jobs at breakneck pace, and the RBA lifting rates at an equally high pace!

    Alex Barton
    Australian Property Forum

    • RP Data Research November 15, 2010 at 4:19 pm #

      If we see jobs growth expanding and unemployment falling, that raises another question… where does Australia source skilled migrants now that the migration intake has been halved? Despite the recent increase in unemployment it is highly likely the unemployment rate will fall below 5% suggesting a workforce at capacity. My guess is we will see the population debate re-ignited.

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