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Next week, all eyes will be on Australia’s jobs data with the release of the June labour force report. If the unemployment rate remains at 4.4 per cent, many headlines will declare the labour market is still strong. If it rises, attention will quickly turn to whether the Reserve Bank is less likely to raise interest rates. But what if Australia’s most-watched economic number is also its most misleading?
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Think of it like driving a car using only the rear-view mirror. Unemployment tells us what has already happened; it doesn’t tell us what businesses are planning to do next. Employers rarely begin by making workers redundant. They first stop hiring, reduce overtime, cut casual hours, delay investment and simply not replace staff who leave.
Those changes can take months or years before they appear in the unemployment rate. Yet many of those forward-looking indicators are already showing signs of strain.
Official ABS data shows almost one in three Australian businesses reported lower revenue in June, while nearly half experienced higher operating costs. More than one in four expect difficulty meeting their financial commitments over the coming month, and 15 per cent have delayed or cancelled investments.
Official job vacancies have also fallen more than 30 per cent from their 2022 peak, suggesting businesses are becoming more cautious about hiring.
Consumers are hardly painting the picture of a booming economy either. Consumer confidence remains among the weakest readings in almost 50 years, while Oz recorded more than 14,700 corporate external administrations in the past financial year, the highest annual number on record in raw terms.
So rather than focusing solely on next week’s unemployment rate, the RBA should pay closer attention to what sits beneath the surface. Was job growth driven by full-time or part-time positions? In May, almost 87 per cent of new jobs created were part-time. Did the hours worked increase or fall? Is underemployment rising, suggesting more Australians have jobs but cannot secure the hours they need? When the numbers come out next week, I wouldn’t be surprised if the unemployment rate remains around current levels, but that’s not the number I’ll be watching.
The real test will be whether Australia is creating quality, full-time jobs, Australians are working more hours and if underemployment continues to rise. If the headline remains strong while those underlying measures deteriorate, it suggests the labour market is considerably weaker than the unemployment rate implies.
For the sake of Australian households and businesses, I hope the Reserve Bank looks beyond the headline figure. Monetary policy shouldn’t be driven by one lagging statistic when so many forward-looking indicators are telling a very different story.
Good luck and good trading.
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Dale Gillham is Chief Analyst at Wealth Within and an international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au.
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