The labour force figures out last week showed that the strong employment growth of 2017 is well behind us, but the interest now is on how long will the slide occur and whether by the time of the next election the employment picture will be buoyant or continuing to slide.
The latest figures were decidedly in the “good, not great” category. Yes, the unemployment rate fell in seasonally adjusted terms from 5.4% to 5.3% – although that was mostly due to a fall in the participation rate. But that aside, the general trend of the unemployment rate has been falling lower now for nearly 18 months:
But that rather good news was balanced by the overall slowing of employment growth.
It was always unlikely that the jobs market would stay as buoyant as it was last year. The reality is, even when the economy is going well, the growth of employment peaks and troughs. Generally it takes about 12 months to go from a peak to a trough – a bit longer if the economy is performing poorly as occurred during the global financial crisis:
The interesting thing is that the past two years have been pretty much a case of 12 months of decline followed by 12 months of improving growth.
In December 2015, after a long period of improving employment growth, it peaked at 2.7%. Twelve months later, in December 2016, the trough of 0.9% was reached and then another 12 months later, the next peak of 3.3% was achieved:
We saw this also reflected in the growth of full-time employment for both men and women. Since December last year, the annual growth of full-time employment has been trending down (although for men the peak occurred in October):
A similar situation occurs even when we break down the employment growth by age.
Youth workers generally see bigger swings of job growth (or falls) but for those between the ages of 15 and 24 since the end of last year, growth has generally flattened, while for prime age workers of 25-64 years, the tide has definitely been going out:
This of course is nothing unusual – the labour market, much like businesses, goes in cycles, and growth cannot always keep improving. The difficulty is knowing just when the corner has been turned. But with now more than six months of slowing growth, the picture is clear that we are on a downward path.
The question is for how long.
The seasonally adjusted figures can be rather erratic but they can be a pointer to where things are headed:
One way to do it is to look at the average of the past three months compared to the annual growth. Generally when the annualised three month growth is stronger than the actual annual growth things are improving, and when the opposite occurs, growth is generally going to fall:
Right now we see that the annualised growth of the past three months is pretty much equal with the annual growth figures, which suggests that the end of the slowing is near – or at least things are unlikely to get much worse.
This of course is good news especially given the hope is that stronger employment growth will lead to stronger wage growth.
While the link between the two is pretty weak – generally the link with wages is more about unemployment and underemployment than actual employment growth – there are certainly no prospects of wages improving if employment growth continues to slow.
And as ever the impact of the economy has major ramifications for politics.
Should the recent cycle continue, it would suggest that employment growth will pick up again next year – possibly around the time of the next election.
The single biggest boast the Liberal party has been able to cling to has been strong employment growth. This year the talk has mostly been about the record growth of 2017, and such a line would get a tad tired by the time 2019 comes around. But should things pick up in the same time frame that they have in the past three years, then by May next year the government will be talking about an improving situation.
That will still see them having to worry about the issue of wages growth and household incomes. But in an economic sense – and thus leaving aside the leadership shenanigans and a complete lack of a policy on climate change – the election may very well hang on whether the government can convince voters their policies have made getting a job easier, and that better wages and income will follow.
Because while employment growth might improve by next year, its current slowdown hints that time could be running out for wages growth to significantly start improving by the next election.
• Greg Jericho is a Guardian Australia columnist
• This story was amended on 21 August 2018 to correct the figures for the seasonally adjusted unemployment rate.