Employment growth set to sag in 2011

The unemployment rate remained at 5% in January despite predictions it would fall to 4.9%, with economists warning future employment growth is likely to be less robust.

According to the latest figures from the Australian Bureau of Statistics, jobs growth was better than expected, with the number of people employed rising by 24,000 compared to a prediction of 17,500.

The participation rate increased by 0.1% to 65.9% while the aggregate monthly hours worked fell by 12.7 million hours to 1.58 billion.

CommSec economist Craig James says the resilience may not last, stating the economy has softened in the last couple of months.

“Manufacturing, construction and the services sector are all contracting, while businesses are trimming new orders and profitability is being affected given the lack of activity,” he says.

“It is important to highlight that the data is backward looking, capturing how the economy was tracking around four to five months ago.”

“The more forward looking indicators like the job ads series suggest that while employment growth will remain a feature, it is likely to be less robust in the near-term.”

The ABS data is contradicted by the latest Roy Morgan research, which reveals a rise in unemployment for the fifth consecutive month and the highest unemployment figure recorded by Roy Morgan since January 2004.

Roy Morgan’s January employment estimates show unemployment in January increasing by 45,000 to 948,000, up 0.2% since December 2010.

Gary Morgan, executive chairman of Roy Morgan, says: “The rise in unemployment comes as the Australian economy has been unable to provide sufficient part-time jobs for the swelling workforce, which traditionally increases in January as school leavers join the workforce in the New Year.”

Morgan says although the growing workforce has increased full-time and part-time employment, growth in the workforce has outpaced the level of job creation, which means the jump in part-time unemployment has driven up the overall unemployment rate.

“The level of part-time underemployment is now at its highest ever and backs up claim by many retailers that sales in recent months have been soft and below expectations,” Morgan says.

“The weakness in the retail sector, traditionally a big employer of younger workers in part-time positions, is supported by the spike in part-time unemployment.”

Meanwhile, the Westpac-Melbourne Institute Index of Consumer Sentiment rose by 1.9% in February, which Westpac economist Bill Evans described as a “lacklustre” performance.

Evans says the rise in consumer sentiment doesn’t translate into increased sales, stating retailers should be concerned by consumers’ hesitance to spend.

“Whether now is a good time to buy major household items was steady, up 0.8%, after a similar result last month,” Evans says.

“Households are saying that because of low prices, now is a good time to buy, but due to caution surrounding the economic outlook… they are not buying despite attractive prices.”

“The key will be whether the caution which consumers have now been exercising for some time is sustained. Certainly, the lacklustre performance of the index is not pointing to any imminent change.”