Unemployment reaches 10-year high, but it isn’t all doom and gloom

The unemployment rate yesterday jumped to a 10-year high of 6%, in line with predictions from economists and the Reserve Bank.

Australian Bureau of Statistics figures show the unemployment rate rose 0.1% in January, seasonally adjusted.

It’s the highest rate of unemployment since July 2003 and the Australian Bureau of Statistics estimated 3700 jobs were lost last month.

AMP Capital chief economist Shane Oliver told SmartCompany unemployment could reach as high as 6.3%.

He says yesterday’s rise was “consistent with what economists had been allowing for”.

“The RBA has signalled it was expecting higher unemployment too,” he says.

“What was disappointing was the lack of jobs growth. We thought it might go up and it’s something most economists had been looking for.”

Driving the rise in unemployment was a decrease in full-time employment by 7100 people.  

The total number of unemployed people reached 728,600, according to the ABS.

However, it wasn’t all bad news. The number of hours worked increased 1%, seasonally adjusted, rising by 20.5 million hours to 1.635 billion.

The loss of full-time jobs was also partially offset by a rise in part-time employment by 3400 positions, seasonally adjusted.

Oliver says there is no need to be alarmed by the rising unemployment rate as it’s generally the last economic indicator to improve.

“As bad as the job figures are, they are always one of the last economic figures to turn around. The RBA had scope to leave rates too high for too long because unemployment figures were alright, now they’re just catching up,” he says.

“Now it’s a case of the poor economic conditions catching up with the labour market. But with the housing recovery underway and improved business hiring plans, all of those things tell me while unemployment will get worse before it gets better, in the second half of the year it will come down.”

On a state basis, unemployment in New South Wales remained steady at 5.8%, but it was bad news for Victoria where it rose by 0.2 points to 6.4%.

In Queensland unemployment also edged higher, up 0.2 points as well to 6.1%. 

Tasmania once again recorded the highest unemployment rate in the country, but it remained steady at 7.6%.

The only state to record a drop in unemployment was South Australia, which fell 0.2 points to 6.6%.

Oliver says Australians can take comfort in the strong company results being reported to the Australian Securities Exchange at the moment.

“Had all the news from corporate Australian been poor, we might have been worried. But there isn’t as much negative commentary as there was six to 12 months ago, so that suggests economic momentum has already bottomed,” he says.

“Companies wouldn’t be giving out as high dividends if they were overly concerned.”

But Oliver says it will take a while for the unemployment rate to drop back to the 4% lows recorded pre-GFC.

“At the moment companies seem to be biting the bullet and getting their costs down… whereas in 2010 we had an employment bonanza,” he says.

“About three years ago everyone was complaining about the two-speed economy. The mining states were doing well, but everyone else was doing it tough… but it think we’re headed to a more balanced economy, which is something to be celebrated rather than being gloomy about it.”