Last economic domino poised to fall
I'd like to feel comfortable. I really would. But something keeps worrying me.
It's this next graph, which shows the number of job advertisements in Australia.
This graphic comes from ANZ Bank. It has been tracking the number of job advertisements for years. By doing so they hope to see the future of employment and unemployment.
This is what they call a leading indicator. Historically it has worked well. When the number of job ads goes up, employment usually goes up a little later. When the number of job ads goes down, employment goes down a little later, and unemployment rises.
It makes sense - companies usually have to put out a job advertisement before they hire someone.
The graph shows a downturn in job advertisements happening now. The number of job advertisements is 4.3 per cent lower than this time last year. Job ads kept rising for years until last year but now they seem to have stopped.
The graph could of course be wrong. But it's very non-volatile. It shows only four turning points in the last 13 years. This is concerning for the future of employment. If the trend continues we could possibly face a rising unemployment rate.
A DARKNESS IN OUR ONE BRIGHT SPOT
Many parts of our economy look awfully fragile right now. Retail trade fell over December and January. House prices are still falling nationally. Construction activity is drying up and wages growth is terrible.
The one legitimate sweet spot is employment. It is holding up amazingly well. Unemployment is just 5 per cent and the economy is adding lots more full-time jobs than part-time jobs.
The RBA keeps saying it expects our economy to improve. It points to the low unemployment figures as it insists everything is going to "gradually" improve, and as it begs us to believe that wages growth is just around the corner.
Rising wages are important because they can help us pay down our record levels of household debt as well as spend more money in the economy. If wages growth stays low it will be hard for us to do both. We built up a lot of that debt in a time when wages kept rising aggressively, and some people might have been counting on pay rises to help them pay it back.
I was willing to believe wages growth would gradually come back. I wanted to believe. When the labour market gets tight, wages should start to go up. It makes sense. And as long as the job ads graph kept rising I was willing to think our economy had a good chance of a bright future getting back on track
But now the job ads indicator has turned down? The risk is future hiring will be weaker and that future employment will be worse.
If the signal works again this time - and there are still reasons to be circumspect - we can expect our best unemployment result might be behind us and wages growth will be some way off yet.
ISSUES WITH THE GRAPH
The graph above is concerning. But it is too soon to enter full panic. All economic metrics should be questioned.
The ANZ job ads series could be wrong this time. For example, if the job advertisement sources they track are no longer so relevant because, say, businesses are now using LinkedIn to hire people. (ANZ Banks gets data for the graph from newspaper job ads, seek.com.au and jobsearch.gov.au.)
To balance that risk out we should look at other data too.
ANZ's head of Australian economics, David Plank, said while the job ads series looks bad, other data, including the number of job vacancies show more positive signs.
"If we combine a bunch of these data we get the ANZ Labour Market Indicator, which points to a stable rather than rising unemployment rate even in the face of weaker employment growth," Mr Plank said.
"This provides some comfort for the outlook, though we are conscious that the downside risks are rising."
If the best case scenario is stable unemployment it's unclear if Australian wages will start growing in the way we want and the RBA needs so desperately. So those downside risks he mentions have caught my attention. Later in 2019 the unemployment rate could start rising.
If it does so, the RBA will almost surely cut interest rates again. But by then that might not be enough.