Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
Employment figures are due next week and may go some way to resolve the mystery of jobs growth that appears too strong to be consistent with an economy growing at less than its normal pace.
The puzzling combination was noted in a speech by RBA governor Glenn Stevens last week.
At last count, annual growth in gross domestic product (GDP) – the broadest measure of economic activity – was 2.3 per cent, roughly a full percentage point slower than normal.
And the latest labour force numbers show employment growth of 1.9 per cent, about twice as fast as might normally be expected given the tepid pace of GDP growth.
Mr Stevens suggested a number of possible explanations, notably that the economy’s potential, or trend, growth rate may have taken a step down.
“Perhaps trend output growth is lower than the three per cent or 3.25 per cent we have assumed for many years,” he said in the speech.
“That is, perhaps the growth we have seen is in fact closer to trend growth than we thought.”
In other words, perhaps the economic growth rate needed to keep unemployment steady is lower than it used to be.
If so, then the economy will have to slow more than it might have in the past before spurring the RBA into action with a growth-boosting interest rate cut.
Then again, perhaps the trend growth rate hasn’t fallen at all.
The GDP and jobs numbers don’t march in lockstep, and there are all sorts of reasons for that, including:
– the variable time lag between changes in GDP and employment,
– the varied capacity of different sectors to generate jobs as they grow,
– the variation on the number of hours worked by the average worker,
– measurement problems and statistical glitches, and
– variations in productivity growth which tends to slow down and speed up in sync with the economy.
No one knows which of these may explain the latest anomalous readings from the jobs and GDP data, and that includes Mr Stevens who said in his speech only that time will tell.
But the June jobs figures from the ABS on Thursday next week will, with luck, at least offer some insight into whether or not the anomaly is persisting.
Recent figures have hinted that it may be in the process of disappearing, with short term trend employment growth slowing to around 15,000 a month in May from 27,000 a month in the early months of the year.