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Full employment now 'within reach', says top economist

BRISBANE, AUSTRALIA - MARCH 29: People are seen wearing face masks on the Queen Street Mall in the Brisbane CBD after Queensland Premier Annastacia Palazczuk announced a three-day lockdown for the Greater Brisbane area, effective as of 5 pm on Monday. The lockdown measures for Ipswich, Logan, Redlands, Moreton and Brisbane council areas come as four new community COVID-19 cases were confirmed overnight, on March 29, 2021 in Brisbane, Australia. (Photo by Bradley Kanaris/Getty Images)
Independent Stephen Koukoulas celebrates the ABS' latest "fabulous" figures on unemployment. (Photo by Bradley Kanaris/Getty Images) (Bradley Kanaris via Getty Images)

What a joy it is, as an economist, to be writing about fabulous economic news.

The run of news in recent months has confirmed the economy doing well, but the May labour force data which showed a 115,000 lift in employment and the unemployment rate diving to 5.1 per cent, takes the cake as spectacularly good economic news.

Not only are the details good in absolute terms, but compared with where just about everyone thought the economy would be, the results are, frankly, spectacular.

Since the start of this year, the main game in town for economic policy makers is unemployment.

The RBA, Treasury, the Coalition government and the Labor Party Opposition are all pursing a policy framework that will see the unemployment rate fall to at least 4.5 per cent. This is the rate needed to drive a meaningful lift in wages growth and inflation.

Last year, in the low point of the lock downs, the unemployment rate peaked at 7.4 per cent. Many forecasters were looking for it to exceed 10 per cent, perhaps hitting 15 per cent as the COVID-19 recession depressed business activity and hiring.

The good news is that the unexpected and now sustained strength in the economy has seen employment bounce back at a staggering pace and the unemployment rate fall back to where it was pre-COVID-19.

Even the ending of the JobKeeper wage supplement in March 2021 has not derailed the labour market improvement. Private sector demand has been sufficiently robust to keep firms hiring.

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The latest data

In May, with 115,000 additional jobs, the unemployment rate fell from 5.4 per cent to 5.1 per cent. This is another good result as the economy continues to lift from the depths of recession in 2020.

The goal for full employment is now within reach, although it does need to be put in some context.

Not since 2011 has Australia had an unemployment rate below 5.0 per cent.

It was back in 2008 that the unemployment rate was 4.5 per cent or less.

And even then, at the peak of an incredible mining investment boom, it was at that rate for just 18 months and it coincided with a sharp lift in wages to above 4 per cent which in part fuelled a surge in underlying inflation to near 5 per cent.

For now, with job advertisements and vacancies particularly strong, the data on the economy is strong and monetary policy, in particular, is being set to support new business investment and spending.

Australia is also getting a huge income boost by the rampant strength in commodity prices and tremendous dynamism in the Chinese economy which is still underpinning a strong export performance.

Read more:

Economics remains a top election issue

The next Federal election will be held before May 2022. Some are speculating that Prime Minister Morrison will go to the polls early, around October or November, to capitalise on the good economic news and the fact Australia’s health outcomes during the global pandemic have been good.

Either way, economics is likely to be a dominant issue for voters and it will be relatively easy for the Coalition to campaign on the economy generally and the lower unemployment rate more specifically.

It is also likely to get a boost from the fact that rising house prices is seeing the wealth of the two-thirds of Australians who own a dwelling lift sharply, a point further supported by the ASX tracking at record highs which is boosting their retirement savings.

The good news is the economy and the labour market are registering strong growth. The better news is that these trends are set to continue for at least the next 6 months.

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