'Good' and 'bad' are relative concepts.
When asked, ‘how are you today’, I always reply, ‘compared to what’?
Compared to a blind and starving dog with 3 legs, I am good. Compared to a super fit, rich and youthful man with a cellar full of Grange, I am not too bad, but could be better.
And so the story goes with the latest labour force data.
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Compared to expectations from the middle of last year, news that in January employment rose 29,100 to 12,939,900 people; that the workforce participation rate was close to historical highs of 66.1 per cent, while the unemployment rate dipped to 6.4 per cent from 6.6 per cent in December; and what looks to be a peak of 7.5 per cent, the numbers are good.
The recovery, to date, in the labour market has been better than most if not all expectations and forecasts from just a few months ago.
However, and it is an important ‘however’, when compared to what any decent economist would want the labour market to be, that is in full employment, the labour market is fragile and still a long, long way from full health.
Indeed, the labour market is still well short from returning to where it was in the months before the COVID-19 pandemic hit when the unemployment rate was around 5 per cent and employment was 64,000 higher.
What is also a problem is average hours worked per person dropped to a record low, partly reflecting the weakness in the recovery but also signalling a huge volume of spare capacity in the labour market.
This disappointing benchmark on the labour market is also being reflected in annual wages growth which has plumbed to a record low just above 1 per cent.
Unless wages growth picks up soon, it will reflect a still weak labour market and will hold back the economic recovery as householders are constrained in their spending because of limited gains in incomes.
What does an ideal labour market look like?
An optimal outcome for the labour market starts with the objective where everyone who wants a job has a job and are working the number of hours they would like to.
When this condition is met, it will mean that annual real wages growth (wages less inflation) will hover around 1 to 1.5 per cent which in turn would provide a boost to consumers which in turn feeds into a stronger economy and more jobs.
Further to that, a strong labour market means the bulk of workers will be well trained with high skill levels. High skill levels equals high incomes, a precondition that should be obvious when it comes to policy about education and TAFE training.
In numerical terms, a good labour market in Australia is probably one where the unemployment rate is around 4 per cent, perhaps a little less. At 6.4 per cent today, we are a long way from that goal.
All of which goes to show the news is bad in the recent labour force data. Unemployment is high, wages growth is weak. The rate of economic growth is not strong enough to make a material difference in this spare capacity for at least two years.
Of course, every new job created is good news.
The problem is that the economy still does not have enough momentum to create enough new jobs to return to full employment.
And with JobKeeper ending next month, there is a risk that the relatively good news we are seeing in the labour market right now will quickly reverse into bad.