Jobs train’s a-comin’, rolling round the bend

The headline unemployment rate may not be the best measure of what’s happening in the economy right now. It’s a lagging indicator and tells you little about the actual slack in the economy.

As well, it’s an open question about how low the jobless rate needs to go before wages and inflation start to rise. How distant that day seems, even as economists’ electric abacuses recalculate a brighter future.

Yet 5.8 per cent is a potent number on the political and policy scoreboard, the one every voter can understand, a totem of how many people are doing it tough a year into COVID-19 and how hard it may be to get another job if they lose their current one.

On this metric at least, the Morrison government is enhancing its credentials as an economic manager. After all, its rescue mantra has been “jobs, jobs, jobs”.

Josh Frydenberg has chucked a quarter of a trillion dollars at any program with “job” in it. Philip Lowe also caught the free money bug, with the official cash rate just a heartbeat away from zero.

Yet the robust recovery in the labour market — full-time employment, hours worked, working men and women, trainees and veterans — is fuelling confidence among shoppers and, especially, homebuyers.

Business investment, aside from utes and smart phones, is a worrying weak spot.

Although the JobKeeper wage subsidy is expiring in nine days and 1.3 million people are unemployed, the labour market is likely to barely skip a beat.

There are unfilled vacancies, particularly in regional areas, as well as in workplaces that rely on temporary workers and foreign students.

Commonwealth Bank economist Gareth Aird says with spare capacity being eroded and border closures stopping the inflow of new labour, some skill shortages are likely to emerge.

That will put upward pressure on wages, Aird wrote in a research note on Thursday morning before the February labour force figures were “printed”, as the pros like to say. Is he for real?

Aird wants people to take an open mind to the prospect that wages growth lifts at a higher level of unemployment than the pre-COVID relationship between unemployment and wages would suggest.

In eco-speak, experts are tussling over the so-called “non accelerating inflation rate of unemployment” or NAIRU.

Earlier in the week, Melbourne University’s Jeff Borland argued that government should aim for an even lower target rate of headline unemployment compared with previous decades, from the 5 per cent of the mid-1990s to 4 per cent now.

For Borland, the ultimate goal is to minimise the rate of labour under-utilisation (unemployed and underemployed) and maximise the social benefits that go with that.

Wherever the NAIRU rests, in Canberra budget land the day of fiscal normal is coming closer, unless the Morrison government pledges to achieve an even lower jobless rate.

Otherwise, the Treasurer will be delivering a budget with some element of debt reduction, given he’s said fiscal repair starts when the jobless rate is “comfortably below 6 per cent”.

OK, 5.8 per cent is not in the zone, and yes, the pre-pandemic jobless rate was 5.1 per cent.

But you don’t need to be Johnny Cash to hear the jobs train whistle blowin’, it’s rolling round the bend.

Market economists are recalibrating their jobless rate forecasts, shaving estimates down by a few points, for this year and next.

The official family, at Treasury and Martin Place, are likewise doing the same and finessing the message around what medicine, if any, a recovering economy needs.