You can’t say how fast it will take the Australian economy to recover.
But with the increase in vacancies, means that there is an increasing demand for labour and the positions are not filled, which is a positive sign.
And vacancies are increasing at the moment.
In February, 289,000 positions were vacant, up 13% over the past three months.
The vast majority were in the private sector (260,300) compared to the public sector (28,400).
Capital Economics economist Ben Udy says his “composite” job vacancy measure, where he combines the number of vacancies and qualified positions with ANZ’s job vacancy survey, is at its highest level since the mining boom in 2011.
“Taken literally, this implies that the unemployment rate could drop below 5% by the middle of the year,” he wrote in a note to clients last week.
If the unemployment rate fell below 5% in the coming months, that would be a remarkable result.
Uncertainty over the economy
The federal government’s decision to bring JobSeeper unemployment benefit well below the poverty line for hundreds of thousands of Australians, pushing them back into poverty, and to end the JobKeeper wage subsidy last month, will have economic and social consequences.
Economists know what this means for poverty in Australia, but they don’t know how it will affect the official unemployment rate.
Last month, Steven Kennedy, the federal Treasury Secretary, said he could see the unemployment rate rise a bit in the coming months.
He warned that an additional 100,000 to 150,000 people could lose their jobs and that these workers could take time to find a job and the unemployment rate begins to fall again.
But other economists believe there is enough momentum in the economy for the unemployment rate to continue to fall from here.
Vacancies provide a clue
They say one proof is the surge in vacancies in recent months.
The Bureau of Statistics (ABS) defines a “vacancy” as a position that can be filled immediately and for which recruitment has been undertaken.
“Recruitment action” includes efforts to fill vacancies by advertising the position, notifying unions or employment agencies and contacting, interviewing or selecting candidates.
If vacancies increase, there is an increasing demand for labour and the positions are not filled.
The ABS says there are clearly labour shortages in some industries.
“When we asked companies experiencing a labour shortage the reasons for this, more than usual, they noted difficulties in filling vacancies for the lowest-paying jobs,” said Bjorn Jarvis, head of labour statistics at ABS.
According to the ABS, there are thousands of vacancies in sectors such as accommodation and catering services, retail, construction, health care and social assistance.
The chart below shows the number of vacancies in February, by industry.
The numbers are in the original numbers, which means that ABS has not adjusted them to account for seasonal factors. But they provide a decent guide to where things stand.
If you look at the construction sector, there were 16,600 vacancies in the construction sector in February 2020, before the pandemic hit, but that number halved to 8300 in May 2020 when the lockdowns were put in place.
If you look at the last column, you will see that most of the vacancies are in the private sector.
Mr. Udy of Capital Economics said that recent developments in the labour market had exceeded expectations, including those of the Reserve Bank.
According to him, an upsurge in hiring in February caused the unemployment rate to fall from 6.3% to 5.8%, which was much faster than expected by experts.
“The RBA expected unemployment to remain above 6 per cent until the end of this year, and predicted it would only fall to 5.5 per cent by the end of 2022,” he said.
“Despite this, the economy still has a long way to go before the RBA is satisfied.
“Governor Lowe gave a speech last month that revealed that the Bank had lowered its estimate of the natural unemployment rate, which would be compatible with full employment, to about 4 percent, which brings it closer to our own point of view.
“While we are more optimistic about the labour market outlook than the RBA, our forecast that the unemployment rate will decline to around 5 per cent by the end of 2022 means full employment is still a long way off.”
So, to be clear, Udy thinks the unemployment rate will be around 5% by the end of 2022, but he’s ready to be pleasantly surprised by the pace of economic recovery.
And he says the surge in vacancies proves that the economy is recovering.
ABS says there is more evidence
The ABS says the increase in job openings in February is in line with other data. Its recent survey of business conditions and sentiment found that 13% of employers in February reported that staff shortages were a factor with a significant impact on their business.
In the same survey in March, 19% of companies said they planned to increase their workforce over the next three months.
For those planning a staff increase, more than half (58%) expect jobs to be permanent. However, companies report difficulties in finding suitable staff.
For employers who report that they do not have a sufficient number of employees, more than two-thirds (68%) say that the main factor influencing the number of employees is the inability to find suitable staff.
That compares with 60% in December, so the situation is getting worse. The problem is most acute for large enterprises (with 200 or more employees) and medium-sized enterprises (with 20-199 employees).
Large companies claim that the second most important obstacle to finding suitable personnel is the closure of international borders.
What does this mean for the economy?
There is a lot of uncertainty at the moment. The COVID-19 vaccine rollout in Australia is far behind what health experts and economists want.
Earlier this year, Prime Minister Scott Morrison spoke of his hope of seeing 4 million doses of the vaccine administered by the end of March.
But as of March 31, Australia had distributed only 670,000 doses.
Slow vaccination will leave Australia vulnerable to COVID outbreaks for longer. This means that state governments may need to continue to rely on lockdowns to contain any outbreak.
If these lockdowns are large enough, they could affect economic activity and hinder the recovery of the labour market.
On other issues, there are the continuing trade tensions between Australia and China, or the possibility of possible further disruptions to global supply chains, and soaring house prices in Australia that could eventually cause regulators to step in to curb bank lending.
There are many ways to disrupt the momentum of the labour market.