Over the weekend I attended more than my normal share of functions and everywhere I went people came up to me asking “are we all right?” or “is it all over?”
There was optimism in their voices and they obviously wanted me to reply with a simple “yes”, because often their businesses had shown signs of improvement helped by the firmness in dwelling prices, a better share market and, of course, the big rise in car sales.
If I was in the US and being asked similar questions, I think the answer in both cases would be the “yes” the questioners are seeking, but there are caveats in both countries which could make the recovery a much longer affair than the optimists are hoping for. And in Australia it is company profits that are endangered.
In both countries the underlying problem is not in the official statistics – the US and Australia are dealing with hidden forces that we have never seen before. In the case of the US, it is the enormous number of mortgages that are in distress but have been put on a moratorium either through local government or bank rules. Many of those people have deep financial problems and are going to fall by the wayside and, as they do, Americans may get panicky, thinking that the green shoots have withered, when in fact they have not – it is just a delayed recognition of reality.
In Australia this week we will see the unemployment statistics come out. The official unemployment numbers will rise to close to 6%, but that’s not the real story. The definition of ‘unemployment’ excludes people that you and I would regard as ‘unemployed’. But however you define unemployment, the problem of underemployment is a bigger issue. All around the country I am hearing about people who have held onto their jobs but have had their hours cut back.
Thanks to the research work of the Roy Morgan Group we know how big the underemployed problem is.
According to Morgan, in June the number of underemployed jumped to an incredible 967,000 or 8.8%. Before the slump in 2007, average underemployed was about 725,000, so it has risen by about a third.
On straight unemployment Morgan takes out the strange definitions and says that in June the actual unemployed number was 862,000 or another 7.8%. So we have around 16.6% of the workforce unemployed or underemployed, which is up around 29% on the average 2007 level. And all the figures are headed upwards.
So why do I say Australia has never seen this problem before? What the Morgan figures can’t tell us is what is happening in companies. In past slumps companies would simply have retrenched workers, but I believe this time tens of thousands of enterprises simply can’t afford to pay the retrenchment benefits they are facing, so instead they are cutting back hours. Others are conscious of retaining their skills base.
That means that Australia will take a bigger hit to profits and recovery will be slower because it will be a long time before enterprises rehire. In the coming profits season expect some nasty surprises.
For those people not affected by unemployment or underemployment life is good and their spending is driving the economy and will continue to do so, but we are getting close to a situation where one fifth of the workforce is bleeding.
This article first appeared on Business Spectator.
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