With most of the country on lockdown, Australia's labor market is reeling from its government's attempts to achieve "ZeroCOVID": with no end in sight (investment banks generally expect the lockdowns to lift next month, but views vary), it appears thousands of Aussies are giving up on looking for work, a phenomenon that has also been seen in the US.
If the trend continues, Australia may be on its way to an employment crunch, particularly in low-paying public facing jobs in retail and food service, on par with what the US economy has been grappling with all summer.
The latest round of Aussie unemployment data, released overnight, showed the unemployment rate dropped from 4.9% to 4.6%, but the decline was almost entirely driven by Aussie's dropping out of the workforce. The country's participation rate dropped by 0.2 percentage points to 66%, according to the labor market data, which was collected in early-to-mid July by Australia's Bureau of Statistics.
New South Wales, the country's most populous state and home to Sydney, the locus of the current outbreak, saw its labor force reduced by about 64K people between the newly unemployed (-36K) and unemployed who have given up on their search for work (-27K). Hours worked in Sydney, which has been under lockdown for 2 months now, fell by 7%.
One economist estimated that the "effective" unemployment rate is closer to 6%.
Adjusting for participation and zero hours working (noting it's orig data) you can argue the 'effective' unemployment rate is closer to 6% than 4.6%. The no. of people on zero hours from being stood down is 181,500, up from 156,500 and 58,200 in June and May respectively #ausbiz pic.twitter.com/Mz73e2AtNX— Alex Joiner (@IFM_Economist) August 19, 2021
I would also note that people working fewer hours for "other reasons" has risen to 206,900 in July from 28,600 in May. These people may still have work but their incomes are reduced.— Alex Joiner (@IFM_Economist) August 19, 2021
For those who aren't so familiar with the innerworkings of economic data, a former RBA economist named Callam Pickering offered to explain how the "official" numbers are masking a massive surge in employment.
Callam Pickering, a former Reserve Bank economist who now works with with jobs website Indeed, explained how the numbers work.
"In order to be considered unemployed in Australia you need to be actively searching for work and also available to begin work," he noted.
"That is obviously difficult in Sydney right now, which means that many people who would love to work, and would normally be available to start, simply cannot due to lockdown."
"Those people aren't being included as unemployed and that's basically why the unemployment rate hasn't jumped."
Sydney's problems are expected to spread to nearby Victoria state, home to Australia's second city, Melbourne, for next month's data as service-industry workers grow increasingly uneasy about their financial situation, as well as the future.
But Sydney's problems will start showing up in next month's data for Victoria too.
As a sales and event planner for a Melbourne catering company, Gabe Dyson is worried about the long-term effects of being stood down for the sixth time.
"The more lockdowns you're going through, the less money, the less revenue coming in," she said.
“I could lose my job because of that.”
The 28-year-old has been with her company for a little more than two years and is currently supported by the government's disaster payment.
The money helps her manage the basics but does not make up for the full-time hours she normally works.
"It's better than nothing but, yeah, it's not the same as what I would normally be earning."
Equally, Ms Dyson does not see much point searching for other work while the city is in lockdown.
"You wonder if you should be looking for a job but, at the same time, are there any jobs out there?"
An economist from BIS expects a big rise in unemployment in next month's data, especially in Sydney.
Sarah Hunter, from BIS Oxford Economics, said the July figures were a portent of a big rise in unemployment to come in next month's data, especially in Sydney.
"In a sign of what's to come in the August data, employment in NSW fell by 36,000, the underemployment rate spiked to 9.3 per cent and the participation rate also fell 1 percentage point to 64.9 per cent," she observed.
"The structure of the COVID disaster payments means that all of these trends will be even more pronounced in the August data; anyone claiming the payment who has not worked at all will be counted as unemployed (and likely not in the labour force, as they will not be actively looking for work), while workers who have had their hours cut will be classed as underemployed."
As New Zealand joins its neighbor with what Kiwis fear will become another interminable series of unnecessary lockdowns, it looks like antipodean central banks will see their hopes to normalize monetary policy in the near-term (as we recently reported, the RBNZ has abandoned plans to become the first G-10 central bank to hike rates) fade.
All Eyes On Inventory
You’ve heard of the virtuous circle in the economy. Risk taking leads to spending/investment/hiring, which then leads to more spending/investment/hiring….
You’ve heard of the virtuous circle in the economy. Risk taking leads to spending/investment/hiring, which then leads to more spending/investment/hiring. Recovery, in other words.
In the old days of the 20th century, quite a lot of the circle was rounded out by the inventory cycle. Both recession and recovery would depend upon how much additional product floated up and down the supply chain. Deflation, too.
On the contraction side, demand might fall off a bit for whatever reason(s), retailers getting stuck with a small inventory overhang. If they think it more than temporary, or don’t have the internal cash to finance it, the retail level scales back pushing inventory to wholesalers who then cut orders from producers.
Serious enough, producers begin to cut back their own activities, maybe to the point of forgoing new hires, perhaps laying off some workers already employed. Whatever necessary to equalize reduced order flow with cost structure and input utility.
When those layoffs hit, almost certainly it cuts further into demand (unemployed workers are far more careful and constrained consumers), more inventory stuck at retailers and wholesalers, then even fewer orders for producers who must sharpen their payroll axe all over again. This vicious cycle is what used to make up the balance of any recession.
But what if inventory first accumulates for other reasons?
It may be a different look to the cycle, though not necessarily an entirely different outcome. Suppose retailers (outside of automobiles) grow concerned about supply availability or shipping times. They might naturally react by boosting their current order flow if only to increase their chances some product makes it through the clogged shipping channels.
As that increased order flow unrelated to demand continues to move back through the supply chain, it probably would only make the transportation issues that much worse. It’s already a mess, and because it’s already a mess the entire supply chain tries to stuff more goods through it rather than less, rather than giving the system some time and space to work out enough kinks.
This, of course, would probably convince retailers to do it all over again, ordering even more they don’t need now or in the near future, now more desperate to try and raise their chances of receiving anything. More trouble for the shippers and so on.
Having intentionally over-ordered, and then over-ordered again (and again?), this time what happens when the logistics get more sorted out and then deliveries rather than trickle through come pouring out? This is the cyclical question for early 2022, not the unemployment rate.
Some companies have said they are ready, and have confidently declared how they will be able to manage holding such excessive levels of product. Maybe they can. But what happens to orders down at the lower reaches? Having received all this extra inventory, retailers and wholesalers aren’t going to keep double and triple ordering.
Before even getting to demand considerations, the orders are going to drop and producers are going to become less busy. The inventory glut having been forwarded up to the retail level, maybe wholesale, it will have to be worked down over time.
This is where demand comes into it. If demand stays as robust as some might currently assume, it might not take that much time to normalize inventory, then get past the whole issue and imbalance with nothing much lost.
And if demand isn’t as good, then we’re right back into the 20th century again.
The way the supply bottlenecks of 2021 have worked out, there is going to be an inventory overhang at some point. When it does come about and how bad it will be, that’s really the demand question. There seems to be quite a bit of optimism about it, to the point of complacency while corporate CEO’s bark in the media instead about all the massive inflation they plan on throwing your way.
Inflation today (therefore not inflation) but potentially too many goods tomorrow. However the inventory cycle manifests, the one thing each would have in common is its trough – disinflationary at the least.
Manufacturing PMI’s, for what it’s worth, remain elevated as if the upward segment of that unusual cycle remains relatively intact (note: ISM for September won’t be released for another week). With ships still stacking up on the US West Coast, this makes sense. Regardless of current levels of demand, these supply problems would only feed the imbalance for another month.
IHS Markit’s manufacturing index retreated again for the flash September 2021 estimate, but it remains above 60 therefore still in the post-2008 stratosphere. At 60.5 in the latest update, it is down, though, for the second month in a row since hitting the high of 63.4 back in July. And the index was 62.6 back in May, meaning it’s been four months treading.
It is the services side which has materially declined, leading many to assume it must be due to delta COVID if goods flow is largely uninterrupted at the same time. Markit’s services PMI dropped to 54.4 in September from 55.1 in August, while its employment component fell back to just 50.
This meant the composite, accounting for both manufacturing and services, declined to a very similar 54.5. Using this measure as a guide for possible GDP in Q3, that’s working down to a very disappointing 3% or less which might otherwise raise suspicions when it comes to the sustainability of demand.
If this more serious setback really is pandemic-related, then thinking it a temporary one might keep up the order flow as well as the logistical nightmare. Then the artificial inventory cycle gets even more artificial.
It could very well be that manufacturing remains high because of inventory and not because current potential weakness is only about delta.
Should it turn out to be unrelated, or only somewhat attributable to renewed disease measures, then inventory stops being a pesky annoyance of shipping bottlenecks and potentially starts being more like its old self. While that wouldn’t necessarily mean recession in early 2022, even a substantial downturn (chances would have it globally synchronized) having yet fully recovered from the last two would be enough trouble.
This Has To Be A Mistake
This Has To Be A Mistake
While we were digging through the data for today’s household net worth report we stumbled upon something that seem…
While we were digging through the data for today's household net worth report we stumbled upon something that seem beyond ridiculous: the ratio of Household Net Worth to Disposable Net Income. At 786% in the latest quarter, the chart at first appears to be a mistake but we triple checked it, and... well, here it is.
The latest, all-time high print is an increase from 698% in Q1 and also represents the biggest quarterly increase in history!
This number is so ridiculous, it is almost 50% higher than the long-term average of 540%. More importantly, it means that the total net worth number we reported earlier today, which in Q2 hit a record high of $142 trillion, is massively inflated on the back of what is obviously the biggest asset bubble on record.
It also means that if one were to strip away the asset bubble, and net worth was purely a reasonable function of disposable income, then total net worth worth be haircut by 31%, or some $43 trillion, which incidentally, is equivalent to the net worth of the top 1% of US society...
... and which as we showed earlier today is a record 32% of total household net worth.
As an aside, the fact that the top 1% have gained $10 trillion in wealth since the covid pandemic outbreak, is probably just a coincidence, and yet...
Covid has been the best thing ever to happen to the wealthy and powerful. No wonder they don’t want it to end— Hipster (@Hipster_Trader) September 23, 2021
As for the chart which clearly has to be a mistake, we are sad to report that it isn't, and as politicians of both the Democrat and Republican party pretend to fight for the common man, all they are doing is enabling and accelerating the greatest wealth transfer in the world but not for nothing: they too want to be in the top 1%.
“Culture As An Asset”
#CKStrong Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground…
Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground balls.
This is usually a sign of the endgame for markets, i.e,, the precursor to a bear market. Think the “Great Beanie Baby Bubble” of 1999.
In general, there are two types of assets,
- They can be rare—gold bars, diamonds, houses on Victoria Peak, bottles of 1982 Pétrus, Van Gogh paintings, stamps, beanie babies, or baseball cards or
- They can generate cash flows over time – GaveKal
Creating An Illusion Of Scarcity
Scarcity relative to the money stock is what its all about now, folks.
It probably won’t be long before the Fed has to bailout the baseball card market, no?
Full disclosure, I do own a Mike Trout rookie card.
Given the extreme valuations of all most all asset classes, coupled with the massive amount of money in the global financial system, markets are now really stretching, looking for, and actually attempting to create scarcity as a useful delusion to justify, rationalize, and drive speculation.
Maybe I will start collecting poop as an “anthropological asset,” put it the blockchain and super charge the price ramp by snapping a few pictures of each sample, converting them to NFTs to load up to the internet.
Then again, maybe all this is signaling the start of a big, big inflation cycle and the markets are looking to get out of cash and protect their purchasing power. But that’s too rational.
Can you believe what markets have become, folks? It is hard to see clearly when everybody is making money.
gold inflation markets fed bubble
PVC Prices Hit Record High As Homebuilding Costs Soar
FOMC Signals Taper “Soon”, Shows Rate-Hike In 2022
Looking for the Next Big Crypto to Explode in 2021? Try These 5 Coins
60% Polled Expect Federal Reserve to Taper Bond Purchases Starting December
Inflation Still Appears To Be Peaking, But For How Long?
Rabobank: We’re In A Charlton Heston Movie, But Which One?
Three Key Takeaways From The Fed Meeting
When Will “Transitory Inflation” Overstay Its Welcome?
Escobar: Eurasia Takes Shape, Part 1 – How The SCO Just Flipped The World Order
China Syndrome? Is Evergrande A Symptom Of Deeper Malaise
Precious Metals15 hours ago
Rusoro Mining Stock Jumps After Venezuela Drops Its Appeal of US$1.62B Award
Base Metals15 hours ago
Top 20 Investors Speak on Uranium’s Returned Aura
Energy & Critical Metals14 hours ago
Cameco Signs MOU to Supply Uranium for SMR’s Built by GE Hitachi, Synthos Green Energy and GEH SMR
Energy & Critical Metals17 hours ago
MAHLE Powertrain and Allotrope Energy unveil lithium-carbon battery technology with ultra-fast recharging
Precious Metals11 hours ago
Palladium One Shares Jump 10.26% After Reporting Drill Results 112 metres of 2.08% PdEq at LK, Finland
Energy & Critical Metals9 hours ago
Uranium Rally Signals New Generation of Nuclear Energy Acceptance
Energy & Critical Metals19 hours ago
Lyten introduces next generation Lithium-Sulfur battery for EVs; 3X energy density of Li-ion
Energy & Critical Metals16 hours ago
Today’s Biggest Pre-Market Stock Movers: 10 Top Gainers and Losers on Thursday