3.7 per cent is still a beautiful number

Historically low unemployment rates have been a boon for the Federal Budget – more people working increases the tax take and means less welfare support. October saw a rise from 3.6 per cent to 3.7 per cent. That’s still a very good figure, but it does mean an extra 27,000 people are unemployed in the lead up to Christmas. 

However, are we now seeing the start of an upward curve in unemployment? Economic commentators have mixed views, but media reports of employee lay-offs and a sharp drop in jobs advertisements (according to Seek) suggest the unemployment curve is at the start of an upward journey. 

Business conditions are patchy – parts of the market are still incredibly busy and continue to face problems attracting enough skilled employees, while many sectors and regions are the opposite. Small businesses, the nation’s largest employers, are at the coal face and have little buffer when consumer demand changes. And it is changing at a fast pace.  

Real household gross disposable income fell 5.1 per cent in the year to June 2023 – the highest of any comparable country. Rental inflation is close to 8 per cent per annum and are now about 30 per cent higher than pre-covid. Housing debt-servicing costs are now over 10 per cent on average. Housing availability is at record lows. And inflation remains stubbornly high. Worryingly, Reserve Bank Governor Michele Bullock believes inflation is now increasingly homegrown rather than caused by international influences. At the same time we have welcomed over 500,000 migrants this year.  

All this adds up to a massive headache for Prime Minister Anthony Albanese and Treasurer Jim Chalmers. They are facing pressures from every quarter, but the economic and policy levers available don’t give them much wriggle room.  

Jim Chalmers acutely knows the importance of a strong fiscal management record to bolster the ALP’s prospects at the next election, and so far he is pushing back. He has done this with the State Governments’ cost blow-outs for infrastructure, and is resisting calls for large cost of living subsidies in December’s MYEFO.  While everyone else takes a much deserved break over Christmas and the New Year, spare a thought for the Treasurer whose attention will be squarely focused on the economic challenges and settings for 2024 and beyond.