Jobless rate jump to 5.3pc expected

The mounting toll the recession is taking on jobs will be revealed on Thursday, when economists are expecting to see the March unemployment rate jump to a seven-year high of 5.3 per cent.

It may go higher still if the "desperate worker effect" proves stronger than the "discouraged worker effect".

Unemployment was at 4.7 per cent in December. Recent indicators of the state of the labour market had been nothing short of horrendous, said Westpac economist Donna Purdue. Labour demand had shut down.

The Institute of Economic Research's quarterly survey of business opinion found that a net 35 per cent of firms shed staff in the March quarter - the most since 1991 - and a similar proportion intended to in the current quarter.

And what firms said about the ease of finding both skilled an unskilled labour was back at levels not seen for 30 years.

Last week's National Bank business outlook survey found a net 19 per cent of firms intending to shed staff. That was an improvement from the record net 28 per cent recorded in March, but still a far cry from the long-run average of a net 3 per cent expecting to increase employment.

In the December quarter the unemployment rate jumped from 4.3 to 4.7 per cent. But it also recorded an increase of 20,000 or 0.9 per cent in the number of people employed, a result which had analysts scratching their heads and talking about data volatility and statistical noise. They expect that increase to be reversed, and then some, in the March numbers; the market consensus is for employment to shrink 1.1 per cent in the quarter.

ANZ National Bank economists are picking a 1.5 per cent drop, which would represent 33,000 fewer jobs than at the start of the year, adjusted for seasonal effects.

The unemployment rate may come in higher than the forecast 5.3 per cent if the labour force participation rate remains high. That is the proportion of the working age population (everyone over 15) who count as in the labour force - either employed or actively seeking work. In December it stood at a record 69.3 per cent. Economists expect the participation rate to fall as people lose heart and withdraw from the labour force. They call that the "discouraged worker" effect.

However these are unusual times and Westpac in its latest Economic Overview notes that in other economies like the United States and Australia participation has been holding up. "This is especially true in the 55-plus age group where workers have seen their retirement funds slashed ... In many cases these workers are finding themselves in a position where they have to either stay in or return to work - the so-called "desperate worker' effect".

In the December quarter the number of employees aged over 65 rose 15,000 to 89,000. Nearly 18 per cent of seniors are still in the workforce.

"If participation holds up more than we expect then we could easily envisage unemployment reaching 9 per cent or more over the next 18 months," Westpac said.

Associated with the rapidly worsening employment outlook is a moderation in wages growth. March quarter data are due on Wednesday. The Reserve Bank forecasts its preferred measure of wage inflation - the labour cost index's measure of private sector salary and wage rates (including overtime) - to ease 3.1 per cent in the year ended March from 3.2 per cent in December. That would be the weakest annual increase for two years.

COUNTER FORCES

Worsening job figures will be affected by two groups:

Desperate workers
Often older people with plunging retirement funds and are forced to either stay in or return to work.

Discouraged workers
Those who lose heart and withdraw from the labour force.