The Rachel Hunter economics model

In trying to explain economics stuff to business audiences and wise readers like you reading this now, economics (both the good and bad developments) is seldom like running water that you can turn on and off.

Economics is all about people

And when economic data looks screwy, it might be because the economy is actually changing, along with the people and businesses inside of it.

Also read: 3 reasons why women are better investors than men

Waiting for the drought to break

In the 1990s, the Howard Government inherited a post-recession and struggling economy from Labor. Amanda Vanstone was Employment Minister and while the economy was improving (some of it was because of some labor policies, which, like many, were working but working slowly), her description of our and her plight has always stuck with me.

She could see that the economy was getting better (I was actually writing about it in The Australian at the time) but she said she felt in waiting for jobs to really show up, she was like “a farmer waiting for the drought to break”.

The drought caused problems

Since the GFC, many economies have been in an economic drought, which has created unusual economic circumstances, such as negative official interest rates, historically low home loan interest rates, low inflation, slow wages growth and consumer confidence subdued, while business confidence is surging, like it is here now.

So much change!

Things are also economically unusual because of the Internet, hi-tech developments, climate change fears, coal-hating and the power charges implications of a lot of that.

Rain’s on its way

Despite all these headwinds, our economy is getting better, as the job numbers showed last week. The drought is breaking for jobs and some time next year, the ‘rain’ will start falling for wages and they’ll grow more strongly.

Economy on the improve

Recently on my TV show, Perpetual’s Matt Sherwood (who’s not as much of an optimistic economics expert as yours truly) thinks by year’s end we’ll be growing around 3% and that’s when more jobs come and that will tighten the labour market and wages will start to trickle higher.

Also read: Your definitive guide on who’s hiring in Australia right now

Reasons for drought breaking

What happened to jobs in July that makes me so positive that the ‘drought’ is breaking? Try these bananas:

  • There have been 10 straight months of jobs growth.
  • The unemployment rate dropped from 5.7% to 5.6%.
  • The participation rate rose 0.1 percentage points to 65.1%, which is often seen as a economic plus when workers go looking for work because it seems there’s more jobs out there.
  • Trend hours worked rose 2.5% over the year (19-month high).
  • Over the past five months, 189,100 jobs were created – the best equivalent period for job creation in 12 and a half years.

Morejobs out there

This is how Craig James saw the numbers: “Move on, move on. Nothing to see here. That is the best way to sum up the latest job data. More people are looking for work, more people are finding work, and fewer are unemployed. And the data is not a fluke”.

Jobs offers flood the market

Part-time jobs did increase, while full-time ones dropped but recently the latter have been coming through like there was no tomorrow.

James again: “After posting the strongest back to back full-time job gains in 30 years, some correction was to be expected. But while full time jobs fell in July, this was more than offset by part-time job creation. Overall, the job market is in good health and all the lead indicators point to further improvement ahead. Certainly, business conditions are the best in a decade and retail spending in the latest quarter was the best in eight years.”

And for those who might say that this old news, looking back at the latest ANZ job ads numbers told us that job advertisements rose for the fifth straight month, up by 1.5% in July to 177,879 ads – a near six and a half-year high. Job ads are up 12.8% on a year ago.

Wage drought ends next

The jobs drought is clearly breaking and this will flow on to wages eventually and we’ll be able to splash and frolic in a sea of economic tranquility!

Young people want a better life

And for those who have been stressing out about part-time jobs growing at the expense of full-time jobs, which isn’t exactly true, a Manpower survey of young students close to going to work, found 40% would be happy with part-time work so they had flexibility in their lives. Some didn’t want to spend too much of their lives working, while others wanted time to create their own businesses!

The Rachel Hunter theory

I’m going to show my age here but as a former academic economist, who taught at UNSW for part- and full-time, I had a favourite model that explains a lot about an economy — Rachel Hunter!

The Kiwi model, who once was hitched to singer Rod Stewart, did an ad for Pantene hair shampoo, where she used a tagline that best describes so much about economics.

The Pantene effect!

What were those words that have so much significance? Well, in reference to how Pantene will improve your hair, she caringly warned: “It won’t happen overnight but it will happen!

We’re changing

Our oddball economy is changing, just like the people in it are different young Aussies and this economic cycle is a long, drawn out, unusual one but it is heading up, only slowly.

But that’s not all bad because it means we might have a long wait until the economy slumps into recession and stock markets crash, which I think sounds pretty damn good!

Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.

www.switzersuperreport.com.au

 

 

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