NAB national australia bank sign
(Image: AAP/David Mariuz)

While no-one is using the R-word yet, the National Australia Bank’s monetary policy update issued yesterday suggests that, if we’re lucky enough to avoid a Reserve Bank-engineered recession, the toll in terms of unemployment — and, as a result, on the federal budget — will still be substantial.

NAB’s economics team forecast at least two more rate rises from the Reserve Bank, which would see the cash rate rise to 4.6% (from 4.1% set in the June rate rise last week) and a surge in the unemployment rate to 5% by the end of 2024 from 3.7% in April (the May numbers are out tomorrow).

Five per cent unemployment sounds like a nice problem to have compared with the 1990s, when unemployment was above 8% for most of the decade, or even a few years back — it was above 6% while Tony Abbott was prime minister. But we live in a new, post-pandemic world of labour shortages and tight employment markets, and 5% now, especially of a much larger workforce, isn’t the 5% of even a decade ago.

What NAB is saying is that we face a sharp rise of 200,000 or more in the number of jobless. Just based on the current labour force of 13.88 million, the number of jobless would rise from 528,000 in April to more than 700,000 by the end of next year.

But when you take into account growth in the labour market from school and university graduates and from the coming surge in migration, unemployment could rise by 300,000 or more.

That number of extra jobseekers might put paid to the government’s hopes that not merely will the current financial year produce a budget surplus, but next year might as well. The extra JobSeeker benefit cost, even at its still-manifestly inadequate rate, will weigh heavily on Treasurer Jim Chalmers’ expenses when he and Treasury start prepping the 2024 budget at the end of the year. It might also further increase pressure on the Albanese government to again increase the rate.

The NAB’s business survey backed up its monetary policy update. “There is a growing risk,” chief economist Alan Oster wrote, “that the RBA’s attempts to maintain an even keel [could] ‘run aground’.”

The business survey shows significant declines in trading, profitability and employment. Worse, “the fall in conditions now appears to be accelerating, and while they remain a touch above their long-run average they are well below the levels we saw in early 2023. Confidence fell to -4 index points in the month and has tracked at or below 0 since February — with most industries now in negative territory. Forward orders fell sharply and if sustained will likely see a further sharp slowing in demand. This is particularly evident in the consumer sector, where forward orders in both retail and wholesale fell very sharply and are now the weakest of all industries.”

The NAB rightly points to the fall in forward orders as indicating difficult times ahead: “The forward orders measure typically leads business conditions and historically has been the best measure of economic activity … If orders persist at these levels we could well see ongoing sharp falls in business conditions, highlighting the risks around economic growth through the middle of this year.”

That signals that the current weak GDP growth of the March quarter could give way to negative growth in the current and third quarter this year, even as the RBA continues to jack up interest rates.

In the meantime, a couple of hundred thousand people seem likely to lose their jobs, or be unable to find new ones, over the next year. And there will have been plenty of warning to policymakers — in Canberra and in Martin Place — of precisely that outcome.

In the run-up to the next election, responsibility for what used to be considered a low level of joblessness might be a real issue.