Just how fast is the economy running right now? We could look at GDP and the unemployment rate, but these bring with them so many caveats that they are little more than guides because nothing now is anything like normal. The borders are closed while at the same time we have a record amount of government spending and record low interest rates in effect acting like steroids.

Trying to discern how fast the “real” economy is, is difficult. The unemployment rate is not much help.

Unemployment itself of course matters a great deal – especially if you are in that situation – but just as with the GDP being a measure that misses out a great deal of the economy, so too does the unemployment rate miss out a lot of what is going on in the labour force.

One problem with the unemployment rate is that it is a rate – ie there is a numerator and a denominator.

It is the number of unemployed divided by the number in the labour force (those people who are unemployed and employed). If the number of employed stays the same but some unemployed people leave the labour force, then the unemployment rate itself will go down despite not one extra person getting a job.

And in a sense that is what has happened during the pandemic.

The number of unemployed obviously did grow, but a massive number of people left the labour force – either those who gave up looking for work, or who were employed and decided it was a good time to retire, or those who had a job but left the country because or the pandemic.

What also happened was a mass of people who would normally have come to the country did not because our borders were closed.

As a result the annual growth of working age people plunged from around 1.6% to below 0.2%:

If you can’t view the graph click here

Another way to think about this is looking at the growth of the labour force since September 2013:

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Had the labour force kept growing at around its usual 2% each year, in June there would have been nearly 200,000 more people in the labour force.

Now, if we assume all of those extra people were unemployed, the unemployment rate in June would have been 6.2% instead of the very impressive 4.9%:

If you can’t view the graph click here

Now first let’s pump the breaks a bit. This does not mean the “real” unemployment rate is 6.2%, the recovery is fake and the Morrison government is keeping the borders closed to make themselves look good.

The government might be happy with the 4.9% figure, but for a start why assume all those extra people would be unemployed? During any recession or economic slowdown people do leave the labour force – that’s not a fudge of the figures.

But what it does mean is we need to realise we have a long way to go before we can say things are fully recovered.

We also need to consider the amount of fiscal and monetary stimulus. If the budget had stayed in balance and the cash rate was back at 1.25% we definitely would have a higher level of unemployment. That doesn’t make the current figure fake – but it does mean we need to consider just how much it is dependent upon that stimulus.

What we can do is look at the totals rather than rates.

Just over one percent more people were employed in June than in February 2020. That is an astonishing recovery, and yet it looks like those in the early 20s and 30 have missed out:

If you can’t view the graph click here

This would suggest the government’s “jobmaker credit” targeted towards workers aged under 35 has failed.

But what has really happened is the number of 20-34 year olds (which includes the vast numbers of foreign university students and migrants on work visas) has shrunk since the pandemic:

If you can’t view the graph click here

And so, while the number of people employed aged 20-24 years has fallen 2.7%, the proportion of people aged 20-24 living in Australia now who have a job has increased 3.9%.

It all makes for a pretty confusing scenario.

One thing that does cut through the hubbub however is the total amount of hours worked each month.

It took just 15 months for that to return to pre-pandemic levels. By contrast in the 1990s recession it took nearly 50 months:

If you can’t view the graph click here

It is difficult to work out just how healthy is the economy, or what would be the unemployment rate be under “normal circumstances”.

But that relatively fast return of hours worked back to where it was before the pandemic hit is impressive given all the restrictions in place and decrease in migration.

Fiscal and monetary stimulus does work – but there remain few signs that the economy is ready to run as fast without those steroids.