Credit crunch eases but jobs crisis grows

However, as we have shown conclusively, official rates severely underplay the real situation, especially when Australia's substantial underemployment is allowed for.

Latest data from Roy Morgan -- based on our research on Australia's forgotten workers -- shows Australian unemployment rose to 7.8 per cent (up 0.4 per cent) during June. This is a total of 862,000 Australians out of work and looking for work. This is well on the way to topping 1million unemployed Australians later this year.

The picture for the under-employed (part-time workers who want to work more hours) was even worse, with many more Australians now part of this classification.

The Roy Morgan June 2009 "under-employed" estimate is 967,000 (8.8 per cent), up a large 306,000 (2.9 per cent) on May 2009.

In total in June, an estimated 1,829,000 Australians (16.6 per cent) were unemployed or underemployed, up 343,000 on May.

This measure, incidentally, omits another 4 per cent or so discouraged workers who surveys say have given up the idea of finding a job.

Note that the sharp drop in job vacancies supports the reading from the Henry Thornton-Roy Morgan data rather than the ABS data. If the Reserve Bank had been using the more accurate labour market data, it would have stopped hiking interest rates sooner last year and rates would now be lower.

With the two-speed economy, concern for real unemployment and underemployment makes (or should make) their decision today excruciatingly difficult.

The Reserve Bank struggled with the two-speed economy during the boom, when it was slow to raise interest rates then kept raising rates despite the undue pressure on poorer households as the prices of oil, food and housing rocketed up.

Now the well-to-do members of society are suffering more with lower asset prices and (Henry suspects) substantial hidden unemployment among senior corporate players and self-funded retirees whose pensions have been slashed by the share price meltdowns.

Politically, Labor will not worry much about the relative suffering of wealthy Australians. The Reserve will share this perspective and in addition will take refuge in the overall economic data.

The salient features of the overall picture are low inflation and high activity relative to almost all other developed nations.

Factors making the case for another rate cut are the worsening of global economic conditions, rising unemployment (at a much greater rate than conventionally believed) and low inflation, well within the "target band" of 2-3 per cent.

Factors making the case for sitting pat include the revival of China's demand for commodities, strong retail sales, partial recovery of business and household confidence and low inflationary expectations.

On balance, I expect the Reserve to sit pat today with a cautious statement that means all things to all readers and which provides maximum freedom for future action.