With unemployment at a 32 year low of 4.2 per cent, employment surging (66,000 fulltime jobs created last month) and a one in a thousand year drought, not to mention a sluggish homebuilding industry in the big states of NSW and Victoria, why don't we have wages and inflation problems, and why do we have a boom?
Well, it's China, as we explained yesterday: our terms of trade are at a record, national and personal income is growing, but we are not wasting it, unlike the last couple of resources booms in history.
Take the point we also made about business profits, the core driver in economic activity (and investors also don't mind them, do we?).
"Business profitability, as measured by corporate gross operating surplus, rose by 4.4 per cent in the quarter to be 13.9 per cent higher than a year ago. Profitability is strong in a number of industries including manufacturing and retail trade. At 28.1 per cent, the profit share of the economy is at a record level," we reported yesterday.
Now that's something business hasn't been too vocal about in all the argy bargy over Work Choices, Workplace Agreements and the like.
The reality is corporate Australia is experiencing a level of absolute profitability it has rarely experienced before; with the exception of the rural sector, home building in much of the country and mining industry gross profits down now for three quarters in a row.
So what's behind this: well the rise in income is financing it and the trade with China, but so too are wages.
As we reported yesterday the Wages Share of National Income has fallen to its lowest level since 1979 at 53.2 per cent, and since 2001 the Wages Share had fallen three percentage points.
The National Accounts also reveal that real unit labour costs fell sharply in the non-farm sector, down 1.4 per cent on the March quarter of 2006 financial year, and down 2.1 per cent year over the year.
The figures show that with the combination of very strong sales, up 2.1 per cent March quarter, on March quarter, there's been a sharp expansion in profit margins which in turn has generated a booming profit result that is showing few signs of easing.
So it's no wonder the profit share of the economy is at record levels, and it's no wonder jobs growth is booming.
Perhaps it is Work Choices or Workplace Agreements, Enterprise Bargaining Agreements or just greater competition for skills, but it is now just as efficient, or better, for business to employ full time rather than opt for casuals or permanent part timer employees.
According to the Australian Bureau of Statistics total employment rose 39,400 in May, after gaining a revised 34,900 in April and the jobless rate fell to 4.2 per cent from 4.4 per cent.
The male unemployment rate decreased by 0.1 percentage point but the rounded estimate remained at 3.9 per cent, and the female unemployment rate decreased by 0.2 percentage points to 4.7 per cent.
The news sent the Australian dollar up again to an 18 year high of 84.72 USc in Sydney. It was around 84 USc Friday morning in Sydney.
Economists used to think that five per cent was the 'natural employment rate' and once we got below that level, wages would surge and inflation would be pushed up. So far, that's not the case, so is four per cent the national rate of unemployment? Obviously, so far
The jobless rate in NSW fell to 4.9 per cent in May from 5.1 per cent in April, while in Victoria it remained at 4.7 per cent and in Queensland it stayed at 3.4 per cent. South Australia saw its rate fall to 4.7 per cent in May from 5.2 cent in April, while in Western Australia it rose to 3.2 per cent from 2.7 per cent. In Tasmania it dropped to 4.4 per cent from 5.3 per cent.
In the Northern Territory the unemployment rate rose to 4.6 per cent from 4.3 per cent, while in the ACT it stayed at 3.0 per cent. (It must be pointed out that the ABS has switched to a new method of estimation which it says is more accurate. It has revised all part figures back to 2001 to remove any possible distortions.)
So for the first time in decades, every state and territory has an unemployment rate under 5 per cent. No wonder retail sales are doing well (as JB Hi Fi confirmed yesterday).
Total employment rose 39,400 to 10.454 million, seasonally adjusted, full-time employment rose 66,800 to 7.530 million but part-time employment fell 27,400 to 2.924 million.
The participation rate in May was 65.0 per cent, compared with a steady 64.9 per cent in April.
Another pointer was the strong rise in the newspaper and internet job advertisements reported earlier in the week by the ANZ Bank.
The number of jobs advertised in newspapers and on the Internet jumped 10.3 percent to a record in May, according to the ANZ Bank, while the number of jobs on the internet was itself up 40 per cent on a year ago.
And the ABS reported yesterday that "During the year ended March 2007, there were 136 disputes, 329 less than in the year ended March 2006.During the year ended March 2007, there were 109,500 working days lost compared with 213,200 in the year ended March 2006".
So a low level of industrial stoppages, falling unit labour costs, rising sales and rising personal income, and moderate to lowish inflation.
That explains what is going on at the moment, but for how long remains the question and why a rising number of economists and others are forecasting a rise in interest rates.
It is also why next week's speech in Brisbane by RBA Governor, Glenn Stevens, assumes so much importance for the worriers and others.
What will he say? And will he end the party?
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As we said earlier, housing and the bush are the two areas of poor performance in the domestic economy (and our trade performance is also a drag).
So it's intere
