The May jobs report was weaker than economist’s forecast and the headline unemployment rate came in higher than expected at 7.1% vs. 6.9% expected. Unemployment is now at the highest level in 18 years as the economy shed 227,000 jobs over the last month. A key concern being that the continued large-scale job losses into May are not contained to the sectors that bore the brunt of lockdowns like hospitality, tourism and retail so potentially signal more permanent white collar job losses.
The participation rate, which refers to the size of the workforce as percentage of the working-age population fell to 62.9%, a 20-year low and level last seen in 2001, so has again cushioned the headline unemployment rate as those individuals dropped out of the labour force all together. Without the fall in participation, the headline unemployment rate would be more than 11%.
Bjorn Jarvis, head of labour statistics at the ABS notes, “A combined group of around 2.3 million people — around 1 in 5 employed people — were affected by either job loss between April and May or had less hours than usual for economic reasons in May,”.
As we have previously noted, the JobKeeper subsidy continues to artificially supress the headline unemployment rate. The ABS has said “people who are paid through the JobKeeper scheme will be classified as employed, regardless of the hours they work (e.g. even if they are stood down).” Prior to COVID-19 a member of the workforce had to work at least one hour to be considered employed. That is why we look to hours worked and underemployment in order to gauge the real impact of COVID-19 on the Australian labour market.
Hours worked plunged by 0.7% in May, and with April’s plunge of 9.5% are down 10.2% since March, underscoring the impact on consumer incomes. The underemployment rate (which refers the number of people who are employed but who want to work more hours) fell to 13.1%. Underutilisation, another measure of labour market slack, (which refers to people who are either unemployed or looking for more hours of work) rose to 20.2%.
Although the “lucky country” has escaped the worst of the health crisis relative to other countries and is now on the path to opening, the data show that the impact on the labour market has been no less severe and the economy will continue to suffer the fallout. The weekly payrolls data has confirmed that the worst for the labour market may be in the rear view as the economy continues to reopen and infections rates remain low. Although we can draw some comfort in the fact the labour market is heading in the right direction, the May data highlights the road to recovery is long and winding with many bumps along the way. A shift in consumer behaviour towards a reduced propensity to consume and increased savings which will hamper, both the speed and trajectory of the economic recovery will only be accelerated by ongoing labour market dislocations. Job insecurities and reduced hours weigh on the consumer’s marginal propensity to spend, particularly if health concerns remain, which sets in motion a vicious cycle with respect to weaker demand feeding through to reduced business revenues. This whilst businesses continue to suffer the effects of prolonged social distancing measures even as lockdowns are lifted, the combination in turn leads to more job losses. With this is mind a continued focus on fiscal stimulus will be needed. To date the measures can be viewed as a bridge to normalcy, but the rebuild and subsequent recovery will require continued targeted measures to assist the full return in economic activity and creation of jobs. For the government, the focus should turn to the rebuild, not budget repair and winding back stimulus measures. With COVID-19 as a catalyst for doubling down on revitalisation.