More job losses, but rebound ahead?

Labour Force

Employment fell by 227,700 in May after falling by a record 607,400 in April (previously reported as 594,300 decline). Full-time jobs fell by 89,100 and part-time jobs fell by 138,600.

The unemployment rate rose from 6.2 per cent to 7.1 per cent in May. It was the highest jobless rate in almost 19 years (since October 2001).

Hours worked fell by 0.7 per cent in May after falling by a record 9.2 per cent in April. Hours worked are down by a record 9 per cent over the year.

Participation rate: The participation rate fell from 63.6 per cent to a 19½-year low of 62.9 per cent in May.

Spare capacity: In May, the underutilisation rate increased by less than 0.1% to a record 20.2 per cent. The underemployment rate decreased from 13.8 per cent to 13.1 per cent.

Unemployment across states in May: NSW 6.4 per cent (April 6.3 per cent); Victoria 6.9 per cent (6.0 per cent); Queensland 7.9 per cent (7.0 per cent); South Australia 7.9 per cent (7.2 per cent); Western Australia 8.1 per cent (6.1 per cent); Tasmania 6.4 per cent (6.2 per cent); Northern Territory 7.4 per cent (5.6 per cent); ACT 4.1 per cent (4.3 per cent). Biggest job losses occurred in Victoria (70,800); New South Wales (43,900); Western Australia (30,200); and Queensland (28,100).

A raft of companies is affected by the employment data but especially those dependent on consumer spending.

What does it all mean?

• Today’s data covers the month of May. Ordinarily this data would be considered ‘current’. But given that many parts of the economy have re-opened in the past 17 days – and more parts are expected to re-open in coming weeks – to some extent the jobs data is ancient history. Jobs slumped over March, April and early May as businesses went into hibernation. But job gains are expected from this month on as businesses re-open and workers re-join their employers. Certainly what we do know is that the number of payroll jobs rose by 1 per cent in May, lifting 0.4 per cent in the last week of the month alone.

• The stimulus measures from governments and the central bank have all been directed at keeping people connected to their workplace. JobKeeper, and the expanded JobSeeker programs have been vital in that regard. Now the aim is to get people out of their homes and back at workstations. And the work support programs must stay in place to ensure that employers and employees have adequate opportunity to seamlessly move from hibernation to ‘normalcy’ – whatever that now means in the post-COVID-19 environment.

• What is happening in the figures is that almost 230,000 weren’t registered as employed in May – they didn’t work more than hour a week in the reference week. But all those JobSeeker and JobKeeper recipients didn’t join the dole queue rather they “left” the workforce – they were neither employed or unemployed in the month. That is evidenced by the slump in the participation rate. Rather the JobKeeper and JobSeeker beneficiaries stayed home, and waited for the economy to re-start so they could return to workplaces.

• While the jobless rate rose to 7.1 per cent, clearly it would have been far higher without JobSeeker and JobKeeper. The great hope is that the job losses that have occurred prove to be only temporary and that the re-opening of the economy is indeed successful.

• The best way to describe the impact of COVID-19 on the job market is in terms of the number of hours worked. Hours worked fell 0.7 per cent after slumping by a record 9.5 per cent, and that accords with expectations that the economy will contract 10 per cent in the first half of 2020.

• Many people have kept their jobs because of the JobKeeper program. So while those on the program are still ‘employed’ and deriving an income of sorts, they are not working, not adding to the output of businesses, and not adding to overall economic activity. The JobKeeper program keeps people connected to their employers, which is positive for the recovery phase. But the payments also ensure that people can spend and therefore serve to keep others in jobs and keep the economy moving.

• The jobless rate is expected to peak near 8 per cent. And many forecasters expect the economy to contract 8-10 per cent in the first half of 2020. But provided social distancing is maintained with good hand hygiene and significant CONVID-19 testing, there is no reason that a ‘V-shaped’ economic recovery can’t occur as lockdown restrictions ease.

• Looking ahead, the closure of our foreign borders will have a range of effects on the economy. Around 150,000 people come to Australia each year on different visas and do the jobs that Australians can’t or won’t do. If the jobs aren’t filled, then this could slow business output and economic output. But the absence, or reduced number, of migrants could serve to keep the jobless rate down if Aussies take up the jobs that they have shunned in the past.

• The drop in jobs masks the impact – and future impact – on incomes. People have lost income and there is little hope for a lift in wages in the months ahead. Add in the deferral of dividend payments by listed companies and little or no interest income and there may be scope for ‘top up’ cash handouts by the Government. Today’s data adds to the case of governments maintaining as much support as possible until it is definitely no longer required.

Published by Craig James, Chief Economist, CommSec