Record lift in jobs as economy re-opens

Labour Force

Employment rose by a record 210,800 in June after falling by 264,100 in May (previously reported as 227,700 decline). Full-time jobs fell by 38,100 and part-time jobs rose by 249,000.

The unemployment rate rose from 7.1 per cent to 7.4 per cent in June. It was the highest jobless rate in 21½ years (since November 1998).

Hours worked rose by 4.0 per cent in June after falling by 1.0 per cent in May. Hours worked are down by 5.7 per cent over the year.

Participation rate: The participation rate rose from a 21-year low of 62.7 per cent in May to 64.0 per cent in June.

Spare capacity: In June, the underutilisation rate fell from 20.1 per cent to 19.1 per cent. The underemployment rate decreased from 13.1 per cent to 11.7 per cent.

Unemployment across states in June: NSW 6.9 per cent (May 6.4 per cent); Victoria 7.5 per cent (6.9 per cent); Queensland 7.7 per cent (7.8 per cent); South Australia 8.8 per cent (7.9 per cent); Western Australia 8.7 per cent (8.1 per cent); Tasmania 6.9 per cent (6.3 per cent); Northern Territory 5.7 per cent (7.4 per cent); ACT 5.1 per cent (4.1 per cent). Biggest job gains occurred in New South Wales (80,800); Queensland (52.900) and Victoria (29,500).

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

What does it all mean?

• The healing process is beginning – but no one said it was going to be easy. In fact health authorities warned about virus outbreaks and ‘hot spots’ as state and territory economies re-opened. The aim is to keep the virus suppressed rather than aim for elimination as there always is a balance of health and economics.

• The lift in jobs in June reflects the re-opening of businesses as they move out of hibernation. It will be important to keep the virus suppressed (contained) so that more workplaces can re-open, more people get work, and there is a progression to relative normalcy.

• We shouldn’t get too hung up on historical job market comparisons. The current situation is different to past recessions, being a health emergency rather than an economic emergency. The quick recovery of economies is dependent on a vaccine being found rather than a central bank rate cut or government tax or spending measure. Understandably the published unemployment rate may understate the ‘true’ rate but that is why JobKeeper was devised – to ensure people remain connected to their workplace.

• Australia has done well in suppressing the virus and in responding to outbreaks. Vigilance is required. But we can be comforted in the fact that federal; state and territory governments as well as the Reserve Bank are doing all that it takes to support and stimulate the economy.

• As well as today’s data on jobs, SEEK encouragingly reported that job advertisements lifted 41.5 per cent in June. And the Federal Government is unveiling a $2 billion JobTrainer skills package to assist job seekers in returning to the workforce.

• We continue to expect the jobless rate to peak around 8 per cent, well short of the generational high of 11.2 per cent set in December 1992. We also expect the JobKeeper wage subsidy package to be amended and extended to ensure that the job market and broader economy continue to heal. The hope is that job seekers find employment relatively quickly to ensure they are not ‘locked out’ of the job market. It took 7½ years for the jobless rate to fall from 11.2 per cent to 6.0 per cent in the 1990s/early noughties.

What do the figures show?

Labour force – June

• Employment rose by a record 210,800 in June after falling by 264,100 in May (previously reported as 227,700 decline). Full-time jobs fell by 38,100 and part-time jobs rose by 249,000.

• The unemployment rate rose from 7.1 per cent to 7.4 per cent in June. It was the highest jobless rate in 21½ years (since November 1998).

• Hours worked rose by 4.0 per cent in June after falling by 1.0 per cent in May. Hours worked are down by 5.7 per cent over the year.

• The ABS notes “Hours worked rose 4.0 per cent in June, but remained 6.8 per cent lower than March. Hours worked increased more for females (5.0 per cent) than males (3.3 per cent) over the month. Hours worked for females were still around 7.3 per cent below March, compared to 6.5 per cent for males.”

• The participation rate rose from a 21-year low of 62.7 per cent in May to 64.0 per cent in June.

• Spare capacity: In June, the underutilisation rate fell from 20.1 per cent to 19.1 per cent. The underemployment rate decreased from 13.1 per cent to 11.7 per cent.

• Unemployment across states in June: NSW 6.9 per cent (May 6.4 per cent); Victoria 7.5 per cent (6.9 per cent); Queensland 7.7 per cent (7.8 per cent); South Australia 8.8 per cent (7.9 per cent); Western Australia 8.7 per cent (8.1 per cent); Tasmania 6.9 per cent (6.3 per cent); Northern Territory 5.7 per cent (7.4 per cent); ACT 5.1 per cent (4.1 per cent). Biggest job gains occurred in New South Wales (80,800); Queensland (52,900) and Victoria (29,500). The followed Western Australia (up 22,200); South Australia (up 11,400); Tasmania (up 6,300) and the ACT (up 4,200). Jobs fell 2,500 in the Northern Territory.

• Notable highs for the jobless rate: NSW and Victoria (highest since November 1998); Western Australia (highest since January 1994); South Australia (highest since January 1999).

• “The participation rate for 15-24 year olds (who are often referred to as the “youth” group in the labour market) increased 3.9 pts to 63.5 per cent in June 2020. Employment for 15-24 year olds increased by 101,500 people (6.3 per cent). The unemployment rate for this group increased 0.4 pts to 16.4 per cent.”

What is the importance of the economic data?

• The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.

What are the implications for investors?

• Last month we ominously said, “we aren’t there yet – there will be challenges ahead.” And the virus outbreaks in Victoria and South-Western Sydney accentuate the point. But re-opening the economy carries the risk of rising virus case numbers. The onus is on all Australians to follow the advice of health authorities so that state and territory economies can continue to re-open.

• Provided that most states and territories can continue to flatten the curve then the jobless rate can peak somewhere between 7.5-8.5 per cent. The announcement of JobTrainer and the extension of the apprentice support measures are good news for consumer-focussed stocks.

• Australia continues to do well. The ABS notes that the US jobless rate was 11.1 per cent in June and the jobless rate was 12.3 per cent in Canada. The comparative rate in Australia would be 8 per cent.

Published by Craig James, Chief  Economist, CommSec