Daily Commentary BY THE CURVE TEAM –

Employment and Budget Boons

18th of December, 2020

Employment continues its unprecedented recovery, which contributes to strong budget numbers.

90 000 more people were employed in November, which once again beat expectations by a wide margin. It takes the unemployment rate to 6.8% and the participation rate to 66.1%, which is higher than pre Covid levels. A measure of the effective unemployment rate, which accounts for employees working zero hours, the unemployment is 7.5%.

Positively, 84 000 of the new employees were full time employees. The initial employment recovery was dominated by part time employees.

Victoria drove the gains, with employment up 74 000 and still has more slack to make up from pre Covid levels. Employment is now only 138 000 lower than pre Covid levels.

The recovery in employment is resembling a V shape should it continue, which reflects the rapid recovery of the broader economy. The governments Mid-Year Economic and Fiscal Outlook (MYEFO) released yesterday sees the budget deficit 5% less than initially expected, helped by the economic recovery and high iron ore prices.

Unemployment is expected to be below 6% by the 2022/2023 financial year rather than a year later. This is significant as the government has made clear it will begin to reign in deficits once unemployment is below 6%.

Growth is also expected to bounce back much quicker than expected, with a 0.75% increase in GDP for this financial year forecast, upgraded from a fall of 1.5%. All these positive updates come as NSW faces a Covid scare.

NSW has recorded seventeen new Covid cases, all from community transmission. As a result, WA has imposed a two-week quarantine on all NSW residents entering the state and other states have imposed the same on those from the Northern Beaches area.

More cases are expected today, which will put NSW’s tracing system under considerable strain. It comes just as Christmas and the New Year period arrives, where more people will be travelling across the country.

Josh Stewart

Associate - Money Markets