Daily Commentary BY THE CURVE TEAM –

Employment Data’s Sobering Update

15th of May, 2020

The latest employment data threw up some big numbers as was expected but it is what happens next that matters.

Containment measures designed to halt the spread of Covid-19 were always going to have a significant impact on the economy and employment. The employment data for April had some big numbers and you have to look into the detail to try to comprehend the magnitude of the impact the shutdown of the economy has had.

Close to 600,000 people were reported to have lost their jobs over the month. However the unemployment rate only jumped 1% to 6.2%. Of those 594,300 who lost their jobs only 104,500 people were reported as unemployed as the other 489,800 left the labour force. What that means is they didn’t actively look for work after losing their job and probably for good reason given most of the economy was shut.

So many people leaving the labour force meant that the participation rate saw a record fall, dropping from 66% to 63.5%. If those 489,800 people had remained in the labour force, the unemployment rate would have been 9.6%, roughly in line with estimates.

These numbers don’t capture the impact of the Jobkeeper program. Those on Jobkeeper are deemed to be still employed. The government has reported that they have had 6 million registrations for Jobkeeper. If you add that to the 1.8 million people on jobseeker, nearly two thirds of the labour force are currently on government welfare.

To understand the true extend of the hit to the labour force, you only need to look at the underutilisation rate. If you add the unemployment rate of 6.2% to the underemployment rate, which jumped from 8.8% to 13.7%, you get an underutilisation rate of 19.9%. That means that 1 in 5 people in the labour force are either unemployment or working less hours than they want.

While these numbers are large, they weren’t unexpected given the nature of the containment measures which have successfully stopped the spread of Covid-19. What is critically important is what happens next. Federal and State Governments are urgently working to reopen economies to get businesses back up and running to put employees back to work.

The key will be how quickly activity can be ramped up so that businesses feel comfortable in putting staff back to work and rehiring those who lost their jobs.

David Flanagan

Director - Interest Rate Markets