Daily Commentary BY THE CURVE TEAM –

Employment Stumbles

16th of October, 2020

Employment for September took a hit, which does not bode well for the economic recovery.

Unemployment rose from 6.8% to 6.9% as just under 30 000 people lost their jobs in September. The participation rate declined slightly from 64.9% to 64.8%.

Victoria led the falls, with over 35 000 jobs lost. Although there were strong gains in Queensland, with over 32 000 jobs gained, elsewhere the increase in employment was only slight.

Should Victoria begin to unwind lockdowns, there will be an immediate upside to employment, as shutdown businesses re-open and people get out and spend. In contrast to this, there is also an immediate downside risk to employment, as JobKeeper 2.0 kicks in next release. Those who are no longer eligible for the JobKeeper payments will no longer be deemed employed next employment update.

Long-term though, there remains considerable challenges for employment. So far, part time employees have led the recovery in employment, but long-term employees have lagged. This will leave considerable slack in the economy, with the underemployment rate at 11.4%.

This slack in the labour market will be integral to the RBA’s decision making. Yesterday they flagged that they “want to see more than just ‘progress towards full employment’”.

This more onerous requirement to unwind monetary policy measures will see the cash rate not increase for at least three years according to RBA Governor Lowe. Given the current slack in the labour market, this expectation makes sense.

There is a risk that should the slack in employment persist longer than expected, then there will be more pressure for the RBA to do more to support the economy. It would also mean interest rates generally will be lower for even longer than three years.

Josh Stewart

Client Relationship Manager