Daily Commentary BY THE CURVE TEAM –

Employment Surprises

20th of November, 2020

Employment numbers for October were very different to expectations.

Thirty thousand jobs were expected to be lost in October. Instead, there was a gain of 178, 000 which amounts to a gain of 1.4%.

Despite the employment gains, the unemployment rate ticked up to 7% from 6.9% as the participation rate rose. People returning to the workforce, either looking for work or employed pushed the participation rate to 65.8%, only a touch below pre-Covid levels.

The update is hugely encouraging for the economy. Although Victoria led the gains with over 80 000 new employees, the gains were broad based, which was similar to payrolls data released earlier in the week. This is despite international borders remaining closed, so when (if) they eventually re-open, there should be an immediate windfall for employment.

Going forward, the aim will be to have unemployment below 5%. Apart from this though, there could still be slack in the labour market even if the headline unemployment figure falls below 5%.

A lot of the gains in employment since the pandemic have been part time, with part time employment 54 500 higher than the start of the year and full-time employment 186 800 less. There are also still employees still technically employed but working zero hours, with JobKeeper payments still available.

The effective unemployment rate, which accounts for the participation rate and those employed but working zero hours, is at 8.3%, down 1.8% points for October. Underemployment was down 1% point to 10.4%, with pre pandemic underemployment hovering just below 9%.

Only when underemployment and the effective unemployment rate reduce in line with overall unemployment will we likely see a material impact on wages and therefore inflation. Out today are preliminary retail sales for October. This will continue to be referred to as it is a marker of how consumption is holding up.

Josh Stewart

Associate- Money Markets