Daily Commentary BY THE CURVE TEAM –

RBA Update Amid Rising Joblessness

11th of May, 2020

The RBA delivered its quarterly update as more data arrives on rising joblessness.

Friday saw the RBA release their latest quarterly update which included forecasts out to mid 2021. As flagged in Tuesday’s post meeting statement, the peak of decline in activity is expected in this quarter before a pick up in activity commences as the containment measures are unwound.

Due to the considerable uncertainty over the outlook, the RBA released a central scenario along with an upside and downside scenarios. The reality is that we have never seen the domestic and global economies experience the type of sudden shutdown that we are going through and no one really knows what the other side might look like. We will delve deeper into the RBA’s latest update in our Curve Monthly Insights for May due out tomorrow.

While much of the focus at the moment is on the outlook, the data showing how deep the impact of the global lockdowns have been continues to flow. Friday night saw the latest monthly employment data in the US where a record 20.5 million American’s lost their Job in April. We know that this underestimates the true impact as it is a snapshot in time compared to the weekly jobless claims data. Nonetheless it is a staggering number.

The data also showed that the unemployment rate jumped to 14.7% with the underemployment rate surging to 22.8%. Interestingly, average wages also surged over the month, jumping 4.7% to an annual rate of 7.9%. This is due to the fact that most of the job losses to date have been from lower income sectors.

Of all the numbers that were released, the most important one is the percentage of those on temporary layoff. This is the key unknown and something that will have the biggest impact on the outlook. It was reported that around 80% of the number of unemployed were temporary. That means that those jobs should come back when the economy reopen. It also means that 20% of those job losses are permanent.

As will be the case when we interpret Australia’s employment data this Thursday, it isn’t about how many jobs are lost but the key is how many come back. This is a difficult question to answer and the truth is no one knows. It is one of the reasons there is so much uncertainty around the outlook. Ironically, it is that same uncertainty which will likely see companies slow to rebuild their workforce until the the new level of demand for their product or service becomes apparent.

David Flanagan

Director - Interest Rate Markets