Daily Commentary BY THE CURVE TEAM –

Two-Tiered Economy Emerges

12th of August, 2020

Business survey and payrolls data confirm that there is a divergence in the economy between states.

Business conditions surprised on the upside yesterday, rising from -8 to be 0. Business confidence on the other hand fell sharply from 0 to -14. The data was taken from July 22 to 31, so the discrepancy of the two measures likely reflects concerns about the virus spreading further, which would disrupt the recovery being experienced by businesses. We would expect conditions to have taken a hit since stage 4 lockdowns were imposed in Victoria last week.

Analysing the data by state highlights the distinct difference between Victoria and the rest of Australia. Although business conditions improved in all states, confidence dropped sharply in Victoria with the state in a stage 3 lockdown for the survey period. In contrast to this is Western Australia and South Australia, who did not record any community transmitted cases of Covid-19 over the survey period and whose economies have reopened with their borders shut. Their business confidence is positive.

Payrolls data released yesterday also showed the divergence in employment outcomes across states. Victorian payrolls fell 1.5%, leaving jobs down 6.7% from pre-covid levels. Whereas in Western Australia jobs are only 2% below pre-Covid levels.

At the aggregate level, payrolls were up 0.4% for the month. This means half the jobs lost since Covid-19 have been recovered. The caveat with the data is they do not include the 3.6 million people on JobSeeker payments and do not account for Victoria going into Stage 4 lockdown last week, so the numbers likely underestimate the damage done to the labour market.

Monthly consumer confidence and Wage Price Index data is released today.

Josh Stewart

Client Relationship Manager