Total employment: 26.7k from 12.9k (revised from 13.5k). Unemployment rate: 5.1% from 5.3% (unrevised 5.3%). Participation rate: 66.0% from 66.1% (unrevised 66.1%)
Headlines
- In February: employment rose at a slightly better than par pace while unemployment eased. The one contrast is that hours worked fell.
- Employment: +26.6k, exceeding our expectations (+5k) an the market (+6.5k)
- Unemployment: rose fell back 5.1% from 5.3%, a downside surprise for both the market and Westpac (5.3%).
- Participation rate: eased back a touch to 66.0% from 66.1% due to a fall in female participation. Male participation was broadly flat.
Additional detail
The February update is the last one before COVID-19 was declared a global pandemic. It is important to note that the reference weeks for February survey fell in the first half of the month, at a point where there was only a relatively low number of confirmed COVID-19 cases within Australia. As such, it is giving us more of a picture on the momentum the economy had as we headed into the current shock. However, there would have been some impact as by February the border had been closed to Chinese tourist and students hitting education, tourism, accommodation and recreation activity. We believe you can see this in the hours worked, as hours rather than employment are adjusted in the early stages of a slowdown. Hours worked fell 0.2% in February and more striking are now up just 0.5% in the year. Compare that the 2.0%yr rise in total employment; while the economy may have added 256k employees in the year, on average each worker is working less hours than they did a year earlier.
Outlook
In an earlier note we estimated the Federal Government’s stimulus package is likely to boost activity in the June quarter by 0.4% of GDP largely offsetting our earlier estimates of the COVID-19 driven contraction in Australian economic activity. However, we have since noted that conditions deteriorated over the week and the “pre-package” contraction was now likely to be larger than our estimate from early last week. As such our revised estimates of GDP growth in the March and June quarters, after adjusting for the Stimulus Package, are minus 0.7% and minus 0.3% respectively, a total contraction of 1% of GDP, before recovering by 1.9% in the September quarter and 1.0% in the December quarter.
Based on our forecast contraction in activity through 2020 H1 we now forecast unemployment to reach 7% by October 2020 (up from the previous estimate of 5.8%-6.0%) due to a much larger negative shock to the labour intensive sectors such as accommodation, food & recreation services; tourism; education; renovations & additions; and dwelling construction. We do expect that participation will ease with the rate falling from 66.1% to 65.4% as workers discouraged by a deteriorating labour market give up looking for employment. This nexus between unemployment and participation will be critical as for the near term we have assumed that the fall in participation will be driven not so much by a mass exiting of workers from the market but rather a moderation in the inflow new workers from population growth as some become disillusioned by a deteriorating labour market and give up looking for work. Of course, the situation this time is more complex that we have experience in recent slowdowns and with potentially wider job loss/hours worked lost as households become increasingly income stressed participation may hold up more than we expect hence there are upside risks to our unemployment forecast.
