September job figures make the case for further monetary easing
Economist - Investment Strategy & Dynamic Markets Sydney, Australia
After a stronger-than-expected performance in August, September employment numbers exceeded expectations for the second month in a row, falling by 29,500 jobs as opposed to consensus estimates of a 40,000 drop.
Nonetheless, this month’s decline in employment figures after three months of growth suggests we’re now on track to see slow growth in employment and a rising participation rate. We expect the headline unemployment rate to peak at around 8-8.5%, up from 6.9% in September, though we don’t expect the peak to come until JobKeeper has completely finished (in early 2021). The “effective” unemployment rate, which we think gives a more accurate representation of actual unemployment at the moment, accounting for those working zero hours and those who have left the labour force, now stands in our estimate at 9.6%, an increase of 0.2% from August.
Regardless of the measure used, a rise in unemployment should occur naturally from this point as more workers re-enter the labour market at a time of soft jobs growth, rather than as a result of further significant declines in job numbers, an argument supported by the fact that the participation rate for September, at 64.76%, remains well below pre-COVID levels of around 65.9%.
The decrease in job numbers in September came primarily at the expense of full-time workers, accounting for a third of the total lost. The continued weakness in full time jobs becomes more of a risk for the economy the longer it continues, potentially indicating that job losses that may have been temporary are becoming permanent.
Across Australia, job numbers unsurprisingly fell by more in Victoria than other states, and also declined in Tasmania and the Northern Territory. Increases were recorded in all other states and territories, but most remain some distance from pre-COVID employment levels.
Weak jobs growth part of a broader pattern
Only a little more than half the jobs and employment hours lost due to COVID-19 have been recovered over the past six months. After strong improvements through June, July and August as most of the country re-opened, the labour market is clearly stalling. A re-opening in the Victorian economy would help employment growth from here, as well as rising mobility in the other states..
Job numbers now reflect the stasis we’ve seen in weekly payrolls outside Victoria, which had been stable for some weeks before the release of September’s employment figures.
Further recovery in the labour market is being held back by a number of highly affected sectors, including transport, accommodation and food, retail and administration, and other services. In each of these sectors well over half the jobs lost in the pandemic have not returned.
Will the Reserve Bank of Australia (RBA) respond?
Given that job growth in a number of those sectors, and particularly in relation to travel-related jobs, looks likely to be constrained for some months and perhaps years to come, an immediate improvement in Australia’s employment situation will arguably only come in response to an external event, such as widespread border re-openings or significant and sustained improvement in infection rates.
Another more likely possibility is further action from the RBA, in the form of a further cut to cash rates and bond yields (most likely in both cases to 0.1%) but also potentially through an expansion of its quantitative easing program to include bond purchases. Recent commentary from RBA Governor Phil Lowe certainly suggests that such a move could be on the agenda, potentially at the next board meeting in November ahead of the release of the RBA’s new growth and inflation forecasts a few days later1.
Although the fiscal stimulus announced in this month’s federal budget will help the situation, September’s employment figures clearly spell out the case for further action from a monetary perspective, and it will be interesting to see whether the RBA takes up the challenge.
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Important notes
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