Lockdowns to hit employment: AMP Capital's Shane Oliver

Employment rose by 29,100 in June, after rising 115,200 in May. 

It’s now up 8.4% from its June low last year partly reflecting the base effect of the plunge in jobs seen a year ago.

Employment is now up 1.2% from its pre-coronavirus level in February last year.

The compositional mix was strong again with full time jobs up by another 51,600, after rising 97,500 in May.

Unemployment fell to 4.9%, a level last seen 10 years ago in the mining investment boom helped by the labour force participation rate remaining unchanged at 66.2%.

However, underemployment rose by 0.5% to 7.9%, which saw the labour underutilisation rate rise to 12.8%, leaving it will down from recent highs but still historically high.

Total hours worked also fell by -1.8%, albeit this is quite volatile month to month.

The ratio of employment to population rose to 63%, which is a record high.

The 29,100 rise in employment was again more than most were expecting and came despite Victoria’s lockdown seeing a 10,000 loss of jobs in that state. The rebound in employment along with near record labour force participation, a record proportion of the population employed and a decline in unemployment to levels last seen in the mining boom tells us that the jobs market up until June was very strong.

However, Victoria’s snap lockdown drove a rise in the number of employed people working fewer hours for economic reasons. This in turn helped drive a 1.8% decline in hours worked.

And also largely reflecting the Victorian snap lockdown the level of underemployment rose 0.5% to 7.9%, pushing the labour underutilisation rate back up to 12.8%, which is still down from its pre-coronavirus level but remains historically high.

The June jobs report is also now dated as it doesn’t reflect the Greater Sydney lockdown which started at the end of June and has so far been extended through July. 

While our Jobs Leading Indicator based on job ads, vacancies and hiring intensions points to solid jobs growth ahead this is likely to be interrupted in July with a loss of jobs in NSW expected to push the unemployment rate back above 5%.

However, given the business and household support measures in place and assuming other states are less affected and continue to grow this should be contained to just below 5.5% and once NSW starts to reopen again unemployment is likely to push back towards 5% and possibly just below by year end. 

The Australian labour market has recovered far quicker than most other comparable countries reflecting better management of the virus and better targeted government support programs. Hopefully, this continues despite the current setback in NSW and Australia’s lag on the vaccination front.

Normally, the June jobs report would have added to the pressure on the RBA to bring forward interest rate hikes and may have led to more economists talking about the first hike coming in late 2022. 

However, the Greater Sydney lockdown and coronavirus risks elsewhere mean that its now a bit dated. 

The Sydney lockdown will mean a hit to employment greater than seen in the other snap lockdowns since November for the simple reasons that its far longer and more people are affected. Consequently, the RBA will have to wait for the dust to settle and see how quickly things bounce back once the Sydney lockdown ends before firming up its views on what to do regarding its bond buying at its next review in November and the timing of its first rate hike. 

Our view remains that there is still a fair way to go until full employment is reached. 

Based on the pre coronavirus experience full employment is likely to be 4% or so for traditional unemployment and 6% or so for underemployment or around 10% or so for labour underutilisation. 

So on this basis we still have a fair way to go to get to full employment and likewise to get to the RBA’s requirement for wages growth to be “sustainably above 3%”. 

A resumption of the faster than expected recovery beyond current lockdowns could get us there by late next year in time for first rate hike in 2023. 

So we remain of the view that the first rate hike will come in 2023…but that’s still a fair way off.

Shane Oliver is Head of Investment Strategy and Chief Economist at AMP Capital