Thanks to Westpac:
Change in total employment: March +5.9k, WBC f/c: –450k, Mkt f/c: -550k Range: –125k to –1,000k
The timing of the labour force survey – covering the first two weeks of the month – meant the March update did not capture the impact of broad based lockdowns implemented late in the month. That is not going to be the case in April which will reflect the full scale of the virus hit.
All signs suggest the fall-out has been brutal with recent data based on ATO payroll information indicating close to a million workers have been rendered inactive. The main question is how this will be reflected in the official statistics given the specific classifications used (e.g. with payrolls a measure of jobs, not employees, and with most JobKeeper recipients likely be considered employed) and other technical differences (including adjustments for population growth and seasonality).
On balance, we expect April update to show a –450k drop in seasonally adjusted employment, estimated to be a -3.5% fall in original terms.
Unemployment rate: March 5.2%, WBC f/c: 8.3%, Mkt f/c: 8.3% Range: 5.6% to 10.0%
Unemployment nudged up to 5.2% in March but is set to spike sharply in April.
As with the employment number, there is some uncertainty around how inactive workers are classified – those receiving support from the Federal Government’s JobKeeper scheme should be classified as employed even if they were not active in the survey week (they will be classed as employed but working no hours).
A second consideration is how many of those moving out of jobs exit the labour market altogether. Note that to be considered unemployed in the survey, individuals must be available to work in the survey week and actively looking for work. On balance we expect the participation rate to dip from 66% to 65.8%, giving a spike in the unemployment rate to 8.3%. Measures of underemployment, which are less affected by these definitional vagaries, will show a much bigger jump.
Watch for hours worked and underemployment
Given the above mentioned issues we don’t think that either employment or unemployment will be the best measure of the impact of the COVID shutdowns. For that we will be looking to hours worked and underemployment. For while many of those laid off may still be recorded as employed, they will report a fall in hours worked and many will report zero hours worked. In addition, we suspect that many will also report that they are will and able to work more hours than they do but even here there will be a JobKeeper effect muting the overall rise. Many part-time workers have just had a pay rise as JobKeep payments are a set amount even if you normally work less. It is unlikely this group will respond that they are looking for more hours.
We estimate that underemployment is likely to rise from 9.3% to around 15½%,
Risks around the forecasts
We know it is going to be a shocker of a print, with the largest recorded fall in employment and potentially the largest reported rise in unemployment. But there is significant amount of uncertainty around the magnitude of those moves and this it demonstrated by the massive spread on the forecasts for the change in total employment from -125k to -1,000k.
As noted earlier our forecast is for -450k not as high as the estimate from the weekly payrolls data for a number of reasons but a further issue is that payrolls measures jobs while the labour force measure number of people employed. Many workers hold more than one job, particularly in the hospitality and entertainment industries that have been hit hard by the lockdown. For these sectors, even without other issues, you can’t just assume a one-for-one move from payrolls to employment.
Also as noted the definition of unemployed will mean many will still be registered as employed even though they may have been laid off. And lastly the ABS imputes an underlying change in working age population and if this remains positive, as the ABS has done in the past, then this will provide an underlying momentum to employment.
The bottom line is we are confident the decline in employment will be somewhat less than -1,000k, we just can’t be confident on how much less.
In terms of our forecast for an 8.3% print on unemployment in April, the other side of the equation is how many people will be looking for work – that is the labour force participation. Just how far this falls will be important. There is no doubt it will fall as participation is sensitive to and positively correlated to employment particularly female and part-time employment which has been the hardest hit in the shutdown. Our forecast is for participation to fall to 65.75% from 65.98% will see the labour force (those employed plus unemployed looking for work) fall -33.8k providing a small offset to the fall in employment.
So a fall in employment is greater/less than our forecast -450k will see unemployment print higher/lower than our 8.3% forecast. But how participation responds is just as important for if it is higher/lower than expected then the unemployment rate will be higher/lower than 8.3% all else held equal.
It is possible that the fall in employment is greater than we are forecasting and yet the unemployment rate prints close to our expectations due to a larger fall in participation.
And lastly, if the population growth numbers are higher/lower then employment will be strong/weaker than forecast but the changes to population growth will not effect either unemployment or participation rates as population growth changes effect both sides of these ratios.
