With June’s ABS labour market data due for release on Thursday, CBA head of Australian economics, Gareth Aird, forecasts that Australia’s unemployment rate will rise to 7.6% despite a 170,000 rebound in jobs:
We expect employment to rise by 170k in June.
We expect the unemployment rate to lift to 7.6% on a 1.1ppt rise in the participation to 64.0%.
Hours worked will offer an important insight into the change in labour demand over June.
The last two monthly employment reports made for grim reading. The combined fall in the number of people employed was 835k over April and May. And the unemployment rate would have been 11.3% in May if all of the workers who lost their job were considered unemployed.
Job losses are the inevitable consequence of shutting down large parts of the economy and putting restrictions on what people can and can’t do. The newly reimposed restrictions on businesses and households in Victoria will result in a new round of job losses. Many workers in Victoria who were not eligible for JobKeeper and returned to work as restrictions were eased will once again be temporarily stood down. But that is very much a story for July and August. The June employment report should indicate that conditions in the labour market improved over the month.
From a forecasting perspective, the June labour force data is once again a difficult task for economists. Issues around how the ABS classifies people continues to complicate the monthly forecasting process. In particular, the AB S classifies a person as employed if they were stood down but had been paid for some part of the previous four weeks. This means there can be a lag from when somebody loses a job to when they are no longer considered employed. This was evident in the May report as employment fell by 228k while hours worked were down by only 0.7%.
The reality is that most of those job losses occurred in April and not May. Notwithstanding there are some key pieces of data that can help to guide our forecasts. These relate to the weekly payrolls data and our internal data on the number of CBA bank accounts receiving JobSeeker. We go through a checklist below on what we know to determine our forecasts.
A checklist for the JuneLabour Force
The reference weeks fall in the first half of June – a number of key restrictions were eased in most states by the end of May.
According to the ABS weekly payrolls jobs were down by 6.4% be tween 14 March 20 and 13 June 20. Job losses were at their peak in mid-April when total jobs were down by 8.8% compared to mid-March.
The recovery in payroll jobs between mid-April and mid-June represents around 30% of the jobs initially lost.
As at the end of May around 29% of jobs that were lost since mid-March were secondary jobs.
The ABS estimate that the number of people employed fell by 6.4% between March and May.
CBA data on JobSeeker indicates that the number of people receiving JobSeeker peaked in late May and has since been declining.
Combining these pieces of information leads us to conclude that around 20% of the 835k people who were no longer considered employed over April and May are likely to have returned to work in June (a 30% recovery in payrolls adjusted for the fact that around a third of those payrolls were secondary jobs).That also looks consistent with our internal data on JobSeeker. As a result, we forecast a lift in employment of 170k in June.
The unemployment rate in June will be heavily influenced by the participation rate which makes it incredibly challenging to forecast. We simply do not know how many people who have lost their job will have ‘actively looked for work’ in June. That said, the US labour market data offers some guidance. The participation rate dropped over a two month period by 3.2ppts which is similar to the 3.1ppt fall we had in Australia. It has since rebounded by 1.3ppts over two months. We think that an increase in our participation rate of a similar magnitude is a reasonable expectation and so we have forecast the participation rate to land at 64.0% (up by 1.1ppt). On that outcome the unemployment rate lands at 7.6%.
As we have flagged on multiple occasions, the unemployment rate is pretty misleading at the moment as it’s being massively impacted by the drop in participation. From gauging the strength of the labour market, we are more interested in where the level of employment lands in June and changes in hours worked. The se measures will give us a better idea of the change in labour demand rather than where the unemployment rate prints.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
