CBA’s head of Australian economics, Gareth Aird, forecasts that Australia’s unemployment rate will lift to 7.9% in July despite regaining 50,000 jobs:
- We expect employment to rise by 50k in July.
- We expect the unemployment rate to lift to 7.9% on a 0.5ppt rise in the participation to 64.5%.
- We do not expect the reported level of employment in July to be impacted by any people stood down because of the reimposition of stage 3 restrictions in metropolitan Melbourne.
- Hours worked will offer the more important insight into the change in labour demand over early July.
July labour force survey –due date Thursday 13 August
Forecasting what actually happened to the labour market in July versus what the ABS will tell us happened are two different things. The reality is that the reimposition of stage 3 restrictions on businesses and households in Victoria in early July would have resulted in a new round of job losses. But the timing of the survey and also issues around how the ABS classifies people mean that people stood down in early July will be considered employed in July.
As we have flagged previously, the ABS 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. That quirk in how things are measured will have an impact in the July labour force numbers as it pertains to the situation in Victoria.
The reference weeks for the July survey fall between 28 June and 11 July. Anyone stood down in Victoria due to the reimposition of stage 3 restrictions will almost certainly have been paid for some part of the previous 4 weeks relative to the reference weeks. Therefore the ABS will consider them employed in July.
For our July employment forecast we are guided by how the ABS payrolls were tracking in late June. The data indicates that payrolls were tracking 0.4% higher as at the end of June compared to the first two weeks of June (which were the reference weeks for the June labour force survey). Applying a 0.4% increase to the reported level of employment in June yields an increase in employment of 50k.
We have factored in an increase in the participation rate over July of 0.5ppts whilst acknowledging that the participation rate in reality has probably dropped over the second half of the month due to people being stood down in Victoria. The unemployment rate is therefore forecast to lift to 7.9%.
All up we expect the July labour force survey to throw up a hodgepodge set of numbers that we don’t believe will reflect what has occurred in the labour market over the month. The reported change in employment, unemployment rate and participation rate all need to be treated with caution. We encourage people to focus on the hours worked component of the upcoming labour force survey as it will most accurately reflect what took place in the labour market in early July.
Next week on Tuesday 11 August we also receive the ABS weekly payrolls to the week ending 25 July. In our view that will be the more timely and meaningful read on what is currently happening in the labour market. Our internal data on JobSeeker payments is pointing to a broad-based lift in the number of people receiving unemployment benefits across the states.