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Analysis: Acute lockdown impacts being seen in the labour market

• Lockdowns in Australia are likely to have a very acute impact on the economy, much more than what the RBA had pencilled in only a week ago. While NAB still expects a sharp rebound in activity when restrictions ease, the near-term impact is likely to be larger with lockdowns extending beyond Sydney (e.g. NSW, Melbourne and ACT).
• Government payments data point to a significant labour market impact. COVID-19 disaster payments paid to those working fewer hours in NSW amounted to 762.9k people, equivalent to 18.4% of NSW employment as at June 2021. Nationwide payments are at around 1.2m individuals, equivalent to 9.4% of employment. High frequency SEEK new job ads also fell 4.1% m/m in July with a sharp 14.2% fall in NSW.
• Our base case remains most of the labour market adjustment will occur via hours rather than heads. The risk though remains that hours lost turns to employment losses the longer lockdowns go. It is also worth noting disaster payments are paid directly to the person, rather than via businesses as JobKeeper was – that’s important as those persons may not be classified as employed whereas under JobKeeper they were. NAB has pencilled in unemployment rising to 5.6% in September and falling back below 5% by mid-2022, worse than the RBA’s central scenario peak of 5¼%.
• With Sydney’s protracted lockdown looking to be extended into September and even October, a rebound in activity may not occur until the mid-to-late Q4. If a rebound is delayed until late Q4, uncertainty over inflation is likely to persist until H2 2022 given the possibility of further government subsidies to lift activity out of lockdown. Such uncertainty reinforces our view of the RBA lagging the RBNZ and Fed in normalisation. A strong rebound should occur thereafter with key vaccination hurdles of 70-80% reachable by mid-November, with NSW reaching those thresholds slightly earlier.

Coming up:

• AU: A big week domestically with Employment for July on Thursday, Q2 Wages on Wednesday and the RBA Minutes on Tuesday. In many respect all three data pieces are very dated given Sydney’s protracted lockdown is expected to stretch into September and perhaps even October, while Melbourne’s lockdown is likely to be extended beyond the scheduled two weeks according to the press. For the record NAB pencils in -30k jobs and for the unemployment rate to rise a tenth to 5.0% from 4.9%. As for Wages on Wednesday NAB looks for 0.6% q/q and 1.9% y/y.
• Offshore: NZ: The RBNZ is set to be the first major advanced central bank to hike rates on Wednesday. US focus is on Retail Sales on Tuesday after the plunge in consumer confidence last week. Fed focus also remains with Chair Powell talking on Tuesday, while the FOMC Minutes are on Wednesday – both events scrutinised for any guide on the timing and the likely form of tapering. Europe: UK CPI and labour market data take centre stage, while the EZ has a second read on Q2 GDP.

Chart 1: Unemployment expected to rise in the short term

Chart 2: Vaccination hurdles on track to be achieved by mid-November

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