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Australian Markets Weekly: Labour market improving more quickly than expected?

Analysis

• Excluding Victoria, employment is now just 0.9% below from pre-COVID March levels (or 82k lower), while the participation rate is now above pre-pandemic levels and is the equal highest since August 2019 at 66.1%. Hours worked, admittedly, are still recording slightly weaker outcomes.
• The labour market improvement has occurred even as government support is being tapered with JobSeeker (unemployment) numbers falling 8.0% since May (or 117k people) with the steepest declines being seen in WA (-15.2%), QLD (-12.7%), NSW (‑11.8%) and the ACT. The only state to have seen an increase in JobSeeker numbers since May is Victoria (+4.3%) which was driven by Victoria’s second lockdown.
• Measuring spare capacity in the labour market currently is difficult (especially in relation to NAIRU). Unemployment (a heads-based measure) currently stands at 7.0% with NAIRU thought to be somewhere around 4.5-5.0%. On an hours worked basis, hours worked are now 3.8% below pre-pandemic levels (though Victoria has a large impact on these figures and hours worked outside of Victoria are 1.9% below pre-pandemic levels). A similar (heads based) measure of spare capacity –  those working fewer hours than normal due to economic reasons (because of no work, not enough work or stood down) – shows this measure peaking at 12.9% of the labour force in April, but having fallen to 5.9%, still some 3.4ppts above its pre-pandemic average of 2.5%. This underlines a considerable temporary nature to some of the disruptions in the labour market in recent times.

The week ahead

• Australia: The first Q3 pre-GDP partials are out this week with Construction Work Done on Wednesday and Capex on Thursday. In many respects these surveys are now dated given the end of the Victorian lockdown where there had been severe restrictions on the construction industry. A recent ABS survey for November found that of the 22% of businesses with capex plans, 73% of them have plans either equal or higher than usual for this time of year. The RBA’s Debelle also speaks on “Monetary Policy in 2020” at an Australian Business Economists webinar, where no doubt he will be quizzed about the recent run of upbeat data and what that means for the RBA’s outlook.
• International: Virus cases and the re-imposition of restrictions remains the key watch point globally in a US-holiday shortened week with Thanksgiving on Thursday and a shortened US trading session on Friday. US: data back under focus given signs of slowing – key pieces include PCE figures on Wednesday and Jobless Claims also Wednesday. The FOMC Minutes on Wednesday will also be closely watched for what more the Fed is willing to do given a fiscal package during the lame duck session is looking increasingly less likely. UK/EU: the press report a UK-EU trade deal may be finalised this week, while Global PMIs later tonight will set the tone for the week.

Chart 1: jobs outside of Vic almost back to pre-COVID levels

Chart 2: Spare capacity is falling despite unemployment being stable at around 7%

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