After what has been a solid month for equities and bond investors, month end flows have probably play their part in the price action overnight, US equities have lost momentum, UST have led a rise in core global bond yields and the USD is stronger. US and European inflation releases favoured the notion the Fed and ECB are done with their respective tightening cycles.
AMW: Underemployment back to pre-pandemic levels
We investigate the implications of the sharp fall in underemployment.
- Underemployment (those employed wanting and able to work more hours) has fallen sharply back to pre-pandemic levels – now the lowest since February 2019 at 8.1% compared to its peak of 13.8% at the height of the pandemic-induced downturn.
- In this Weekly we investigate the implications of the sharp fall in underemployment given underemployment’s strong correlation with wages growth (see Chart of the week); our earlier modelling of wages growth prior to the pandemic highlighted the role played by elevated underemployment and low inflation expectations.
- We find that the initial rise in underemployment occurred in industries that don’t usually have a large share of underemployment, and that full-timers who were working less than 35 hours for economic reasons drove an outsized share of the rise.
- Accordingly, it is likely the sharp fall in underemployment to pre-pandemic levels in large part reflects the roll of the government’s JobKeeper program in keeping workers attached to their employer and the strong recovery seen in the economy to date.
- The sharp fall in underemployment also highlights much of the increase in spare capacity in Australia (and indeed the world) was temporary and driven by pandemic-induced health restrictions, which quickly reversed once restrictions were eased.
- Looking forward, the fall in underemployment to pre-pandemic levels has reduced one of the key downside risks to the wages outlook. A fall in unemployment though will be needed to see a durable rise in wages growth with NAB’s NAIRU estimate pegged at around 4.9% compared to the current unemployment rate of 6.4%.
The week ahead
- Australia: RBA Governor Lowe is speaking on Wednesday on “The Recovery, Investment and Monetary Policy” (see article within for details). Datawise, the February NAB Business Survey is out on Tuesday (no hints here), while the W-MI Consumer Confidence Index is on Wednesday. The government is also expected to announce support for the tourism/hospitality sectors post-JobKeeper sometime in the week.
- International: US: With the $1.9 trillion stimulus package almost approved (The House will vote on the Senate changes on Tuesday), focus shifts to the inflation outlook. Key prints in this regard are the CPI on Wednesday and Consumer Inflation Expectations out of the University of Michigan Survey on Friday. EZ: The ECB on Thursday is the focal point with ECB officials somewhat mixed on whether to push back on the rise in yields. CH: The National People’s Congress dominates politically, while data focus will be on Aggregate Financing figures due any time after Tuesday and the CPI/PPI on Wednesday. UK: January monthly GDP is on Friday.
Chart 1: Underemployment correlates with wages growth
Chart 2: Much of the rise in underemployment was driven by full-time workers, working less than 35 hours for economic reasons
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