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What to expect in the March labour force data

What to expect in the March labour force data

16 April 2020

This week we will see how job losses and unemployment were tracking in Australia just before the full shutdown began. Our Global Economic & Markets Research team expect job losses will likely peak in the June 2020 quarter.

  • In Australia, we estimate 30,000 jobs were lost in March 2020 and the unemployment rate rose to 5.4%
  • We forecast that job losses and the unemployment rate will peak in the June 2020 quarter
  • There are more timely indicators of how the economy is performing than statistics on the labour market in March 2020

On Thursday 16 April the Australian Bureau of Statistics will release data on the labour market in March 2020. It is based on a survey that was conducted between 8 and 22 March. The survey therefore predates the major shutdown of pubs, clubs, cinemas, etc.

We estimate that 30,000 jobs were lost in Australia during March 2020. Before Coronavirus, we were seeing on average 20,000 jobs growth each month. We also expect the unemployment rate to rise to 5.4% in March 2020, from 5.1% in February 2020.

Job losses peak in the June 2020 quarter

Unfortunately, it seems likely that the situation may get worse. The Australian economy has already seen significant job losses in retail, accommodation and cafes, and air transport. We expect more job losses in personal services and recreation as certain parts of the economy remain shut and as consumers and businesses reduce activity and spending. 

We estimate that in Australia the unemployment rate will peak at 7.8% during the June 2020 quarter and will finish the year at around 6.5%.  These forecasts assume the shutdown lasts no longer than six months. This recession is unusual because we know a lot of people who have lost, or will lose, their jobs may be able to return to their jobs after the shutdown ends. In addition, the JobKeeper will keep people attached to their employer (lowering unemployment) and together with the JobSeeker program, will keep some money flowing to many people.

CommBank's Global Economic & Markets Research forecasts for the labour market

CommBank's Global Economic & Markets Research forecasts for the labour market
  Change in job numbers Participation rate Unemployment rate
March 2020 -30,000 66% 5.4%
June quarter 2020 -575,000 64.5% 7.8%
December quarter 2020 +250,000   6.5%

For comparison, in Australia the unemployment rate was well over 10% during the 1991 recession. During the Global Financial Crisis (GFC) from 2007, Australia’s unemployment rate rose from around 4% to around 6%.

The Commonwealth Treasury’s modelling as released by Treasurer Josh Frydenberg forecasts a peak unemployment rate of 10% this year. See here for details. The difference between its forecast and ours is that we expect the participation rate to drop. The participation rate will drop because a significant proportion of people who lose their jobs will temporarily drop out of the labour force. They will neither be employed (because they have no job) nor will they be unemployed (because they aren’t actively seeking a job). These are the definitions the Australia Bureau of Statistics uses to measure employment and unemployment levels.

Some people that choose not to actively look for work could fall into these categories:

  • There are no job openings in their profession due to the enforced shutdown e.g. bar tenders and flight attendants
  • They are older workers concerned about the health risks so remove themselves from the workforce until the pandemic has passed
  • They are parents who decide the challenges of home schooling require one parent at home.

If not for the drop in the participation rate, we would also be forecasting a peak unemployment rate of closer to 10% this year, like the Commonwealth Treasury.

Given how the participation rate can move around, and also the Federal Government’s JobKeeper program, the unemployment rate isn’t the best indicator of how Australia’s economy is doing.

Economic indicators to watch

Instead, the following may be better indicators:

CommBank’s weekly CBA credit and debit card spending data provides an insight into how spending on goods and services are trending.

Travel in Australia such as traffic data, public transport numbers or air travel is a good early indicator of the end of the shutdown period,

Globally, very high frequency (daily or weekly) data points a released by alternative sources rather than central banks or national statistical agencies, for example weekly jobless claims in the US. This is a good pulse of the US labour market and economy. Some 16 million people in the US have applied for unemployment insurance in the three weeks that ended 4 April 2020.

 

Source: Issues: GDP to plunge, unemployment to spike and an unprecedented fiscal deterioration”, published 2nd April, author Gareth Aird.

Perspective: The Week Ahead, published 9th April, author Belinda Allen. CBA Economics: Economic Update - Coronavirus Daily Tracker”, published 15 April 2020, author Kristina Clifton. Full Global Economic & Markets Research disclaimers can be found at www.commbankresearch.com.au.

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