The first hard evidence of the impact on employment of the pandemic lockdown has been unveiled by the Australian Bureau of Statistics (ABS) this morning in the jobs data for April.
Unemployment soared from 5.2% to 6.2% in the month in seasonally adjusted terms, with employment falling by 594,000. The participation rate — which has been a strong point of the Australian jobs market for several years — also fell dramatically, down 2.4 percentage points to 63.5%, a level it was last at in 2004.
According to the ABS, “had the increase in the number of people who were not in the labour force (489,900) been a further increase in unemployment (that is, if they had been actively looking for work and been available to work) then the number of unemployed people would have increased to around 1.3 million people, and an unemployment rate would have increased to around 9.6%”.
The official unemployment number is now 823,000 Australians. While the JobKeeper program has disguised the full extent of the rise in jobless numbers, hours worked fell 8%.
The ABS noted that 2.7 million people had had some form of employment change between March and April. That was split between 900,000 who lost their jobs completely, and 1.8 million who had still had a job but who “worked either fewer than their usual hours, or no hours at all”. Of that latter group, “over 750,000 did not work at all; and over 1 million did some work, but worked fewer hours than usual”.
The underemployment rate also increased 4.9 points to 13.7%. Only the ACT, with an unemployment rate of 4.2%, now has unemployment below 6%, with South Australia reaching 7.2%.
Yesterday the ABS showed that the Great Morrison Stagnation was deepening even before the pandemic struck. The Wage Price Index (WPI) data for the March quarter showed the WPI falling again to just 2.1% in annual terms, following yet another quarter of 0.5% wages growth — the level the economy has recorded for 14 out of the last 20 quarters.
In fact there’s an element of Groundhog Day in the numbers, with the health and social assistance sector yet again recording the highest growth — 3% — while Victoria had the highest annual growth, of 2.5%. The public sector recorded higher wages growth — 0.5% — than the private sector, which saw just 0.4%.
The ABS pointed out the data for the survey was collected mid-month in March quarter, ahead of the social restrictions and business closures imposed in late March to check the spread of coronavirus.
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The data confirms that wages growth was weakening further even before the pandemic. The Reserve Bank of Australia is forecasting wage price index growth to slow to 1.5% by the end of 2020, while the National Australia Bank (NAB) has a rise of just 1.2% as its estimate.
NAB economist Kaixin Owyong made the telling point in a note yesterday on the WPI data: “A sharper-than-anticipated slowdown in wages would be an additional headwind to recovery given a sustained rebound in consumer spending is needed to return the economy to a solid footing.”
Meanwhile US Federal Reserve chair Jay Powell repeated his call to US political leaders to consider further fiscal stimulus after warning that the US economy was in deep trouble and faced “significant downside risks”.
In an online speech at a Washington economics conference yesterday US time, Powell reminded markets that the worst is not over and that the US economy risked years of subpar growth, high levels of inactivity by consumers and a lot of continuing unemployment.
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks,” Powell said.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery … The recovery may take some time to gather momentum and the passage of time can turn liquidity problems into solvency problems.”
Powell also pointed out that: “While we are all affected, the burden has fallen most heavily on those least able to bear it … The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy. Avoidable household and business insolvencies can weigh on growth for years to come … The loss of thousands of small- and medium-sized businesses across the country would destroy the life’s work and family legacy of many business and community leaders and limit the strength of the recovery when it comes. These businesses are a principal source of job creation — something we will sorely need as people seek to return to work.”
Powell and his colleagues have made a point of repeatedly saying that further fiscal stimulus may be needed to get the US economy moving again.
Policymakers, and especially Josh Frydenberg in his two speeches over the last week, have avoided that issue entirely in Australia.
It’s true that the US has suffered a materially more damaging pandemic than Australia, which is now emerging from lockdown, but the economic impact is likely to be as persistent, if not as colossal, as in the US, and the prolonged underperformance of the US economy will further inhibit our own recovery.
Worst of all, the wage price index data illustrates the extent to which, even if we recover to exactly how we were prior to the pandemic, that’s a world of few pay rises, persistent wage stagnation, falling productivity and tepid economic growth. Who wants to go back to that?