Cyclist wearing mask on tram tracks
Bourke St, Melbourne (Image: AAP/Daniel Pockett)

Regardless of what’s happening in Melbourne, the employment market looks set for an extended period of weakness in what is emerging as a much longer, if shallower, recession than hoped for by policymakers.

Yesterday’s Australian Bureau of Statistics data on jobs and wages revealed not merely that total payroll jobs at the end of June were still 5.7% below mid-March levels, but that they fell in the last week of June when the removal of lockdown restrictions was supposed to reopen the economy.

And while Victoria saw a substantial fall in jobs that week — 1.3% — it wasn’t the biggest fall. Every state and territory except Tasmania contracted, including NSW -0.3% and Western Australia -3%.

That’s the indirect consequence of the lockdown: cafes, hospitality and retail might reopen outside Victoria and re-employ people, but the initial impact of the pandemic — plus lingering concerns among consumers about the end of government assistance — has sent a negative shock through other sectors, reducing demand in large-employing sectors like construction.

That means that heading into the third quarter of the year the jobs market was still shrinking nationally, even before Melbourne was shut down again.

The payroll news coincidentally confirmed yesterday’s June business survey from the National Australian Bank (NAB), which while showing increasing business confidence made the point that the recovery needs more than its current momentum.

It said that while retailing had recovered faster than other sectors, that was not enough:

Unsurprisingly the services sector continues to show the weakest outcomes, but of some concern are construction and manufacturing which also remain weak — pointing to second-round impacts on industries that were not directly impacted by lockdowns. Notably, retail has risen to be close to the top of the pack in terms of conditions, a significant turnaround from persistently weak outcomes prior to the current pandemic.

NAB also said that until conditions returned to normal, businesses were unlikely to “again consider expansions in capex and employment”.

That’s a crucial point for understanding how the economy will behave over the next 18 months. Don’t expect to see significant business investment until consumer confidence, spending and employment start to show sustained growth. Until then the economy will need government support.

It’s also worth adding that any government moves that reduce consumer confidence — cutting support programs, lifting the GST or making it easier for businesses to sack people — are likely to delay the conditions needed for business investment to kick in and replace government support as a driver of job creation.

Not that additional investment is the first thing on the minds of business. For some, the priority is staying open at all. For others, it’s big falls in profits.

In what should be a heads-up for investors, the first major result of the June 30 financial year emerged yesterday: the small Melbourne-based listed investment company Mirrabooka Investments revealed a sharp slide in profit because its returns from investing in 52 separate companies fell sharply.

That was due to income from dividends and distributions falling from $9.5 million to $6.9 million as companies have suspended or cancelled dividends. Mirrabooka is likely to have set a pattern for what’s going to become the norm for the next year.

That in turn will flow through to the incomes of investors who face an extended period of materially lower income.

In the United States, the nation’s biggest banks are warning that the recession will be longer and more severe than initially forecast, with firms like Wells Fargo and JP Morgan setting aside more capital in anticipation of worsening loan default rates.

JP Morgan said its latest round of loss provisions — another US$10.5 billion on top of the US$8.3 billion in the March quarter — was based on unemployment remaining at or above 10% through to 2021.

Here the banks are beginning to flag that the period for mortgage repayment deferrals will have to end at some point — and it could be ugly.

The triumphalism of early June about how Australia had weathered the crisis always felt misplaced. So it has turned out in Melbourne.

But the bad news might not be limited to the virus. The economic waves from the lockdowns will continue to roll across the economy for many months and they’ll carry away jobs and income as they go.

Peter Fray

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