Australia's labour force report for May is due to be released by the ABS at 11:30am (AEST) today. The COVID-19 crisis has a devasting impact on economies and labour markets across the globe and those reverberations are now being felt in Australia. The shocking loss of 594.3k jobs in April derailed the nation's labour market and further weakness is anticipated in today's report with around 77k jobs expected to have been lost in May, while the unemployment rate is forecast to rise to its highest level in nearly two decades.
As it stands | Labour Force Survey
April's report was historic for all the wrong reasons as the full scale of the disruption from the COVID-19 pandemic hit the labour market. Employment fell by a sobering 594.3k in April — by far the sharpest decline on a single month in the history of the series that dates back to 1978.
Headline unemployment surged up to 6.2% from 5.2% to be at its highest level since July 2015. A much greater rise in the unemployment rate was prevented by a plunge of an unprecedented scale in workforce participation from 66.0% to 63.5% and was clearly influenced by the relaxation of the mutual obligation requirement linked with the JobSeeker support payment, meaning that many recipients would not have been considered by the ABS as being in the labour force.
The impact of the pandemic on the labour market was best reflected by the 9.2% collapse in hours worked in April, while the annual pace completely rolled over falling from 0.7% to -8.0%. The RBA's analysis found that more than 750,000 Australians did not work any hours in April, with many of those likely to be participating in the government's JobKeeper (wage subsidy) scheme.
As a result of the sharp fall in hours worked, the underemployment (8.8% to 13.7%) and underutilisation rates (14.1% to 19.9%) soared to record highs. Australia managed to quickly contain the COVID-19 spread and slow its infection rate sharply leading to an earlier-than-expected re-opening of the economy, but the legacy of this pandemic will be a labour market left to carry forward an extreme level of spare capacity that will take a considerable period of time to wear down and all policy efforts must now be made to address this.
Market expectations | Labour Force Survey
Further deterioration in the labour market is expected to come through in today's report with the consensus call from Bloomberg's survey being for employment to fall by 76.9k in May, however the degree of uncertainty around that is highlighted by the range of estimates between -275k and +125k. The unemployment rate is expected to jump from 6.2% to 7.0% to its highest level in more than 18 years, with individual estimates ranging between 6.5% and 8.5%.
While difficult to establish the read-through, it is worth noting the sequential improvement in the ABS's payrolls data. Between March 7 to April 4 payrolls contracted by 6.0%, which slowed to a 1% fall between April 4 to May 2 and then in this week's release payrolls went on to rise by 1% between May 2 to May 30 with gains being spread across the majority of industries. Following the flow, an upside result on the employment number is entirely possible today.
What to watch | Labour Force Survey
Continue to focus on the change in hours worked as it will give the clearest read on activity in the labour market, particularly given the relaxation of mutual obligations linked to the JobSeeker payment and with the JobKeeper policy still in effect. Adding weight to this is that the RBA has repeatedly said that this is where its focus is in terms of assessing conditions.
