Australia’s Job Market Absorbs Victoria’s Virus Relapse
(Bloomberg) -- Australia added almost four times as many jobs as forecast in July as the economy’s recovery in areas where the coronavirus pandemic is under control withstood Victoria’s renewed lockdown and concern about the infection spreading.
Employment surged by 114,700 from June, when it advanced an upwardly revised 228,400, compared to an expected gain of 30,000, data from the statistics bureau showed Thursday in Sydney. The jobless rate edged up to 7.5%, the highest level since November 1998, as more people re-entered the labor force, pushing the participation rate to 64.7% from 64.1% in June.
The data set the scene before Melbourne moved to Stage 4 restrictions and a curfew, and surrounding Victoria moved to Stage 3, to try to contain a rapidly spreading outbreak. The central bank last week predicted that Victoria’s intensified lockdown would cut economic growth this quarter by at least 2 percentage points and the jobless rate would climb to around 10% later this year.
“While the latest labor market figures show clear signs of recovery, there is still cause for concern,” said Callam Pickering, an economist at global jobs website Indeed Inc. who previously worked at the central bank. “Stage 4 restrictions in Victoria will not only lead to job losses there but dampen the recovery in other states.”
Australia is showing increasing signs of a three-speed labor market: Victoria began to collapse as surging infections forced the reintroduction of tough restrictions; New South Wales flatlined as Sydney contended with outbreaks; and Western Australia, virus-free and sealed off, kept improving.
This was reinforced in household confidence data for August released Wednesday. Sentiment tumbled in Victoria but was far worse in neighboring New South Wales, Australia’s most populous state, amid fears that Sydney would follow Melbourne back into lockdown.
Yet outside of that, states that are virus-free are often returning to levels last seen before the pandemic. Western Australia is also enjoying a windfall from booming commodity prices with miners hiring to help maintain production. Iron ore, the nation’s biggest export, is trading above $100 as China’s demand for steel surges in response to Beijing’s post-Covid stimulus plan.
The Australian dollar rose after the data, before retracing its gain to trade little changed at 71.70 U.S. cents at 12:35 p.m. in Sydney.
The Reserve Bank of Australia has kept its benchmark interest rate near zero since March and last week resumed buying government bonds to ensure the three-year yield remained around 0.25%, as it tries to lower borrowing costs across the economy.
The RBA says it’s unlikely to adjust rates higher until inflation and unemployment are comfortably within their targets of 2%-3% and under 5%, respectively. That’s likely at least a couple of years away.
Governor Philip Lowe said last week that under the RBA’s baseline scenario, the jobless rate will climb as there are “further job losses in Victoria and more people elsewhere in Australia looking for jobs. Over the following couple of years, the unemployment rate is expected to decline gradually to around 7%.”
Among other details in Thursday’s jobs report:
- Monthly hours worked rose 1.3% in July, and increased more for females -- 2.3% -- than males, at 0.6%
- Under-employment decreased 0.5 percentage point to 11.2% and under-utilization dropped 0.4 percentage point to 18.7%
- Full-time jobs rose by 43,500 and part-time roles jumped by 71,200
- The employment-to-population ratio increased by 0.5 percentage point to 59.8%.
The initial closing of swathes of the economy in March and April had a dramatic impact on consumer and business confidence, with both plummeting. They recovered ground in the ensuing months but business confidence slipped in July, and August consumer sentiment plummeted back toward April’s lows.
What Bloomberg’s Economists Say
“Almost half of the decline in hours worked over the lockdown has been recovered. But the labor market, and economy more broadly, faces a new shock from Victoria’s tightened restrictions. Like many of Australia’s economic data readings over coming months, the August labor market data is likely to reveal a splintering of the economy, with ongoing recoveries in virus-free regions trumped by the stalling of momentum in virus-affected states like Victoria and New South Wales.”
James McIntyre, economist
Australia is at a crossroads as optimism that the worst has passed gives way to rising anxiety about another infection wave. Lowe summed this up last week.
“A stronger recovery is possible if progress is made in containing the virus in the near future,” he said. “On the other hand, if Australia and other countries were to experience further widespread lockdowns, the recovery in both output and the labor market would be delayed.”
©2020 Bloomberg L.P.