Australia is one of the first nations to regain all jobs lost through the pandemic, reflecting a successful early suppression of Covid-19 and a massive fiscal-monetary shot that’s sent the economy roaring back.
Employment and hours worked in March were higher than in the same month of 2020, government data showed in Sydney Thursday. Unemployment in Australia fell to 5.6% last month -- exceeding economists’ estimates -- despite the participation rate climbing to a record high 66.3%.
The result highlights the profound connection between the health of a nation and its economy as Australia has limited community transmissions of Covid-19 to isolated flare ups. It also suggests the U.S. and U.K., where vaccination programs are in full swing, are set to see a roaring recovery.
“It’s is probably time to stop using the word ‘recovery’ when referring to the state of the Australian economy,” said Gareth Aird of Commonwealth Bank of Australia. “The domestic economy is now simply in expansion mode. There is still an output gap, but we expect the level of GDP in Q1 21 to be above its pre‑Covid high given the big lift in employment and hours worked.”
Like Australia, South Korea is back at March 2020 employment levels; however, its labor market was already deteriorating prior to that so the comparison isn’t strictly equal. New Zealand has likely returned to pre-Covid employment, but quarterly jobs reports mean the latest data are from the final three months of 2020.
It’s unclear whether China, one of the earliest nations to suppress Covid-19 and to recover economically, has been able to meet or exceeded its pre-virus employment levels.
Sentiment Down Under is surging as cashed-up households are encouraged to spend and firms consider investing. That’s prompted increased hiring and Australians to resume job-hunting, swelling the labor force and further strengthening the economic outlook.
The Reserve Bank of Australia in February doubled its quantitative easing program to A$200 billion ($155 billion) and reiterated that it doesn’t expect to increase interest rates until 2024 at the earliest. Governor Philip Lowe, in a speech last month, said the economy could probably manage unemployment in the low 4s, or potentially even the 3s, before stoking inflation.
What Bloomberg Economics Says...
“A pre-pandemic trend of surging labor supply has re-emerged. If sustained, policy makers may find that rising supply once again disappoints hopes for a reemergence of long-desired wage growth.”
-- James McIntyre, economist
Among other details in today’s jobs report:
Monthly hours worked increased by 2.2%Under-employment decreased by 0.6 percentage point to 7.9%, the lowest level in seven years, and under-utilization dropped by 0.8 percentage point to 13.5%Full-time jobs fell by 20,800 and part-time roles soared by 91,500Western Australia’s recovery from a lockdown in the first week of February was reflected in a 2.4% increase in employment, and a 9.2% jump in hours worked
Western Australia, which shut its borders from the rest of the country for an extended period during 2020, recorded an unemployment rate of just 4.8% -- the lowest in Australia. This was despite the participation rate surging to 68.4%, more than 2 percentage points above the national level.
Australia’s central bank in February forecast the jobless rate would fall to around 6% by the end of this year and 5.5% at the end of 2022, a level its already closing in on. Under an optimistic scenario for unemployment, the rate would drop to 4.75% by the end of next year. The RBA is due to release updated forecasts next month.
The March 28 expiry of the government’s wage-subsidy JobKeeper program, designed to keep workers attached to their employers, could disrupt the labor market’s stellar run. Treasury estimated the program’s conclusion could see up to 150,000 jobs lost.
The ABS said today that the labor force data was collected during the first half of March, prior to the end of JobKeeper.
Meantime, sentiment reports this week showed an index of business conditions soared to a record high -- with hiring intentions strong -- and consumer confidence jumped to the highest since 2010. That suggests little concern from households and companies about JobKeeper’s end.
Sally Sinclair, head of National Employment Services Association that helps the jobless into work, worries that the end of the wage subsidy will compound existing problems.
“Underemployed workers often live pay check to pay check and frequently have little, if any, reserves,” she said in an interview with Bloomberg News this week. “These workers, many from hard-hit sectors such as tourism, retail and hospitality were among the 361,000 Australians who rushed to access their superannuation during Covid-19.”
The RBA, late last year, cut the key interest rate and three-year yield target to 0.10% to lower borrowing costs across the economy. It also initiated QE to keep a lid on the currency, which has soared nearly 35% from its March 2020 nadir.
The government also announced tax cuts, incentives for firms to invest and hire and infrastructure projects to boost activity.
(Updates with comment from economist in fourth paragraph.)
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