30 Jun 2020
As has often been the case with economic forecasts during COVID-19, ANZ Research’s update released in late July was almost immediately out of date.
While this initial employment update anticipated restrictions being extended by four weeks, the early August announcement of the move to Stage 4 restrictions in metropolitan Melbourne and Stage 3 restrictions in regional Victoria has worsened the outlook.
"ANZ Research now expects employment to fall by a combined 50,000 over August and September, when the initial expectation was a rise of 40,000 across the two months.”
While Victorian workers and businesses will suffer the worst of the impact, employment elsewhere in the country will also be detrimentally affected, as consumer confidence continues to be undermined and businesses exercise more caution about investment and hiring decisions.
Some regional, national and global supply chains will be disrupted. Victorian demand for goods and services supplied by other states and territories will also fall although there will be some offsetting effect as households and businesses substitute Victorian goods and services to those produced elsewhere.
ANZ Research is forecasting employment will have lifted by 60,000 workers in July (a much smaller gain than the 211,000 in June) and hours worked to have continued to improve. Underemployment may have continued falling, as some businesses may have increased workers’ hours rather than hiring more staff.
But the official unemployment rate is likely to have continued to rise as participation increased. The data will be released on Thursday 13 August.
In the initial forecast update, ANZ Research had factored in more modest improvements in employment in August and September. While ANZ Research expected to see another downturn in Victoria, due to the Stage 3 restrictions in Melbourne and knock-on effects to regional Victoria, the thinking was these would be more than offset by continued improvement elsewhere in the country. But the outlook has worsened.
The August employment data will not capture the full impacts of the tightening of restrictions due to the timing of the survey reference period (2–15 August), with business and industry restrictions only in force from the evening of 5 August. Someone who has been laid off during the reference week but has worked at least one hour for pay will still be counted as employed.
ANZ Research expects a larger fall in September, which is likely to be the low point this time around. The survey reference period is 30 August to 12 September, and Stage 4 restrictions will be in place until at least 13 September.
Overall, ANZ Research now expects employment to fall by a combined 50,000 over August and September, when the initial expectation was a rise of 40,000 across the two months.
Cushion the blow
The Victorian Government estimates that due to the tighter restrictions, a further 250,000 Victorian workers will be stood down or have to stay at home. This would be additional to the estimated 500,000 already working from home and 250,000 already stood down.
ANZ Research thinks the fall in employment nationally, though, will be much smaller than that. Many workers will continue or start receiving JobKeeper and anyone on JobKeeper – even if they work zero hours – is counted as employed. But this can mask a drop in workers’ incomes if they are not topped up by their employers.
Businesses are still able to enrol for the fortnightly payments in August and September if they meet eligibility requirements. And JobKeeper is a demand-driven program, so there are no limits to the number of additional workers who could receive it over this period.
Unfortunately, some businesses will shut up shop or reduce their workforce due to the second round of restrictions. And some workers will be laid off due to their own ineligibility for JobKeeper (largely casual workers with their current employer for fewer than 12 months) or their industry’s or business’ ineligibility.
With a forecast loss of 50,000 workers across August and September, rather than a 40,000 rise, this is equivalent to 90,000 fewer people employed by September, compared with ANZ Research’s central scenario in the initial forecast update. Rather than a 1.1 per cent quarter-on-quarter rise in employment in Q3, this would mean a 0.7 per cent quarter-on-quarter increase.
In the initial forecast update, ANZ Research expected the unemployment rate to rise to 8.0 per cent in Q3 and 8.5 per cent in Q4 (quarterly averages). On the face of it, weaker employment growth should result in higher unemployment.
But how much higher the official unemployment rate will rise due to the tighter restrictions in Victoria remains unclear and subject to policy changes and movements in participation.
For instance, the welcome exemption of Victorians from the second stage of the reintroduction of mutual obligations that began on 4 August could make a material difference to participation. So ANZ Research is not updating the unemployment forecast as yet.
It is worth noting that from 4 August, JobSeeker recipients in other states and territories are required to apply for up to four jobs per fortnight (satisfying one of the criteria for being defined as unemployed), although penalties will not be applied yet. Given the lack of job opportunities on offer at the moment, not only in Victoria but elsewhere, ANZ Research thinks the reinstatement of mutual obligations is too hasty.
Policy changes in the childcare sector would also affect participation, particularly for women, as well as employment in the sector which is largely staffed by women.
Past Q3, things get trickier. While JobKeeper and JobSeeker have both been extended, payment rates have been lowered from the end of September, which will reduce the subsidies received by businesses and, in many cases, household incomes. The government had also raised the eligibility threshold which was worrying, given that in an Australian Bureau of Statistics (ABS) survey conducted in mid-July, when asked what they would do when government support measures were no longer available, 10 per cent of businesses reported they would close and 13 per cent would reduce their workforce. But in a welcome move, eligibility requirements were loosened again, which means more businesses and workers will receive the JobKeeper payment in Q4 and Q1 next year.
By the end of September (when JobKeeper and JobSeeker payments are reduced), under a best-case scenario, Melbourne and Victoria will only just be emerging from Stage 4 restrictions, which are currently due to end on 13 September. Fiscal measures above and beyond what is already in place will undoubtedly be necessary to support households, workers and businesses through this very tough period.
ANZ Research continues to note the downside risks, in particular, an extension of Stage 4 restrictions past 13 September, as well as the potential rise of COVID-19 case numbers in New South Wales and other states and territories. Australia has already seen border closures reintroduced or extended in efforts to prevent that outcome.
There are also upside risks, though, predominantly a quicker-than-expected reduction in case numbers and additional fiscal support.
Catherine Birch is Senior Economist at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
30 Jun 2020
06 Apr 2020