Unemployment figures are likely going to be the key to assessing the longer-term impact of the coronavirus lockdowns.
While companies can restart operations fairly quickly on a technical basis, the loss of qualified personnel means that it will take longer to return to productivity.
Job losses also imply a drop in consumer demand in the future, as unemployment benefits run out.
Even before the pandemic, employment figures were a key measure for the AUD. The RBA routinely used to guide policy.
Now that the reserve bank has committed to a fixed rate in the near term, all attention is on how deep the economic impact from the pandemic is going to be.
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The Different Outlooks
Some analysts are pointing to the massive job losses in the US as a potential pattern for Australia. They are predicting well over a million job losses.
However, it’s worth noting that in the US, employees have to file for unemployment benefits in order to get support. This is the case even if they remain contractually employed.
In Australia, benefits are being paid to companies in order to maintain hiring. Therefore, unemployment might not tick up as fast in Australia.
Additionally, tomorrow the Cabinet will meet to discuss the process in which to start reopening the economy. If companies have some visibility when they are able to return to production, they are more likely to retain employees.
Nonetheless, Australia’s Treasurer warned that unemployment could top 15% if measures weren’t taken.
What We Are Looking For
The figure that gets the most attention from the market is the Employment Change. Normally that comes in between 10-40K.
Projections are for a significant drop in the number of jobs created during March. Expectations are for employment change to come in at -40K, compared to +26.7K prior.
We can expect the unemployment rate to move higher, albeit somewhat modestly compared to the predictions being given by many in the media.
Projections are for unemployment in March to be 5.5%. This would be up substantially from 5.1% prior, bringing it back to where it was in May of 2018.
Other Clouds on the Horizon
Prior to the lockdowns, there were already concerns about difficulties in the housing market.
First, the trade war saw slowing investment. Then, China was affected by the coronavirus, and now Australia is in lockdown. This all makes it very difficult for estate agents to sell houses.
Property prices are projected to decline as much as 20%. And this would put additional pressure on the financial industry as many families have a high level of debt on their homes.
Particularly vulnerable are buy-to-let properties, as there is concern an increasing number of tenants who won’t or can’t meet their rent obligations.
Add on to this projections that the Australian economy will contract by as much as 10% in the next quarter (after contracting around 1% in the first quarter), and the worrying trend in commodity prices.
A quick recovery depends on people being able and willing to return to their normal consumption habits. With social anxiety over coronavirus and continuing measures to prevent the spread, we don’t have a guarantee that people will be so eager to spend money soon.
