Analysis: Australia’s May Labor Data Better Than Expected For RBA

• Published on
• 18 Jun 2020, 06:30 PM

By Sophia Rodrigues

Australia’s labor force data for May was gloomy overall but there were some bright spots within that, especially from the Reserve Bank’s viewpoint.

Earlier Thursday, the Australian Bureau of Statistics published labor force survey for May that showed the jobless rate rose to a 19-year high of 7.1% from an upwardly revised 6.4% in April.

The number of employed fell 227,700 in May, following a revised drop of 607,400 in April, taking the total fall in those two months to a staggering 835,100. The number of unemployed rose 85,700 compared with a rise of 125,800 in April, taking the total increase in two months to 211,500.

A majority of the drop in unemployed moved out of the labor force, resulting in a fall in participation rate to 62.9% from 65.9% in March.

TOTAL HOURS WORKED HALF OF RBA’S FORECAST

Two data points that the RBA has been paying most attention to are total hours worked and zero hours worked, and they were both better than expected. In fact, total hours worked is the single-most important data because the RBA’s starting point for forecasting the labor market was estimating how much hours worked would decline.

In May, the RBA forecast a contraction of 20% in hours worked over the first half of 2020.

“My focus has been very much on hours worked because, as we saw in the labour force survey the other day, the actual unemployment numbers are less relevant because some people are working zero hours and are included in the labour force, and some people are out of the labour force and they have a job and they can't look for jobs, so they're counted as out of the labour force,” RBA Governor Philip Lowe said at the Parliamentary testimony in late May.

“So, my main focus on the state of the labour market has been on hours worked,” he said, adding, “By the time we get into June, I'm expecting to see hours worked increasing,” he added.

The latest data showed total hours worked fell 12.1 million hours in May, a much smaller drop than the 170 million-hours fall in April.

There is an expectation that hours worked would rise in June, given the re-opening of the economy in the past month. This means the drop in May is expected to be the trough for hours worked.

Assuming even a small increase in June, the total decline in the first half of this year is expected to be less than 10%. This would be 50% better than the RBA’s May forecast.

After initially forecasting 20% drop, Lowe said the RBA was progressively revising that number, and his hope was that it will not be more than a decline of 15%.

If the total fall by June is indeed less than 10%, it would be better than even the RBA’s optimistic forecast.

ZERO HOURS WORKED

The RBA also expressed concern about the large number of people who worked zero hours in April. It was over 750,000.

The latest data showed the number of people who worked zero hours dropped by more than 50% to 360,000. This is likely because many recipients of JobKeeper put in some hours of work as the economy began re-opening, and many others also put in some hours.

In addition to this 360,000, there were a large number of people among a group of 180,000 who didn’t work any hours because they left or lost a job. While still a big number, this was half of 350,000 who left or lost a job in April.

This group of 180,000 is significant for the next labor force survey because all else being equal, this would contribute to the drop in employment in June.

However, it is important to note that all else will not be equal because it is likely that some unemployed or those not in labor force would have got jobs because of further re-opening of the economy. It is also likely that some of these 180,000 people got a new job.

--Contact: sophia@centralbankintel.com