Employment, support and policy
Since the beginning of the COVID-19 related downturn, reports on changes in employment, hours worked, and income have become of critical importance.
So much so that the Australian Bureau of Statistics (ABS) has increased the breadth, timeliness and scope of their reporting on this area. In the US, the weekly report on unemployment benefits and the monthly “jobs report” have also been very important.
In broader financial markets, the fate of individual stocks and entire sectors of industry have swung on their capacity to repay debt and secure financing.
In times of stress in markets, everyday wages and ongoing access to credit override other concerns.
We provide a series of charts below, presenting the background on employment and wages in Australia. We highlight those most affected by the “enforced stasis” the nation has been placed in, as well as the relatively positive outcomes that the government and RBA have been able to achieve.
This policy response has included support for the lowest paid and directly impacted through JobSeeker, supporting attachment to employment through JobKeeper, and a range of support for credit markets including SME loans, government debt markets, bank funding and policies around payment relief for existing debt.
Why address this topic?
For two reasons.
1. Long-term. The power of direct action from the government and the banking system to support the economy demonstrates how effectively an economy can be supported by removing the direct risks of dislocation. It stands in contrast to the rather hopeful nature of simply relying on monetary policy (lower rates). As different industries recover at different rates the blanket approach of the early policy could be more targeted. Perhaps this set of policies provides a blueprint for lasting changes going forward as the economy responds to various pressures. Is the mix of credit and wages guarantee a way in which we can promote new industry and strengthen local supply chains?
2. Short-term. Better than expected outcomes have provided more support for retail sales, and the building industry in both Australia and the US has shown stronger activity than expected. Your portfolio has some exposure to both. However, with a rise in the number of new COVID-19 cases in Victoria, as well as many US states and resultant reinstatement of some of the lock-down measures, recovery will not be a straight line (despite the impact being less severe than initial expectations). In such an environment the importance of maintaining support for credit and wages is clear.
In Australia, data from the newly created ABS Weekly Payroll Jobs and Wages report shows that as the economy has re-opened, jobs and wages have edged higher.
To explain the chart, the red line is an index (base=100, March 14th), that tracks the number of jobs in the economy. By the middle of April, the index had fallen to 91, representing a 9% loss of jobs from the March base. This “real-time” measure of the economy is more relevant than the grey and black triangles on the chart which indicates official ABS unemployment estimates.
The latest ABS release highlights that since the easing of lockdown restrictions, both jobs and wages have begun to improve. With this also came a revision of past data, showing that the decline in wages was less than previously estimated.
Another indicator of this is the rebound we saw in retail sales figures in May of +16.3%.
The power of the JobKeeper package is apparent in the following chart highlighting hours worked. In the left chart pane, the difference between the share of the survey who “had a job” (Red) and had a job and working paid hours (grey) is shown. With limited friction (costs) employers retained staff and redeployed many in less than 2 months. Overall, hours worked also increased as lockdown restrictions were eased over May.
In the US, last night’s payrolls report was stronger than expected with 4.6m newly employed. It was also stronger than in May when 2.7m jobs were created. Two months into the recovery and we find a third of the 21m job losses in April have been recovered.
As many would have expected, the manufacturing and goods-producing areas of the economy are coming back faster than the services sector. This is consistent with the strong ISM survey yesterday.
Building activity in the US and Australia has also been better than expected. We own both James Hardy (more US-focused) and Boral (part Australia and partly the US) and both have performance strongly (James Hardy +52% since squiring in March, and Boral + 50% since mid-April).
The shortfalls in support demonstrate the importance of supporting consumption
The headline figures show 94+%, of wages being maintained, which improves the likelihood of avoiding large scale permanent impacts. The short-term dislocation has been severe in pockets however. A large number of job losses have been in industries hardest hit by the lockdown, with almost 50% of jobs accounted for in Hospitality and Arts/Reaction. We can see this when looking at the occupations count for the majority of the decline in employment:
The impact has also been disproportionately felt by those under the age of 25, which have seen the highest decline in employment to population ratios, as well as casual workers (those without paid leave) and those who have been in their role for less than 2 years.
For many of these workers, JobSeeker payments remain critical.
Power and importance of continued support
During this period, we have witnessed the impact direct support from the government has had on the economy. This is particularly pertinent when we consider the relative ineffectiveness of monetary policy in stimulating activity over the past decade.
We have seen signs of the ability of direct government support to have a profound impact on the economy. This has been reflected not only by the ability to avoid a prolonged downturn, even in face of economic stasis, but also in its ability to stimulate activity despite challenging conditions.
We understand that recovery will not be a straight line, nor will every business recover, and the overall trajectory is highly reliant on the development of a vaccine.
Should recovery continue through the next 12-18 months the resources deployed, the credit created, and the incomes supported, will have had a dramatic impact on the trajectory and nature of the recovery and broaden the spectrum of future economic policy.