Money - 26 Oct, 2020

Unemployment figures take an unexpected drop

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Australian Bureau of Statistics (ABS) Labour Force data for August has revealed an unexpected drop to the unemployment rate, leaving economists stunned.

The figures showed a 0.7 pts reduction in the unemployment rate, which fell to 6.8%, despite its continual rise for the majority of the year.

Except for Victoria, who experienced its second wave, all states and territories recorded an increase in the number of employed people.

New South Wales recorded a 51,500 people increase and Western Australia saw 32,200 more people employed. In contrast, Victoria saw employed people drop by 42,400 people.

Bjorn Jarvis, head of Labour Statistics at the ABS, said the participation rate remained relatively unchanged. This was unlike previous months where employment increased but so did the amount of people looking for work.

The participation rate increased 0.1 pts and remains 1.1 pts below its March level of 65.9%.

“With participation relatively unchanged, the increase in employment and decrease in unemployment saw the unemployment rate decrease 0.7 percentage points to 6.8%,” Mr Jarvis said.

CommSec chief economist Craig James told the ABC the new figures were “stunning,” describing the decrease in the youth jobless rate as “the cherry on top”.

The shock figures come off the back of previous pessimistic predictions from both the government and the RBA, who had predicted unemployment to continue rising and reach 10% by the end of the year.

“Today’s numbers are certainly better than what the market was expecting, and it was better than what I was expecting,” Treasurer Josh Frydenberg told reporters.

“We had expected unemployment to rise to 10 per cent at year’s end, obviously today’s data will be plugged into the Treasury models and we’ll work that through.”

Despite August’s strong result, Labor shadow minister for employment Brendan O’Connor believes it would be a mistake to think unemployment was on the mend.

“We are going to see very significant hardship when we see JobKeeper cut and we are, of course, going to see the economy struggling when we see JobKeeper and JobSeeker taken away,” he told the ABC.

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The outlook past September

Despite the release of positive figures, Australia still has a long way to go, and it is predicted that the Australian economy will not be back to its pre-pandemic levels for some time.

Paris-based think tank OECD released an updated economic forecast for the Australian economy, predicting the economy would not be back to its pre-coronavirus level until early 2022.

“The localised lockdowns, border closures and new restrictions being imposed in some countries to tackle renewed virus outbreaks are likely to have contributed to the recent moderation of the recovery in some countries, such as Australia,” said the think tank in its report.

ANZ economists forecast recovery could take even longer.

“We have downgraded our labour market forecasts, and now don’t expect employment to recover to pre-pandemic levels until 2023,” ANZ senior economist Catherine Birch said.

“The labour market outlook is very worrying. Without more fiscal stimulus, unemployment would rise to – and possibly remain at – an unacceptably high level, with damaging long-term consequences.”

JobKeeper extended but payments reduced

Originally planned to end late September, the JobKeeper payment has been extended to March next year, although not at its current rate.

The $1,500 per fortnight payment will continue to be available until 27 September 2020. After this date it has been extended until 3 January 2021 at a reduced rate of $1,200 per fortnight. After this it will drop further to $1,000 per fortnight until 28 March 2021.

For those who work less than 20 hours a week, the payment will also be extended but dropped to $750 per fortnight. From 4 January to 28 March 2021 it will again reduce to a rate of $650 per fortnight.

A report from the McKell Institute believes the JobKeeper cuts will take $9.9bn out of the Australian economy by Christmas, with 1.05 million part-time workers predicted to have their $1,500 fortnightly JobKeeper payment reduced to $750 per fortnight.

Labor’s shadow treasurer, Jim Chalmers believes the cuts are a mistake.

“During the deepest recession in almost a century and an escalating jobs crisis, it makes no sense for the Morrison government to be withdrawing support without a comprehensive jobs plan to replace it,” he told the AAP.

“Scott Morrison should reconsider his cuts to JobKeeper which are coming at the worst possible time for many workers, businesses and communities who are relying on it.”

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COVID-19 recovery plan by state

New South Wales

The New South Wales Government plans to repair the state economy through a recovery plan that aims to make the state “even more resilient and self-sufficient.”

It will be focusing on:

  • A $100bn infrastructure pipeline over four years to drive employment growth and create 88,000 direct jobs.
  • Reforms to support productivity and reduce the time it takes to approve projects such as development applications.
  • Curriculum review for the education sector.
  • Improved digitisation.
  • Push for advanced manufacturing and local supply chains.
  • Improved Federal-State government relations.

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Victoria

Victoria’s recovery is far more complex after feeling the brunt of COVID-19. In addition to a ‘roadmap‘ plan for the reopening of the state, the government has announced a range of funding and program initiatives, ranging from cash grants for tax relief and cashflow support for Victorian businesses to grants to support multicultural communities.

South Australia

To help drive the economy, secure jobs and support industry through COVID-19, the South Australian Government introduced a stimulus package predicted to inject $1bn into the economy.

Known as the Jobs Rescue Package, it includes one-off emergency grants of $10,000 for small businesses and not-for-profits suffering significant loss of income or COVID-19 forced closure as well as other measures to support businesses.

Queensland

The Queensland Government’s COVID-19 economic recovery plan is focused on delivering a long-term response with aims to protect both community health and the economy. The government has outlined 6 areas of focus for the next 2-5 years.

  • Health: safeguarding health by keeping Queensland ‘pandemic ready’.
  • Backing small business and helping it thrive.
  • Improved manufacturing and new job creation.
  • Investment in infrastructure.
  • Growth of the regions (attracting people, investment, etc.).
  • Investment in skills + helping Queenslanders find ‘meaningful jobs’.

Western Australia

Before the pandemic, the Western Australian Government claims it was the only state reducing debt, and because of this it says it had the “flexibility to respond decisively to an economic crisis”.

Although the state has not yet opened its interstate borders, people are now able to travel within the regions and restrictions are largely eased. The government has a $5.5bn recovery plan aimed at creating more jobs and training opportunities, restoring business and consumer confidence, getting people back into work and rebuilding the economy.

Tasmania

The Tasmanian Government has established the Premier’s Economic and Social Recovery Advisory Council (PESRAC) to help support COVID-19 recovery.

The council has submitted an interim report to the Tasmanian Government containing 64 recommendations ahead of the November Budget. It included ways to help restore jobs, address structural issues as a result of the impacts across sectors, as well as recommendations on government delivery methods to enhance coordination and long-term delivery benefits.

Northern Territory

The Northern Territory Government has established a new Economic Reconstruction Commission to create a blueprint for post-COVID-19 growth. It also has a COVID-19 Job Saving Plan.

Australian Capital Territory

The Australian Capital Territory Government has launched a variety of support measures to support local businesses and the economy in addition to families and households.

As part of recovery on 18 September Canberra eased restrictions further, including slight easing of restrictions regarding occupancy for venues and businesses.

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How are banks and lenders helping customers?

Banks and lenders are continuing to extend assistance to customers in need by continuing mortgage deferrals on a case-by-case basis. Those in need of assistance should contact their bank or lender.

Additionally, lenders have been cutting their rates to meet central bank movements earlier this year, in turn helping to reduce the burden on household finances. If your lender is yet to make the cut, refinancing your home loan might be an option to increase monthly savings.

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Words by Kathryn Lee

Sources

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