Consumer sentiment is rising; but the jobs market will feel pain for some time yet
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As COVID-19 lockdown conditions ease consumer sentiment is rebounding, but this won’t help the jobs market.
The Westpac-Melbourne Institute’s consumer sentiment reached levels not seen since the early 1990s recession in April. But in May it has surged 16.4 per cent.
Undoubtedly this is a positive sign and can be credited to states beginning to ease lockdown laws and retailers opening their doors in recent days.
Investment bank UBS told its clients yesterday that this was an improvement. However, levels were technically historically consistent with flat real consumption and it expects the quarter-on-quarter fall to be negative 9 per cent.
Nevertheless, this is better than the negative 15 per cent collapse expected by the Treasury and the RBA. UBS also noted “time to buy a dwelling” sentiment rebounded by 31.8 percent.
This followed a negative 26.6 per cent approval in the month before, inevitably provoked by the restrictions surrounding property sales.
On Thursday at 11.30am, Australia will get early signs of how bad the pandemic has been for the jobs market. A Bloomberg survey of economists predicts an unemployment rate of 8 per cent for the month of April.
UBS and NAB both believe unemployment will get worse before it gets better. They predict it will reach double digits. UBS is predicting 10 per cent while NAB is predicting 11.7 per cent by mid year.
NAB is particularly bearish, warning it’ll stay at those levels until the end of 2020. While it expects a recovery in 2021, it still thinks unemployment will be 7.2 per cent.
“We only see a partial recovery in the labour market by the end of next year reflecting the fact that the level of GDP is not fully recovered until early 2022,” NAB said.
Furthermore these forecasts assume that COVID-19 stays contained in Australia.
NAB warned any secondary spread and consequential reimposition of restrictions would lead to further disruption. Either way the bank thinks businesses will need government support for some time yet.
This week there has been speculation the government might reduce or scrap economic support measures (such as the JobKeeper wage subsidy) the instant it appeared the economy was recovering.
The government, however, has denied it is seeking to cut off support fast. Prime Minister Scott Morrison said this week,”we’re six weeks into a six month program”.
Nonetheless, Treasurer John Frydenberg said on Tuesday these measures wouldn’t be permanent.
“Our measures have been designed in a way that protects the structural integrity of the budget,” he said.
“Temporary and targeted, the new spending measures were not designed to go forever but to build a bridge to the recovery phase.”