Labour conditions calm ahead of COVID-19 storm

The Australian Bureau of Statistics (ABS) has released its latest Labour Force data, reporting that the unemployment rate increased from 5.1 per cent in February to 5.2 per cent in March.

The deterioration was less pronounced than expected, with markets initially forecasting a 0.3 percentage point increase in the unemployment rate to 5.4 per cent in lieu of lockdown measures aimed at curbing the spread of the coronavirus (COVID-19).

ABS chief economist Bruce Hockman said the latest data “shows some small early impact from COVID-19” but noted that “any impact from the major COVID-19-related actions will be evident in the April data”.

According to ANZ Research, movement in the underemployment rate (those employed who wish to work more hours) provides some insight into the coming trend.

“[With] underemployment rising to 8.8 per cent, underutilisation hit 14 per cent for the first time in almost two years,” the group noted.

ANZ Research previously stated that it expects the unemployment rate to rise to a peak of 13 per cent in the second quarter of 2020 (2Q20), before falling to 8 per cent in 4Q20.

However, the research group revised its expectations following the announcement of the federal government’s JobKeeper subsidy, which it said would “undoubtedly lower unemployment” relative to their previous forecasts.

Nonetheless, labour market expectations have prompted lenders to lower their risk appetite for borrowers employed in industries most impacted by the coronavirus pandemic.

ING, Gateway Bank, MyState Bank, Heritage Bank, ME Bank and a number of non-banks are among the lenders to impose restrictions on such borrowers to maintain credit quality amid forecasts of a spike in defaults.

Other stakeholders in the lending industry have also adjusted their risk appetites, with mortgage insurer QBE Australia imposing an “embargo” on the provision of lender’s mortgage insurance to borrowers employed in industries hardest hit by the outbreak. 

Deposit bond provider Deposit Power has also revised its underwriting policy for short-term deposit guarantees, doubling the equity requirement for home equity products from one to two times the deposit amount.  

[Related: Credit losses to ‘more than double’: S&P]