Lockdown downturn: a journey toward a post-pandemic job recovery has been saved
Lockdown downturn: a journey toward a post-pandemic job recovery
20 May 2020: The underlying outlook for Australia’s employment performance at the start of 2020 was good. Labour markets in both Sydney and Melbourne were performing very well, leading to a strong outlook for CBD employment forecasts, but an acknowledgement that continued decline in consumer confidence could hurt employment.
Then everything changed - in a very COVID-19 way.
The lockdown of parts of the economy has been very costly in terms of jobs. The ABS’ April labour force report estimated that around 600,000 jobs had been lost from March to April. More recent payroll data covering the period up to the 2nd of May shows a reduction in jobs of 7.3%, (or around 950,000 workers). And, it would have been much worse without the Federal government’s $130 billion JobKeeper wage subsidy, which is estimated to be covering around five million workers.
In general, those hardest hit have been:
- Sectors where activity has been restricted: The list is significant, including parts of accommodation and food services, retail, travel, entertainment, education, and others.
- Sectors on the wrong side of a fear factor: Sectors that are dominated by face to face interactions are missing out too – including, for example, parts of retail and hospitality, as well as entertainment.
- Sectors without deep pockets: Businesses without deep pockets closed earlier than others. These operators, both small and large businesses, are concentrated in the retail sector in particular.
Australia’s economic recovery is expected to begin in late 2020 before accelerating in 2021 as travel bans are slowly lifted. As economic growth rebounds, employment levels should slowly recover. The size and speed to which different sectors will rebound will depend on how hard they were hit and how the government eases restrictions and allocates stimulus, as well as regular economic drivers in the market.
Deloitte Access Economics’ latest Employment Forecasts report, which has a focus on white collar employment, tracks the expected path to jobs recovery.
After rising by 31,000 across 2018-19 – the best result since 2006-07 – growth in white collar jobs across all the CBD markets in Employment Forecasts is expected to grow by just 3,000 in 2019-20 and then fall by 85,000 persons in 2020-21.
In terms of a peak-to-trough impact on the market, the level of expected white collar employment for mid-2021 is expected to be close to 115,000 below the peak reached in the pre-COVID upswing.
There’s a timeline to recovery, but it’s a long one
Australia’s success in containing the virus is allowing for the easing of some restrictions, and a phased approach to re-opening the economy. It will of course take some time for the economy to regain the ground that has been lost.
The timeline for that recovery varies significantly across regions, sectors and industries. The charts here show both the peak expected rates of job loses across employment types as well as when we expect employment levels to return to their pre-COVID-19 levels.
At a broad industry level, the key losers in terms of jobs losses in the short term (seeing greater than 50% declines) are expected to be accommodation, arts, recreation and other services – and they may take five or six years to recover all the job losses seen. Sectors such as property and professional services, education and telecommunications are less impacted now, and may be back in a solid growth phase by early 2022.
However, a couple of sectors have a moderate decline now, but may take an extended period to return to early 2020 employment levels. Key here is the finance sector, which may see a longer period of weak performance than other key office-intensive industries. The finance sector is part of the defence against the COVID-19 downturn, with many loans being deferred. But over time banks can expect to see a sharp rise in non-performing loans, while it may be some time before businesses are ready to invest again at significant scale, implying a sharp hit to credit demand.
Note that the chart doesn’t include health (a sector that doesn’t see a decline in employment in the next year). The three industries at the far right of the chart (manufacturing, farm and mining) never return to the early 2020 peaks – although that reflects longer term trends of declining employment.1
Timeline to recovery – industry outlook
Source: Deloitte Access Economics Employment Forecasts
In general, CBD employment is expected to be slower to recover than overall white collar employment, hampered by the slowness of the rebound in financial services. Some CBDs are also hampered by specific industry weaknesses; the lingering weakness in mining may mean it takes a relatively long time for Perth to regain early 2020 market demand, even though the scope of its short term decline in relatively modest.
Timeline to recovery – base office demand levels by market
Source: Deloitte Access Economics Employment Forecasts
The chart above shows, overall office demand across the combined CBDs falls roughly as much as overall employment, but won’t return to earlier peaks until slightly later (around three months behind overall employment). The importance of financial services in Melbourne, and even more so in Sydney, delays their recoveries even more, while Adelaide’s extended slumber is more a reflection of its slower population growth than any specific exposure to the current downturn.
The new abnormal
The return to office work over time may not be in the same manner as seen pre-COVID.
The COVID-19 emergency has given both employers and employees time to observe the costs and benefits of working remotely, while businesses have been forced to overcome previous barriers by investing in technologies and rapidly developing new work methods.
At least during the period that we continue to live with COVID (prior to a vaccine for example), it is likely that the tendency to work from home will remain above pre-crisis levels. The post-COVID era however becomes more difficult to predict, meaning that office demand cannot be automatically assumed to align with the white collar employment base which is the traditional driver.
Over the balance of 2020, social distancing will undoubtedly restrict office density as restrictions begin to lift, reversing the decades long trend towards smaller workspaces and increasing the required levels of office space for some businesses.
Importantly however, businesses are unlikely to completely abandon the office. Both employers and employees recognise the advantages of in person collaboration and the wellbeing benefits of social interaction with colleagues more generally, especially after months of social distancing and isolation.
Underpinning these shifts will be economic momentum. Employment growth in Australia’s metropolitan areas will continue to positively underpin future office demand.
1. In these cases the ‘decline’ measure is the scale of the falls over the next year.