Bimb Research Highlights

Author: kltrader   |   Latest post: Thu, 14 Oct 2021, 4:23 PM


Economics - Malaysia Economy - Unemployment rate held at 4.8% in July

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  • Unemployment rate held at a multi-month high of 4.8% in July
  • The number of unemployed persons increased by 9.5k to 778.2k in July
  • Total labor force changed with an additional of 6.7k persons to 16.07 million
  • Labor force participation rate unchanged at 68.3%
  • Reopening the economy is the remedy to improve labor demand

Employed persons fell marginally by 0.02% mom or 2.7k persons to 15.29m persons in July 2021, marked the second straight month of reduction. However, on a year-on-year comparison, the indicator continued to post positive growth for the fifth straight month, whereby the number of employed persons rose 1.5% during the month.

The employment-to-population ratio which indicates the ability of an economy to create employment stagnated at 65.0%. Year-on-year, the employment-to-population ratio grew by 0.1 ppt from 64.9%. The unemployment rate unchanged at 4.8% in July as compared to the previous month. The number of unemployed persons increased by 1.2% mom or 9.5k persons to register 778.2k unemployed persons. The unemployment rate for July was higher by 0.1 ppt year-on-year, with the number of unemployed persons increased by 33.1k persons.

The labor force participation rate (LFPR) remained at 68.3%, compared to the previous month. Meanwhile, the number of labor force changed over the month was slightly higher by 6.7k persons to record 16.07m persons. Year-on-year comparison, the number of labor force improved by 254.4k persons (Jul’20: 15.82m persons). In the meantime, when compared to the same month of the preceding year, the LFPR rose to 0.3% (Jul’20: 68.1%).

July's unemployment rate remained unchanged

Employment fell marginally by 0.02% mom or 2.7k persons to 15.29m persons in July (Jun’21: 15.30m persons), marked the second straight month of reduction. By economic sector, employed persons in services rebounded mainly in food & beverages services, transport & storage and information & communication. However, the employment in manufacturing sectors fell for second straight months while employed persons in the construction sector also declined in the month. The agriculture and mining & quarrying sectors were constantly recording a decline in employment since the past thirteenth month.

Employed persons in the employee’s category was the largest which comprised 77.6% of the overall employment. This category reduced by 0.04% mom (-4.4k persons) to 11.87m persons. In the meantime, own-account workers encompassed of 16.4%, grew by 0.3% to 2.50m persons in July. This group comprised mostly of daily wage earners working as small business operators such as small retailers; hawkers; sellers in markets and stalls as well as smallholders. The improvement of employed persons in this category was partly due to the permission for the economic sector to continue their businesses during the National Recovery Plan (NRP) period. The number of employed persons who were temporarily not working declined to 776.3k persons as against June 2021 (801.1k persons) reflecting the gradually eased of stringent containment measures albeit the numbers were relatively high. This group of persons, who were most likely unable to work was not categorised as unemployed as they had work to return to.

The unemployment rate remained unchanged at a multi-month high of 4.8% in July 2021, while the number of unemployed persons rose by 1.2% mom or 9.5k persons to 778.2k persons. Of these, 83.7% of the unemployed persons was the actively unemployed persons which was defined as persons who were available for work and were actively looking for work. This group went up by 1.3% mom to 651.3k persons. Among the actively unemployed persons, the largest group was those who were unemployed for less than three months with a share of 53.9%. On the other hand, 8.8% were in long-term unemployment of more than a year. A total of 126.9k persons were registered as the inactively unemployed or discouraged group whom believed there were no jobs available, up by 0.8% mom as compared to 125.8k persons in June.

In July 2021, the unemployment rate of youth aged 15 to 24 years rose by 1.0 ppts to 13.7%. Whereas the unemployment rate for youth aged 15 to 30 years dropped to 8.5% (Jun’21: 9.4%).

The number of outside labor force registered an additional of 18.7k persons to 7.48m persons as compared to June 2021. Likewise, the outside labor force rose by 1.0% yoy (+75.6k persons). Among the main reason for not seeking jobs during the month was due to housework/ family responsibility with a share of 46.4% or 3.47m persons. This was followed by schooling/ training which comprised of 39.2% or 2.93m persons.

Reopening the economy is the remedy to improve labor demand

Malaysia's unemployment rate remained at 4.8% in July compared to the previous month. The month of July saw 9.5k additional persons were unemployed, moderated from +40.6k persons in June. The unemployment in June was 33.1k greater compared to the same month preceding year. Meanwhile, unemployment was +253.0k above the pre-pandemic level (Feb '20: 525.2k). This deterioration continued as June's lockdown prolonged to July, which saw closing down the non-essential activities led to muted hiring and higher jobless.

Lockdown measure had created an imbalance between supply and demand in the job market during the month. As the labor force sustained widening, the job placements had pulled back as employers halted the hiring. This situation has created a higher unemployment rate despite lower layoffs compared to a month ago. With the lockdown prolonged, businesses operated at spared capacity with strict standard operating procedures (SOP). Based on Labour Market Review 2Q2021 by DOSM, the services' employment slipped below the pre-pandemic level, but the gap was narrowed (2Q21: 9.279 million; 1Q21: 9.298 million; 1Q20: 9.284 million). The construction sector, which was heavily impacted by stringent SOP, registered 1.39 million employed persons in 2Q21, 34 thousand below the 1Q20 level. With the presence of lockdown in late 2Q21, the job market suffered from jobs loss dragged into the recent month. Even though more business segments were allowed to resume their operation in July, the recovery remained slow and uneven as prolonged of partially lockdown measures.

We expect a recovery in the labor market to continue albeit at a moderate pace as almost all states or federal territories (except for Johor and Kedah) have been allowed to transition into second, third or fourth phase of the NRP. More business activities in the states or federal territories under phase 1 of the NRP have also been permitted to re-open starting mid-Aug in tandem with rising vaccination rates. The re-opening of more economic sectors would increase the hiring in heavily affected segments as the recovery resume. Improving consumer mobility is likely to improve the job vacancies supported by a better business outlook in the months ahead, especially in retail-based.

The transition into second, third or fourth phase of the NRP is expected to help aid labor market recovery by enabling broader opening of - and better mobility in - the economy. We continue to opine that the swift progress in COVID-19 vaccination roll out is crucial, which will allow further relaxation of pandemic containment measures, easing movement restrictions, allowing more sectors of the economy to be reopened, eventual lifting of state borders and boost economic activities. Furthermore, continuous government support had cushioned the layoff. Through recent stimulus, the government has reintroduced the Wage Subsidy Programme (PSU) to retain the workers during lockdown and NRP. Including the previous PSU, the disbursed amount of wage subsidy 1.0 and 2.0 schemes stood at RM12.91bn and RM1.33bn as of July. Besides the short-term measure through income support, the government also provided long-term measures such as reskilling & upskilling program and hiring Incentive program & training assistance. The government also provided various grants and financing to sustain the micro and SME employers. Continuous aid from the government has helped employers retain the workers while assimilating with the structural changes.

Generally, the labor market is positively associated with the economic performance. Hence, the implementation of NRP has allowed some flexibility for economic and services activities to resume in line with the NRP’s phases. This targeted strategy has brought some light for the labor market to recover progressively. Malaysia is on track to achieving the target of getting 80% of its adult population fully vaccinated nationwide, and 60% for every state by the end of the month. As of 8 Sep, 70.5% of the adult population in Malaysia (or 16,492,295 individuals) have completed their COVID-19 vaccination. In line with the government's target to ensure at least 80% of the adult population in the country is fully vaccinated, Malaysia is expected to move from COVID-19 pandemic into the endemic phase by the end of October. More sectors will then be reopened with new COVID-19 norms being practised. The government will simplify some social-distancing measures in the coming weeks to prepare for a COVID endemic phase. But face masks will still be required to limit the spread of the coronavirus. The government will also introduce a national testing strategy in which the public would undergo COVID-19 tests on a regular basis regardless of their vaccination status. This alongside the continuation of government policy support will reinforce growth and labor market recovery prospects. Nonetheless, due to uncertain public health situation, the challenges to the labor market may persist. Uncertainties surrounding new COVID-19 virus variants and business prospects could deter substantial improvement in the hiring but it will take some time for the unemployment rate to reach pre-pandemic levels of around 3.3%.

Source: BIMB Securities Research - 10 Sept 2021

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