Unemployment rate drops in February

• Unemployment rate inched down to 3.3%

• The number of unemployed persons dropped 1.2% yoy to 508,500

• Employment grew 2.2% to 14,722,000

• Labor force grew steadily at 2.1% to 15,230,000

• Labor force participation rate maintained at 68.2%

• Labor market remains healthy

Employment increased by 2.2% yoy in February, slightly higher than 2.1% yoy in the previous month. Similarly, the labor force was steady at 2.1% for two consecutive months and reached 15.23m in February. During the same month, jobs added in the economy registered at 51K, higher than 30.4K registered in the previous month. However, the number of unemployed dropped by -1.2% yoy to 508,500 in February from 516,500 in the prior month. The labor force participation rate in February 2018 remained at 68.2%. Thus, the unemployment rate for February inched down to 3.3% from 3.4% in January. We believe the slight decrease in the unemployment rate was due to higher net jobs created in February and sustained labour force participation.

Labor market remains healthy

Labor market in Malaysia remained sturdy as the unemployment rate decreased marginally in February and the employment rose by 2.2% yoy to 14.72m. Furthermore, the labor force participation rate was in the upward trend since July 2017 and steady at 68.2% in the first two months of 2018. This shows that the labor market was still in the healthy state.

Major contributors of the strengthening labor market were manufacturing and services sector. Manufacturing sector benefitted from the favourable performance in export which led to more job creation especially for export-oriented industry such as electrical and electronics. Industrial output moderated to 3.0% yoy in February, following upwardly revised 5.4% yoy in the preceding month. Meanwhile, exports growth contracted sharply in February by 2.0% yoy (Jan: +17.9%), the lowest growth recorded in 16 months. Still, manufacturers added more workers as reflected in the hiring of workers where total employees engaged in the manufacturing sector in February 2018 was 1,065,849 persons, an increase of 2.2% or 22,900 persons as compared to 1,042,949 persons in February 2017. Despite a downturn in external trade in February, strong domestic industrial activities remain as supporting factors on Malaysia’s strengthening labour market and we believe that Malaysia’s external trade will rebound and IPI performance to remain expanding at a solid pace in upcoming months amid upbeat global economic activity.

Furthermore, the initiative program introduced by the government such as Skim Latihan 1 Malaysia (SL1M) might be the partial factor on the decrease in unemployment especially among fresh graduates. Unemployment as defined by 13th International Conference of Labour Statisticians (ICLS) in 1982 refer to a worker “………..who during the reference period was without work, was seeking work in a recent period and is currently available for work………”. The unemployment growth started posting downward trend since April 2016 and in February 2018 it declined by -1.2% yoy. At least, with training provided by the government link companies (GLCs) which involves in this program could help producing skilled labor and reduce the unemployed person and increased productivity. In 2018 budget, the SL1M apprenticeship program has been allocated RM40m. Besides that, the government will also create one-stop centres to provide professional advisory services to those seeking employment and training.

The rise in the size of the labor force is likely to have been driven by improving domestic demand conditions and government efforts to increase skills and knowledge of the workforce. Hence, better performance in external trade and industrial activities as well as apprenticeship program introduced by the government would help in supporting the labor market which could translate into increase in jobs, stable wage growth and indirectly provide further support to Malaysia’s domestic demand in 2018.

Source: BIMB Securities Research - 17 Apr 2018