• A small rise in Malaysia’s total labor force in March

• Unemployment rate remained at 3.5% in March

• Participation rate stood at 69.9%

• Employment situation continue to improves

OVERVIEW

Malaysia’s unemployment rate remained unchanged at 3.5% in March,  retaining the three-year low recorded in February as the economy recovered  further from the pandemic disruptions. The number of unemployed dropped  by 12.0% YoY to 588.7k, while employment climbed by 2.9% to 16.22mn. An  improving labor force situation during the month was mirrored by the rising  number of employed persons, while the number of unemployed further  decreased. An optimistic economic position in March 2023 has allowed the  country's labor market to continue to develop steadily. Labor market conditions  are expected to improve further in 2023, providing impetus to household  spending. The strong increase in employment levels seen in 2022 is expected to  continue in 2023. Labor demand will remain favorable, supported by ongoing  recovery in tourism-related activities and expansion plans by some manufacturers and retailers. Policy measures remain in place, with targeted  assistance such as cash transfers, various tax incentives, and social protection  schemes remaining available for vulnerable households which will continue to  support their spending. Given these drivers, the unemployment rate is projected  to average at about 3.5% for 2023 as a whole. According to Bank Negara,  unemployment rate is expected to drop steadily over the year to pre-pandemic  average rate of 3.3% by year-end. At 3.3%, the economy would technically be at  full employment.

Employment. The number of employed persons was on an upward trend, it  increased by 0.2% (+33.7k persons) in March, reaching a total of 16.22mn  persons, as compared to 16.19mn persons in February. Year-on-year, the  number of employed persons posted an increase of 2.9% (+453.6k persons), as  against 15.77mn persons (March 2022). In terms of the economic sector, the  services sector saw a continued increase in the number of employed persons,  with notable growth in wholesale & retail trade; food & beverage services, and  administrative & support service activities. Similar trends in employment were  observed in the manufacturing, construction, and mining & quarrying sectors,  as well as in agriculture. During the month, the employment-to-population ratio  which indicates the ability of an economy to create employment, rose by 0.1  percentage points to 67.5% as compared to 67.4% in February 2023. As  compared to March 2022, the ratio escalated by 1.1 percentage points from  66.4%.Out of the total employed persons during the month, 75.6% were in the  employees’ category. This category registered a rise of 0.1% MoM (+14.8k  persons) to record 12.26mn persons as compared to 12.25mn persons in  February 2023. On the same note, the numbers of own-account workers,  primarily consists of daily income earners who working as small business  operators such as retailers, hawkers, sellers in market and stalls, as well as  smallholders, also increased by 0.6% (+16.6k persons) to 2.91mn persons (Feb:  2.89mn persons). Meanwhile, the number of employed persons who were  temporarily not working registered an increase of 14.7k persons (+18.3%) to  94.8k persons (Feb: 80.1k persons).

Unemployed. A steady job creation pushed the number of unemployed workers  lower for the month. The number of unemployed persons in March continued  to be on a downward trend, falling by 0.5% (-3.2k persons) to 588.7k persons  (Feb: 591.9k persons). March’s unemployment rate remained at 3.5% (Feb:  3.5%). In a year-on-year comparison, the number of unemployed persons also  went down by 12.0% (-80.5k persons) as against 669.2k persons recorded in  March 2022. Accordingly, the unemployment rate edged down by 0.6  percentage points as compared to 4.1% in March last year. In March, 80.3% of the total unemployed persons were those who were  available for work and were actively seeking jobs or the actively unemployed.  This category dropped by 0.6% to 472.9k persons (Feb: 475.5k persons). Among  the actively unemployed, 61.3% were those unemployed for less than three  months, whereas 6.4% were those who had been in long-term unemployment  for more than a year. Likewise, those who believed that there were no jobs  available or the inactively unemployed, posted a decline of 0.5% to record  115.8k persons (Feb: 116.4k persons). This is expected to drop steadily in line  with a recovery in affected sectors like services particularly leisure,  accommodations and hospitality, tourism, the sub-sectors that borne the most brunt of the pandemic, particularly with the bullish tourist arrival which is  forecast to reach more than 15mn in 2023.

Unemployment by Age Group. During the month, the unemployment rate for  youth aged 15 to 24 years was reduced by 0.1 percentage points to 11.2%,  recording 317.3k unemployed youths (Feb: 11.3%; 320.8k persons). In the  meantime, the unemployment rate for youth aged 15 to 30 years increased by  0.1 percentage points to 7.1%, with the number of unemployed youths at 454.9k (Feb: 7.0%; 450.2kpersons).

Labor Force: The position of the country's labor market continues to be stable  in line with the current economic developments. In this regard, the number of  labor force in March 2023 strengthened further by 0.2% MoM or 30.5k persons  to a fresh record high of 16.81mn persons (February 2023: 16.78mn persons).  On a yearly basis, the number of labor force increased by 2.3% or 373.2k persons  as compared to the same month of the previous year (March 2022: 16.44mn  persons). In term of labor force by gender during the month, the male labor  force for was 10.27mn persons (February 2023: 10.24mn persons), while the  female’s labor force was 6.54mn persons (February 2023: 6.54mn persons).  Year-on-year, both the male and female labor force continued to increase by  1.9% and 2.8% respectively (March 2022: 10.08mn persons; 6.36mn persons).

Participation Rate. March’s labor force participation rate (LFPR) stood at 69.9%  (Feb: 69.9%). On a yearly basis, as the number of labor force increased by 2.3%  YoY, accordingly, the LFPR improved by 0.7 percentage points as compared to  69.2% in March 2022. The number of persons outside the labor force continued  its downward trend with a decline of 6.1k persons (-0.1%) to 7.23mn persons  (Feb: 7.24mn persons). In the meantime, the number of persons outside the  labor force continued to fall by 79.1k persons (-1.1%) year-on-year (Mar’22:  7.31mn persons). Housework/ family responsibilities were the main reasons for  the outside labor force with a contribution share of 43.5%, while schooling/  training ranked second with 40.6%.

OUTLOOK

The unemployment rate was stable at 3.5% in March, as employment growth of  2.9% YoY and remained stronger than pre-pandemic average of 1.7% in 2019  and the labor force participation rate remained at a record high of 69.9%. That  said, continued improvement in labor market remains supportive of income  enhancements, helping to mitigate the erosion of household purchasing power  from elevated but moderating price pressures, and keeping private  consumption growth momentum alive.

The growing domestic economy, led to more labor demand to support  continuous stabilisation of the economy as well as an increase in the creation of  job opportunities to sustain the business market in the transition phase to  endemic. Growth could potentially surprise on the upside as China reopens its  economy, leading to improved external demand and influx of tourists from  China. These are expected to support jobs creation for wholesale & retail trade,  accommodation & food services as well entertainment & recreation services in  coming months. We maintain our 2023 unemployment rate forecast of 3.5%  (2022: 3.8%; 2021: 4.6%). Amid our forecast of slower real GDP growth of  +4.50% this year vs the +8.7% growth last year, our jobless rate forecast for this  year implies monthly jobless rate to largely move sideways during the course of  2023 after trending down in 2022 i.e., from 4.2% in January 2022 to 3.6% in  September 2022-January 2023.

Source: BIMB Securities Research - 12 May 2023