The unemployment rate inched lower to 4.52% in May 2021, translating that the number of employed persons saw improvement given the mounting Covid19 cases in May leading to the start of MCO3.0. Though employment statistics were encouraging, Macquarie Equities Research (MQ Research) noted that this was still the slowest pace, forecasting an adjusted unemployment rate of 4.8%. While MQ Research expects economic reopening in August/September, it anticipates that both labour and manufacturing sector to worsen beginning June/July.

Labour Stats: Good and Bad

• The headline unemployment rate improved to 4.52% (April: 4.61%) on the back of continued hiring. Total employment (persons) improved for the sixth consecutive month by +18.8k MoM in May, which is encouraging given May marked the beginning of MCO3.0. However, MQ Research believes it worth noting that this was the slowest pace yet, with the prior five months averaging +31.2k jobs added/month.

• Weaker labour force participation rates also helped the unemployment rate. MQ Research estimates ~45k persons should/could have entered the work force based on the prior months’ trajectory. On this assumption, the adjusted unemployment rate should be ~4.8%. The primary reasons cited for non-participation remains housework (45.2%) and schooling (43.7%). MQ Research estimates excess unemployment from the pandemic is about 210–240k persons.

• The burden of unemployment continues to fall on younger workers, with 15–24 year olds suffering 13.6% unemployment. This is seen as positive in the short term for banks’ asset quality, as younger workers tend to have smaller exposure to the banking sector. On a positive note, long-term unemployment (greater than six months unemployed) continued to decline in May, falling 1% MoM. Lower long-term unemployment is a positive indicator, as it points to rehiring of workers laid off in 2020.

Manufacturing: Festivities cloud lockdown impact

• The Hari Raya festivities in May lowered factory production during the month and makes it difficult to ascertain the direct impact of the MCO3.0 lockdowns. Headline ex-factory value fell 6.1% MoM (-6% seasonally adjusted). Three segments stood out as having a sharp MoM decline in production: 1) beverages (-18% MoM) & tobacco (-17% MoM), 2) vehicles (-13% MoM), and 3) basic metals/metal fabrication (-19% MoM).

• The strong hiring trajectory for manufacturers also decelerated, indicating production growth in the coming months is likely to soften as well. MQ Research believes this is due to the lockdowns, which has capped most manufacturing headcount capacity at 60% to minimise workplace Covid-19 transmissions.

Outlook

• As articulated in Monday’s Malaysia Strategy article, MQ Research expects economic reopening will take place in August/September following a ramp-up in vaccination rates in July/August. Vaccinations on 12 July hit a record 421k doses, lending confidence to MQ Research’s thesis amidst a surge in new daily infections to more than 11k cases. MQ Research anticipates both labour and manufacturing stats will begin to deteriorate in June/July ahead of the economic reopening. However, MQ Research does not expect it will be anywhere as bad as 2020. For now, the May data continues to point to resilience in labour/manufacturing – no alarm bells.

Source: Macquarie Research - 14 Jul 2021