Record declines in employment from COVID-19 restrictions have been met with record policy stimulus. In this note, Tim Toohey, Head of Macro and Strategy at Yarra Capital Management, delves into the scale of the income shock facing the consumer and matches it against the scale and timing of the fiscal and monetary stimulus. Who wins? Who loses? And what else is needed?

This paper is crafted into four sections, as follows:

• Background on the structure of Australia’s employment market and analysis on the early impact of COVID-19 restrictions on employment data;
• Details on Australia’s fiscal response, which is second only to the USA, which we believe is unlikely to be fully allocated in the alloted time;
• Forecasts on the consumer recovery through 2020, which we believe yield a surprising result for household income; and
• An assessment of what further stimulus measures may be required in order to sustain the recovery through 2021.

In particular, we conclude:

• The COVID-19 hit to labour income in 2Q20 will be -17% (q/q), 8-times the next largest quarterly decline in the post-war period;
• The $130bn JobKeeper package is unlikely to reach the estimated 6 million employees it was designed to capture, resulting in a ~$9bn budget saving;
• A 2H20 consumer recovery appears likely, backed by a fiscal stimulus packages which meaningfully exceeds the contraction in labour income; and
• The 2021 outlook appears more challenging, with further government support likely to be required in order to sustain the consumer recovery.

The full paper can be downloaded here.