The labour market remains depressed and the best antidote to ending lockdowns and restrictions is getting people vaccinated, say Nedbank economists.
While some 847,000 people had found employment since April last year, the economy is still short a massive 1.4 million jobs compared to Q1 2020 before the pandemic struck, the bank said in a research note this week.
Added to this bleak reality, the number of discouraged workers – those who have stopped looking for work altogether – has increased throughout the pandemic rising to 3.1 million in Q1 – the highest level since the Labour Force Survey started just over 12 years ago.
“The third wave, and further spells of rising Covid infections, will hurt employment. But personal income returned to 2019’s levels despite the dismal jobs situation,” Nedbank said.
“The heavy lifting was done by employee remuneration, some normalisation in other income sources, and receding inflation. This trend is likely to continue, albeit at a much slower pace, during the rest of this year.”
The bank forecasts that jobs will eventually return with greater conviction in 2022, but even then, progress will slow.
These slight gains coupled with moderate growth in wages and salaries are forecast to sustain personal income from next year onwards, it said.
Households have also been conservative, rebuilding savings as a hedge against uncertainty, the bank said.
“Households became net savers in 2020 and remained so in Q1. Wealth also increased, jumping to 387% of disposable income in Q1.
“The resurgence in equity prices and measured growth in house prices lifted assets while subdued borrowing kept liabilities in check.”
The stash of savings and higher wealth suggest households have the means to accelerate spending once confidence returns, Nedbank said.
There was some evidence of this in April and May when bank deposits slowed while loans accelerated.
“However, the third wave will hurt confidence, thereby encourage savings, dampen credit demand and subdue spending. The disruption is likely to be temporary.
“There is no way of knowing how long the third wave will rage, but if it follows a similar course to the second wave, the worst should be over by the end of July. Experience suggests that consumer spending tends to bounce back relatively quickly.”