The Australian Bureau of Statistics (ABS) has released another monthly trove of data which shows Australia may be inching towards a recession.
The unemployment rate is key because it tell us how many people don’t have a job, which means they can’t pay for their basic necessities let alone any discretionary expenditure.
According to the ABS, the seasonally adjusted unemployment rate increased to 5.2% from 5.1%, which had increased from 5% earlier in the year.
There was actually an increase of employment of 28,400 people, however full-time employment decreased by 6,300 and part-time employment increased by 34,700. Essentially, there were more people added (as a percentage) to the ‘looking for a job’ group than the ‘employed’ group. Unemployment increased by 21,200 to 703,900 people.
The underemployment rate also increased by 0.3% to 8.5%, meaning that more people would like to increase their working hours than in March 2019.
What does this mean?
A small change in the unemployment rate does not really mean much. But, it doesn’t paint a great picture when you add it to the rising mortgage arrears reported by banks like Commonwealth Bank of Australia (ASX: CBA) and a decline in cyclical industries such as construction and tourism – like we heard from Experience Co Ltd (ASX: EXP) today.
Other businesses that could suffer if unemployment keeps rising are retailers like JB Hi-Fi Limited (ASX: JBH) and employment related businesses such as SEEK Limited (ASX: SEK) and McMillan Shakespeare Limited (ASX: MMS).
An unemployment rate of 5.2% is still very good and only takes us back to 2018, but it would be a worry if it keeps trending upwards in the coming months.
I would rather invest in these quality, defensive ASX shares to see me through any turbulence rather than own cyclical shares right now.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of EXPERNCECO FPO. The Motley Fool Australia has recommended EXPERNCECO FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.