Hong Kong's job market starts weakening as recession deepens

[HONG KONG] After months of political protests and the onset of a recession, Hong Kong's resilient labour market is starting to crack.

Retailers, restaurants and hotels are cutting wages and hours or letting staff go just to survive. An end to the city's record-low unemployment level is widely anticipated if no solution to the five months of turmoil can be found.

Nestor Manuel, 21, is among those affected. He has recently taken a new job as a floor supervisor at Mint Supper Club in Hong Kong's nightlife district after having to shift roles multiple times in recent months. A floor supervisor helps to manage the customer-facing side of a restaurant.

"I've had to switch two times in the past six months during this protest because companies couldn't afford me anymore," he said. "It's sad to see the industry I love dying."

Mr Manuel's previous employer cut salaries at first to hang onto employees, yet soon had to take more drastic steps.

While Hong Kong's overall unemployment rate has remained at 2.9 per cent since July, close to a record low, that strength is waning. The October jobless figure will be released later today and is forecast to rise to 3 per cent.

Meanwhile, the rate in the consumption and tourism-related sector, which includes retail, accommodation and food services, is showing greater signs of strain. It rose to a two-year high of 4.9 per cent for the July-to-September period.

"The labour indicators may remain stable for some time with the alternative measures like unpaid leave or so, but it won't remain stable for long. The labour market will feel growing pain in the following months," said Bloomberg economist Qian Wan.

Things were even worse in the food and beverage sector, where unemployment hit a six- year high of 6.0 per cent.

Ginevra Tonelli, a sales assistant at clothing shop Excuse My French in Hong Kong's trendy SoHo district, said her shop keeps watch on other stores on the street shutting their doors to decide if they need to do the same.

"Sometimes we also wait until the last moment to see if the other shops close, just to be sure," she said. "We are anyway all the time on the computer to check where the protesters are and where they're moving."

With the protests showing no signs of ending, shopping malls, restaurants and the subway system will likely continue to close early, said Ines Lam, an economist at CLSA Ltd.

"Giving workers unpaid leave and cutting hours is employers' first response to the downturn in business revenue," she said. "As I expect protest activities to continue for longer, Hong Kong's tourism, retail and dining sectors are going to see further decline in businesses."

Ms Lam expects unemployment in the retail, accommodations and food services industries to hit 10 per cent by mid-2020, pushing the headline rate to 4 per cent, a level not seen since November 2010.

At the same time, the arrival of a recession means workers may not enjoy the mobility they once had, as options for alternative employment within sectors diminish.

Instead, a need for training to compete likely means the participation rate - or those actively seeking employment - will fall as workers drop out or leave the city instead of looking for a new job. Hong Kong's labour force participation rate has remained above 60 per cent since 2011, according to data from the Hong Kong Census & Statistics Department.

"Some of these workers may choose not to participate in the labour force after being laid off, given that some of them might have been attracted to work because of the relatively higher wages in recent years in the first place," said Tommy Wu, senior economist with Oxford Economics in Hong Kong.

The real pain is expected to begin surfacing in the new year, when months of protests start to more deeply affect spending patterns.

"Small businesses can hang on for three to six months," said Kevin Lai, chief economist for Asia excluding Japan at Daiwa Capital Markets. He expects unemployment will creep up in January, potentially reaching 3.5 per cent in the near term.

The upcoming festive season, one of the peak spending periods of the year, will be a make or break time for many restaurants and retailers.

Christina Wan, owner of fashion boutique Ohemia, recently invested in a booth at a Christmas fair. The results were frustrating.

"The turnout was at least a fifth of what it usually was, and by 5 o'clock it was packing up," she said, standing next to a rack of exercise wear in her shop.

"That was three hours before the end of the fair. So, of course, it's affected a lot of us. Everyone is not happy but at the same time nobody can do anything."

BLOOMBERG