Months of unrest starting to push up unemployment rate

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 recently took on a 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." His 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 had remained below 3 per cent since January 2018, that strength is waning. The rate rose to 3.1 per cent last month, more than the 3.0 per cent forecast in a Bloomberg survey of economists, data released on Monday showed.

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 5.0 per cent for the August-to-October period, the highest since early 2017.

Things were even worse in the food and beverage sector, where unemployment hit 6.1 per cent, the highest in more than six years.

Ginevra Tonelli, a sales assistant at clothing shop Excuse My French in Hong Kong's 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."

She expects unemployment in the retail, accommodation 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. The city's labour force participation rate has remained above 60 per cent since 2011, says the Hong Kong Census & Statistics Department.

Tommy Wu, senior economist with Oxford Economics in the city, said: "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."

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

Kevin Lai, chief economist for Asia (excluding Japan) at Daiwa Capital Markets, said: "Small businesses can hang on for three to six months." 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 year's peak spending periods, will be a make-or-break time for 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 5pm, it was packing up. 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

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