S.Korea's services jobs rebound strongly post-MERS

The seasonally adjusted unemployment rate improved more than expected in August, falling to 3.6% (Barclays: 3.7%; consensus: 3.8%) from 3.7% in July. The pace of hiring in other services recovered strongly after the shock from the MERS outbreak receded. 

The rebound in services hiring also coincided with the improvement in the consumer sentiment index, which ticked up to 102 in August after dropping to a two-year low of 99 in June. We believe job creation in services is likely to be the key pillar of support in the near term, alleviating weakness in manufacturing hiring. Indeed, we expect manufacturing employment to face some headwinds in the coming months. High inventories (inventory/shipment ratio held firm at the recent high of 1.29x in July, slightly below the record high of 1.30x in 2008 during the GFC) will likely weigh on production, while declining market shares, especially in the key markets such as China, will continue to hurt Korean handset makers. 

According to Korea Economic Daily, Samsung Electronics is preparing to cut 10% of its workforce at its headquarters, although it has not specified when the cuts will be made. The softness in manufacturing is likely to keep the unemployment rate relatively elevated in the remaining of the year.  

Delving into the details, the end of the MERS outbreak pushed up services employment in August, notably in other services (Aug: +72k; Jul: +37; Jun: +1).  Employment in commerce and finance-related sectors also posted solid gains, adding 10k (Jul: flat; Jun: -1k) and 18k (Jul: +4k; Jun: -8) in August, respectively. In contrast, the construction sector gave back some of its earlier job gains, after registering the largest monthly increase in July (Aug: -20k; Jul: +31; Jun:+1). 

Another disappointing sector was agriculture, where jobs declined by 31k last month (Jul: +8; Jun: -8). Manufacturing hiring was steady, adding another 1k after last month's hiring surge of 62k in preparation for more new launches in auto and mobile sectors. 

"We expect manufacturing hiring to be under pressure in the near term, given the inventory buildup in autos and handsets," said Barclays. "Moreover, with key indicators for the services economy showing a healthy post-MERS rebound, we believe the urgency to act immediately is still low. We believe the existing focus on engineering a weaker KRW bias - possibly by stockpiling more essential commodities such as fuel - will remain."