South Korea resurgent hiring in manufacturing offsets MERS impact on services

The seasonally adjusted unemployment rate remained unchanged at 3.9% in June (Barclays: 3.9%; consensus: 4.0%), after ticking lower in March and April from a February high (Apr and Mar: 3.7%; Feb: 3.9%; Jan: 3.4%). The recent shock to domestic demand from the MERS outbreak has weighed on services-related employment, with commerce, finance, transport and ICT altogether shedding 9k (May: +55k; Apr: -22k). 

However, this was offset by a pickup in public administration and manufacturing jobs. The pickup in manufacturing hiring suggests some initial signs that new launches by the auto companies over the summer have started to revive the pace of factory hiring. On a seasonally adjusted basis, the job addition trend extended from May, reversing the two months of declines (June: +15k; May: +46k; Apr: -41k, Mar: -105k). The is also consistent with the trend in nonfarm private sector jobs, which added another 6k in June, following the healthy job additions of 52k in May (Apr: 6k; Mar: -165k)

Barclays notes:

• We expect the unemployment rate to stay elevated in the coming months. That said, the near-term shock to domestic demand and ultimately to services employment from the MERS outbreak will likely be offset by job creation in manufacturing. 
   
• With interest rates at an all-time low, we think the next significant policy move is likely to be fiscal, not monetary. Indeed, on 25 June, the government unveiled a fiscal stimulus package of KRW15trn, including a supplementary budget, which will be submitted to National Assembly in July. 
   
• We estimate that a package of KRW15trn (excluding the loan guarantees that may inflate the size of the package but contain little stimulus) could lift growth by 0.5pp, although the impact will be felt mainly in 2016. 
   
• Additionally, the extended period of soft activity indicators underscores the need for a weaker KRW bias, with the government announcing measures to weaken the currency on 26 June. 
   
• We believe these measures will help in limiting appreciation of the KRW. All said, we think there is still a risk of further easing if the release of Q2 GDP on 23 July undershoots the BoK's July revised forecast (2.8%; Barclays: 3.0%) or if there is no sign of a turnaround in activity indicators.