Bigger labour force leaves more Koreans jobless

Unemployment rate rose surprisingly to 3.7% in February from 3.2% in January.

According to Morgan Stanley, Korea's seasonally-adjusted unemployment rate rose surprisingly to 3.7% in February from 3.2% in January, above consensus and our forecast of 3.2%. It was the highest reading in 11 months.

Here’s more from Morgan Stanley:

The main reason for the higher jobless rate was the increased labor force in the month, as college graduates entered the labor market and job openings in the public sector encouraged more people to return to the labor market. The labor force increased by 240,000 persons in the month, exceeding employment growth of 51,000 persons, leading to a higher unemployment rate in the country.

Before seasonal adjustment, the unemployment rate rose to 4.2% in February (vs. 3.5% in January), the first time it has been above 4% since March 2011. The labor participation rate rose to 60.0% in February from 59.5% in January, as more people returned to the labor force.

Construction and Service Employment Up but Manufacturing Employment Down: Employment growth decelerated to 1.9% in February (vs. 2.3% in January), due to weaker agriculture and manufacturing employment in the month. Manufacturing employment was down 2.1% YoY (vs. -2.8% in January), as businesses were not willing to increase hiring in the uncertain external environment.

This was the seventh consecutive month of YoY decline. In January this year, Korea's capacity utilization rate rose again driven by stronger-than-expected production activities. Therefore, if we continue to see tight capacity in Korea due to stronger production demand, we believe manufacturing employment is likely to increase in the next few months.

On the other hand, Korea’s construction employment continued to rise fast at 4.7% YoY (vs. 5.3% in January), as public construction orders gradually stepped up. Employment in the service sector also showed a solid trend, as employment in electricity/transport/ communication/finance increased 4.3% YoY and employment in business and personal service increased 3.4%.

Unemployment Rate Likely to Ease: The higher unemployment rate in February was mainly driven by the increased labor force in the month. In the next few months, we believe that we could see the unemployment rate gradually ease, as part of the newcomers would be absorbed by the labor market, particularly college graduates.

Meanwhile, those who returned to the labor market encouraged by government programs could exit the labor market if they do not get a proper job. As a result, the unemployment rate could gradually decline. Korea’s unemployment rate was close to a 10-year low of 3.0% before February, and thus even the 11-month high of 3.7% is not considered as a high unemployment rate, in our view.