Singapore’s Unemployment Rate Jumps: How It Affects Different Companies

Yesterday, the Ministry of Manpower released a report on the conditions of Singapore’s labour market in the second quarter of this year. It paints a challenging picture for Singapore’s economy.

After remaining at 1.9% in the last quarter of 2015 and the first quarter of 2016, the overall unemployment rate in Singapore had risen to 2.1% in the second quarter of 2016.

There were higher layoffs of 4,800 in the second quarter of the year, compared to ‘just’ 4,710 in the first quarter and 3,250 a year ago. Layoffs in the services sector had increased in the quarter and declined in manufacturing and construction. The Ministry of Manpower said that the higher layoffs in the second quarter took place “amid softer economic conditions.

All told, more than 9,500 people were laid off in the first half of 2016, which is the highest since 2009. Meanwhile, for the first time since June 2012,  there are also more job seekers than jobs available and the long-term resident unemployment rate had increased by 0.1 percentage points.

So clearly, the labour market in Singapore had faced tough challenges in the second quarter of this year. How might this development affect the companies in Singapore’s stock market? There are actually two different angles to look at. We can use the experience of Hour Glass Ltd (SGX: AGS) and Sheng Siong Group Ltd (SGX: OV8) to illustrate.

Hour Glass is a luxury watch retailer. It has operations in a number of countries in the Asia Pacific region, including Singapore. The company does not specifically break down its revenue sources by country, but it is very likely that Singapore is a key market – the company has over 40 stores in total and 20 of them are in Singapore.

In the second quarter of 2016, Hour Glass’s revenue fell by 7% year-on-year to S$148 million. Profit declined by 22% to S$8.2 million.

Meanwhile, Sheng Siong is a supermarket retailer that operates in Singapore. Some of you reading this might even be familiar with the company – it has 41 stores scattered across the island.

Sheng Siong managed to post a 5.5% increase in revenue to S$189 million in the second quarter of 2016. With better cost control, the company managed to post an 11.3% increase in profit to S$15.2 million.

For those who are out of jobs, they are likely to cut back on their spending on discretionary items. Spending on necessary staples is likely to be maintained or at worse, scaled back slightly. This is simply logical behaviour.

Both Hour Glass and Sheng Siong are established players in their respective fields, with a long history stretching back decades. But, their contrasting fortunes in the second quarter of 2016 can be attributed to the macro-economic conditions in Singapore then.

When making investing decisions on any particular company, it may be useful to check on the macro-economic conditions and figure out their effects on said company, especially if the conditions are likely to persist for the long term.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.