of this size represents an enormous shock to the labour market. employment declined by more than 850, 000 in april and may. although some people regained employment in june, the unemployment rate increased by more than 2 percentage points over these three months. the increase would have been much greater were it not for the jobkeeper program preserving many employment relationships over this period. we expect that employment and total hours worked will decline over the next few months, partly because of the increased activity restrictions in victoria. elsewhere, the recovery in employment and hours should continue, but there could be setbacks. payroll data suggest that the recovery in employment began to falter in the second half of june and into july, even before the lockdown in melbourne came into effect. in this baseline scenario, we expect the unemployment rate to continue to increase over the rest of this year ( graph 5 ; graph 6. 2 in the smp ) ; indeed, unemployment is expected to increase in all three scenarios. the current activity restrictions in victoria will result in some further job losses there. in addition, an unusually large fraction of people did not actively look for work in april and may, because there are in many cases simply no suitable jobs to apply for during periods of activity restrictions. so they are recorded as having left the labour force, not as unemployed. over time, and as job opportunities become more evident, we expect that many of these people will start actively looking for jobs again. this increase in labour force participation is expected to outpace any recovery in employment outside victoria in the second half of this year. graph 5 the main driver of the initial contraction has been consumption. many categories of consumption were simply not permitted during the height of the lockdowns. even now, some are still not permitted, such as overseas tourism. people substituted by spending on other things – in particular, they bought goods rather than services. but substitution can only go so far, so quickly. we estimate that household consumption declined over 10 per cent over the first half of the year. we expect consumption to recover some of this decline quite quickly ; in fact, it already has. part of this is a response to the expansion in consumption opportunities as businesses reopen. it is also made possible because there has been income support to help to sustain this. although many people lost their jobs over recent months, government support has meant that total household income has not fallen in aggregate. this has been a surprising outcome of the current episode. on top of the income transfers,

does show how quickly things can change in a pandemic. policy and forecasts the statement on monetary policy contains more detail on the outlook and other issues that i have not covered today. it represents the culmination of our analysis of the economy and financial markets over the past few months, and is the product of the hard work of many bank staff. in my talk today i have focused on the bank's outlook rather than all the other material presented in the or the details of the fiscal and monetary policy response. these have been discussed in statement detail elsewhere. i would nonetheless like to conclude with a few brief remarks on how both fiscal and monetary policy have shaped our view of the economic outlook. the covid - 19 pandemic has been the most profound shock to the economy and society in many decades. all arms of public policy need to pull together to combat the spread of the virus and support the economy through the recovery. monetary and fiscal policy are key parts of the response. the package of measures introduced by the reserve bank board in mid march are intended to support the australian economy by keeping funding costs low and credit available. the board's assessment is that so far these measures are working as intended. funding costs for banks, firms and households are all very low. credit remains available and other policies have meant that borrowers in difficulty have been able to defer their repayments if needed. likewise the transfers to households and businesses coming from fiscal policy have supported incomes during this difficult period and provide a platform for the recovery. the jobkeeper program and various support for businesses have also ensured that employment relationships have been preserved to date and viable businesses can tide themselves over the period of disruption. on tuesday, the board affirmed its commitment to do what it can to support jobs, incomes and businesses in australia. it will maintain this accommodative approach for as long as this support is required, to help build the bridge to the recovery. endnotes [ * ] my thanks to the many colleagues in economic group involved in putting these forecasts together, as well as colleagues from financial markets group and communications division who also contribute to the. monetary policy statement on the materials on this webpage are subject to copyright and their use is subject to the terms and conditions set out in the copyright and disclaimer notice. © reserve bank of australia, 2001 – 2020. all rights reserved. the reserve bank of australia acknowledges the aboriginal and torres strait islander peoples of australia as the traditional custodian