The Job Market Is On The Up!

The Australian economy is creating jobs again.

The big questions are where? How many? And will it last?

Before we get to those sorts of specifics, it should go without saying, but the best thing to generate jobs and lower the unemployment rate is a growing economy.

If an economy is registering a solid rate of expansion, in Australia’s case that means GDP growth of 3 per cent or a touch more, firms will be profitable to the point where they will be keen to invest and therefore able to hire more workers.

Over the past couple of years, the GDP growth rate has been stuck a little below 3 per cent which has meant that the unemployment rate has drifted higher, from a low of just below 5 per cent to a level now around 6 per cent. This is not too bad, given that in the past, the unemployment rate has hit 10 per cent and more when the economy has slowed and fallen into recession.

There are some signs that the jobs market is starting to turn higher with nearly 100,000 jobs created in the past six months. This is despite the negativity in the headlines regarding Qantas, the car industry and some other parts of manufacturing. 

The economy is growing faster, at around 3 per cent, helped by low interest rates. This stronger growth rate means that the forward indicators show demand for labour increasing.

The ANZ job advertisement series has risen for the last six months - demand for new workers is on the rise. It is a similar picture with the Dun & Bradstreet survey which shows that expected hiring will increase over the next three months as the rate of economic growth picks up.

When looking at where the jobs will be come from, it is clear than construction activity is on the rise, for both housing and for areas relating to infrastructure and other non-residential activity. With housing poised to a have a record year in terms of the number of new dwellings built, further job gains in construction and related industries seems certain.

At the same time, consumer demand has been robust as households respond to low interest rates and rising wealth with more spending. While the recent budget has hit consumer sentiment, at least in the near term, retail sales remain solid and given that this is a large and labour intensive part of the economy, more jobs are likely to be created in this sector. A strong retail sector should spill over to transport given the need to move and deliver goods to match the rise in demand.

The other areas of strength are undoubtedly in the services area. With an aging population, workers will be needed in aged care, health and disability services, the latter being boosted by the government policy to implement disability funding. Indeed, over the last five years, employment in this personal services sector of the economy has increased by almost half a million. It seems likely that similar increases will occur over the years ahead.

Amid the more favourable outlook for the jobs market, there will be some sectors that will remain under pressure.

The most obvious area of weakness will be in the public service where the recent Federal budget confirmed that around 16,500 jobs will be shed, over time, as the government looks to move the budget towards surplus. And this is just the Commonwealth government. State governments too are under financial pressure and the risk is that they will also move to reduce the employment of public servants.

Other than in niche areas, employment in manufacturing is also likely to remain depressed. The still high level of the Australian dollar, plus the continuing strength in low cost producers, especially in Asia. In the last five years, around 75,000 jobs have been lost to manufacturing and while a stronger local economy will help to cushion any weakness, the pressure from overseas competitors is likely to be very powerful.

When taking account of all of the drivers at play, employment growth is likely to remain solid in the year ahead for job creation as the economy continues to expand.

In each sector, there are likely to be significant differences in how strong demand for workers will be, but in the end, it is likely that the overall picture for employment will be positive.

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The Job Market Is On The Up!

Stephen Koukoulas is one of Australia’s leading economic visionaries, past Chief Economist of Citibank and Senior Economic Advisor to the Prime Minister.

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