Australia’s Anemic Jobs Market

By Ari Charney • October 11, 2013 • Pacific Digest

Although business sentiment among Australian companies showed a marked improvement in the lead-up to last month’s federal elections, an upbeat outlook alone wasn’t enough to spur a sudden hiring spree. Still, the ascendance of the ruling Liberal-National Coalition, which is expected to be more favorably disposed to business interests than its predecessor, should ultimately help our resource investments, thanks in part to Prime Minister Tony Abbott’s pledge to scrap both the carbon tax and the Minerals Resource Rent Tax (MRRT).

But the sluggish jobs market suggests that the new government has considerable work to do in helping Australia’s economy find new growth drivers beyond its peaking resources sector. The latest employment data from the Australian Bureau of Statistics show that the economy added just 9,100 jobs in September, well shy of economists’ consensus forecast of 15,000 new jobs.

And while the unemployment rate dropped two-tenths of a percentage point, to 5.6 percent, that was largely due to a declining labor force participation rate, which fell a tenth of a point to 64.9 percent, the lowest level since late 2006. The participation rate is on a worrisome trend, as it’s now fallen for the third consecutive month, as discouraged job seekers simply stop looking for work. According to Westpac, total employment is up just 0.8 percent year to date, which underscores the extent to which this is a difficult job market.

The mix of new jobs created wasn’t especially encouraging either. Gains in full-time employment accounted for 5,000 new jobs, while part-time employment added 4,100 new jobs. For greater context, let’s examine the average monthly job creation that’s prevailed over the trailing three-year period. During that time, the economy has added an average of 6,500 full-time jobs each month and 4,900 part-time jobs per month.

On a year-to-date basis, however, the issues with the job market appear much starker. The economy has actually lost an average of 600 full-time jobs per month so far this year, while adding an average of 8,400 part-time jobs each month. Lower-quality part-time jobs are hardly the sign of a healthy employment market.

Another vexing indicator is the decline in total hours worked. In past reports, this figure suggested that though employers were reluctant to hire, the demand for greater productivity was still there, as companies were simply wringing more hours from their existing workforce.

Indeed, the total number of hours worked had grown 2 percent year to date through August, according to Westpac, but the September numbers fell by four-tenths of a percentage point month over month. That decline was of sufficient magnitude to drop the year-to-date growth in total hours worked to just 0.6 percent.

The strongest job gains were in the mining states of Queensland and Western Australia, which offers further evidence that the resource boom’s peak is more of an extended plateau. At the same time, the resurgence in the housing market has made the construction sector the second-largest contributor to job growth this year (after public administration), with new jobs up 8.1 percent year to date.

The latter figure comports with what we’ve been repeatedly asserting in recent months: With the resource sector losing momentum, historically low interest rates suggest that real estate could be the next driver of the economy. The only problem here is if the housing market overheats too quickly and, therefore, prompts policymakers to act.

Many economists have been sounding the alarm about the housing market lately, especially since, unlike many of its developed-world peers, Australia didn’t suffer a generational collapse in home values during the Global Financial Crisis. As such, home prices in some areas are already setting new all-time highs.

Despite these headwinds, it’s entirely possible that the economy is at a near-term trough, as a number of favorable factors are now in place to boost the economy, including low interest rates and a declining Australian dollar. But that doesn’t mean the grinding process toward an eventual rebound won’t occasionally be unsettling.

The Roundup

Our analyses of Portfolio companies’ recent earnings reports are linked below.

Conservative Holdings

Aggressive Holdings

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