Australia’s labour market exhibited some remarkable strength last year.
Over 300,000 jobs were created, the second highest total for a calendar year since the turn of the millennium. During a time when the economy was growing below trend, and in the midst of one of the largest economic transitions seen in decades, it was a remarkable feat, even with doubts about the validity of the ABS figures.
While total employment growth was massive, there were vast disparities in job creation across individual sectors, clearly demonstrated in the chart below from Bank of America-Merrill Lynch.
Those industries focused on household and business services, particularly healthcare, had a barnstorming year, helping to mask weakness in cyclical industries such as mining and manufacturing.
According to Alex Joiner and Alexandra Veroude, economists at Merrill Lynch Australia, the pattern in hiring last year was merely a continuation of the trend seen in over the past two decades, particularly in the post-GFC world.
“Over the past 20 years, the proportion of employment in services sectors has risen 8.2 percentage points (ppts), whereas cyclical and goods-related sectors and the primary sectors have declined by 6.9ppts and 1.3ppts, respectively,” say Joiner and Veroude.
“The manufacturing sector, which is in structural decline, has been the hardest hit, declining by 6.0ppts. The proportion of employment in this sector is currently at 7.2%, which is the lowest on record. Wholesalers have also been hit, declining 1.8ppts.
“The largest gains have been made in healthcare (up 3.9ppts) and professional services (up 2.9ppts).”
The chart below, supplied by BAML, provides a visual example of the recent trend.
While Joiner and Veroude expect the trend to continue, they suggest that acceleration in job losses across cyclical industries could see unemployment increase this year due to a mismatch in worker skills.
Risks to employment have been well publicised. There are clear cyclical and structural factors working against net jobs growth in many sectors and there are good reasons to expect job losses in others. These headwinds are predominantly in cyclical & goods related sectors and primary sectors, while jobs growth is in services sectors. This mismatch of skills will place upward pressure on the unemployment rate.
The decline of resources sector jobs is the most notable of these risks, as construction projects in the LNG space are completed. In addition, a significant number of people are still employed in exploration despite exploration expenditures declining significantly. There is also ongoing cost cutting in other resources sectors in response to lower global commodity prices. On our estimates, there could be as many as 50,000-75,000 job losses in this space over the coming 12-18 months.
The RBA and others have highlighted that these jobs could be readily absorbed by other sectors in construction, including residential and heavy construction. However, the residential construction cycle has already peaked in terms of the level of building approvals. As such, activity in the sector is expected to decline in the second half of the year.
While this is a forecast and may not eventuate in reality, of course, it’s clear that risks for construction employment – both from the completion of mining projects and expected slowdown in residential construction – are slanted to the downside.
For workers in these industries, or people thinking about upgrading their existing skill sets, it’s fairly obvious as to which industries are hiring, and likely to continue to hire, in the period ahead.