Those of you familiar with Australia will no doubt have heard the term ‘two-speed economy” mentioned countless times before. It’s the notion that within Australia’s economy there are some sectors performing well while at the same time others lag.
Up until a few years ago the hallmarks of Australia’s two-speed economy were that the mining sector, along with the mining-related service industries, were booming while the rest of the economy was struggling.
However, based off recent trends in Australian job ads growth, it appears the roles have been reversed. Now non-mining industries are starting to show strength while the once high-flying mining sector is struggling.
This chart supplied by the NAB, using data provided by Seek, shows how the tides of the Australia’s economy have turned.
Job advertisements in the mining, resource and energy sectors – in the wake of slowdown in capital spending and sharply lower commodity prices – have seen job postings collapse by a whopping 38% in the space of just 12 months. On the other side of the ledger, hiring across agriculture and high-skilled services industries have recorded solid levels of growth, albeit from levels lower than those seen before the financial crisis.
The divergence on an industry level is also reflected on a regional basis with job ads accelerating sharply in New South Wales and Victoria while those in mining states are increasing fractionally or, in the case of Western Australia, going backwards.
Here’s the chart showing job ads growth in non-mining States.
And that for the mining States.
As the NAB’s chief market economist Ivan Calhoun points out, the increased divergence between individual States and sectors supports “the argument that monetary policy is not well equipped to deal with the current dichotomy of the economy: those sectors that react most to monetary policy easing, interest sensitive sectors such as housing are reacting with some vigour, while mining and related sectors currently dragging on the economy, will largely be unaffected by monetary easing, being mainly impacted by commodity prices and to a lesser extent the $AU.
In other words, while monetary policy has already helped, and is helping to boost those States and industries less-reliant upon mining, those who are reliant upon mining are unlikely to be helped significantly by recent rate cuts.
Thankfully that’s a conundrum the RBA have encountered on many occasions before — dealing with sectors and States with vastly differing economic performance. The challenge for them now, as was the case when the mining sector was booming while others were in the doldrums, will be to get the balance for the overall economy right.