Weekly economic briefing: Strong jobs growth – where has it come from?

The Weekly Economic Briefing is written by two senior Deloitte Economists, David Rumbens from Deloitte Access Economics in Australia and Ian Stewart Deloitte’s Chief Economist in the UK. They provide a personal view on topical financial and economic issues. Subscribe to receive the Weekly Economic Briefing in your inbox!

In this week’s blog:

Australian economic briefing
UK economic briefing
International economic briefing

Australian economic briefing by David Rumbens

This section of the briefing provides a snapshot of key economic data and issues of relevance to Australia.

Australia’s greenhouse gas emissions and the long road to Paris

 Jobs growth was stellar in 2017. About 425,000 jobs were generated over the year to January 2018, equivalent to very strong jobs growth of 3.5%. So where did all the jobs over the past year come from? And while jobs growth has cooled so far in 2018, and is likely to remain cooler than that of 2017, are the same industries likely to generate the jobs in the rest of 2018 and beyond? Recently released industry-level data from the ABS on jobs and job vacancies enable us to examine this.

As chart 1 shows, health care and social assistance has led the strong jobs growth over the past year or so. With the rollout of the National Disability Insurance Scheme, which continues to ramp up, that’s no great surprise. Ongoing demand for hospital and other health services is likely contributing to this strong jobs growth too.

Construction has been the other key source of jobs growth. That reflects the big role that construction has played in Australia’s economic growth over the past few years – with residential construction surging on low interest rates, strong property price growth and strong population growth. More recently, state government spending on infrastructure has been boosting demand for construction workers.

The recent strength in retail jobs is a little surprising, given that consumer retail spending has been only moderate. Looking at a longer time period, though, the level of retail jobs is little changed over the past few years. Education jobs have been supported by strong growth in the school-age population in recent years.

Interestingly, growth in mining jobs is (slightly) positive. Mining had been a source of major job losses in recent years, as iron ore and coal construction projects wound down. But that story is in the rear-view mirror now, and mining companies are starting to spend again.

Not all industries have witnessed significant jobs growth, though. Manufacturing jobs are broadly flat – despite that sector currently enjoying a bit of a renaissance. Finance and insurance jobs have also been broadly unchanged over the past year, with the ongoing themes of slow credit growth and efficiency drives.

Public administration jobs have fallen over the past year according to the data; as with retail, jobs in this sector have been broadly flat over the past few years. Governments have been continuing to keep a lid on back-office staff numbers and funding more jobs in front-line services such as health and education.

Chart 1: Change in employment, year to May 2018 compared to previous year

Source: ABS; Deloitte Access Economics

Will those trends continue? Last week’s job vacancies data provides a clue. Based on this data (see chart 2), health care and social assistance jobs look set to continue growing strongly. That’s in line with the ongoing NDIS rollout, which is not set to reach full capacity until FY2019.

The outlook for construction jobs remains healthy, even as we expect residential construction to have peaked: the strong pipeline of engineering and, to a lesser extent, non-residential construction looks set to continue driving jobs growth. Meanwhile, the strength of job vacancies data for administrative and support services likely largely reflects construction workers who are hired through labour hire firms, which are included in this category.

While growth in professional, scientific and technical jobs hasn’t been exciting recently, job vacancies point to a pickup in hiring. That may partly reflect the need for more professional services to support the pickup in non-mining capex.

Chart 2: Job vacancies by industry

Source: ABS; Deloitte Access Economics

2017 was an excellent year for jobs growth. We expect jobs growth to slow down this year – and indeed it has already slowed so far in 2018 – but it will still be solid. It looks like health care and construction jobs will continue to lead the charge on jobs growth this year, although a strengthening business sector may see jobs growth broaden to professional and other jobs. And as spare labour continues to be absorbed and the unemployment rate falls, we expect wage growth to slowly rise from current very low rates.

For more information on the Australian brief, please contact co-authors David Rumbens and Monique Champion.

 

UK economic briefing by Ian Stewart

A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to and view previous Monday Briefings at: http://blogs.deloitte.co.uk/mondaybriefing/

UK CFOs defensive and watchful

  • The second quarter Deloitte survey of UK Chief Financial Officers released today reveals growing concerns about Brexit and a marked shift towards more defensive balance sheet strategies.
  • The boost to CFO spirits seen in the last survey, carried out in March, as a result of the announcement of the Brexit transition deal, has been short-lived.
  • Three quarters of CFOs expect Brexit to lead to a deterioration in the business environment in the long term, the highest proportion since we asked this question in the immediate aftermath of the referendum in late June 2016. CFOs once again rank Brexit as the top risk facing their business, with concerns about weak UK demand in second place. The global backdrop has become more challenging too with CFOs increasingly concerned about protectionism and slowing euro area activity.
  • CFOs are reacting to a weaker domestic outlook with a sharper focus on cost control and building up cash. UK corporates are placing as much emphasis on defensive balance sheet strategies as they did during the height of the euro crisis and immediately after the euro area referendum.
  • The effects of home-grown risks are having a particularly marked effect on domestically focussed businesses. CFOs in businesses that derive in excess of 70% of revenues are running their balance sheets much more defensively than those businesses which make most of their revenues outside the UK.
  • Wage pressures seem to be building. 44% of CFOs report that recruitment difficulties or skills shortages have risen in the last three months, up from 31% in the first quarter.
  • Business sentiment continues to be buffeted by the news on Brexit. The mid-year position of the UK corporate sector is defensive and watchful. How that changes over the rest of this year will be heavily dependent on the unfolding negotiations between the UK and the EU.
  • To read the full report and download the survey data please click on the link below:
    https://www2.deloitte.com/uk/en/pages/finance/articles/deloitte-cfo-survey.html

PS: Last week we wrote about the pressures facing emerging markets (EMs). Recently, the Institute for International Finance (IIF) noted that purchasing managers indices are increasingly desynchronized across different regions, which mirrors shifts in capital flows in recent weeks with surging allocations to the US, at the expense of emerging markets in particular. In another sign of stress, the Argentinian peso fell to a new record low against the dollar, reflecting concerns about high interest rates and inflation.

The IIF also highlight the potential spill overs to other EMs from an escalation in China-US trade tensions. China’s economic performance has a big impact on other EMs as it provides significant demand for their exports.

OUR REVIEW OF LAST WEEK’S NEWS

The FTSE 100 ended the week down 0.6% at 7,637.

International economic briefing by Ian Stewart

Economics and business

  • Turkey President Recep Tayyip Erdogan has assumed extensive new executive powers after being re-elected for another five-year term
  • Chinese equities fell to a near one-year low amid concerns over rising Sino-US tensions
  • US motorbike manufacturer Harley Davidson announced it would move some manufacturing operations outside of the US in response to EU tariffs on US imports
  • UK population growth slowed to a decade low in the 12 months to June 2017
  • Net immigration to the UK from the European Union fell to its lowest level on record in the second quarter of 2017
  • UK consumer borrowing slowed in May to its weakest pace since 2015
  • Investment in the UK car industry has halved in the first six months of the year compared with the same period in 2017, according to the Society of Motor Manufacturers and Traders
  • Brexit is the biggest factor hurting UK productivity, according to Ian McCafferty, the outgoing member of the Bank of England’s Monetary Policy Committee
  • A report on the UK’s financial system written for the Labour Party by GFC Economics proposed setting the Bank of England a 3% productivity target
  • Euro area inflation rose to 2% in June, up from 1.9% the previous month
  • US inflation hit a six-year high of 2.3% in May
  • The Bank for International Settlements expressed concern that rising debt levels in European countries at a time when the ECB is preparing to end bond purchases could raise bond yields
  • Ride-hailing app Uber has been granted a 15-month probationary license to continue operating in London
  • Almost 300 ATMs are closing every month in the UK, according to consumer group Which?
  • Earlier this month economists chose Germany, who were knocked out last week, as the most likely winner of the World Cup
  • A model developed by economists at the investment bank Goldman Sachs predicts England will reach the World Cup final
  • The World Cup is expected to provide a big boost to sales of electronic goods and alcohol in the UK, according to the latest Bank of England Agents’ survey

 

Brexit and European politics

  • EU27 leaders warned Prime Minister Theresa May about the increasing chances of a no-deal Brexit situation and urged her to shift her Brexit “red lines”
  • The FT reports that the EU is increasing work on emergency plans to mitigate economic disruption if the UK leaves with no-deal
  • Governor of the Bank of England, Mark Carney, said the UK has “a rock-solid solution” to ensure financial stability in the event of a no-deal Brexit
  • 44% of German companies are afraid that Brexit will lead to less trade with the UK, according to a recent Deloitte survey
  • Sixty former cabinet ministers, MPs, economists and business figures urged Theresa May to step up preparations for a no-deal scenario and not pay the £39bn in the UK’s divorce settlement
  • Catalan President Quim Torra said that his “first request” to the new Spanish prime minister will be a new Catalonian independence referendum
  • The FT reports that the prime minister is considering seeking a deal which maintains many aspects of the single market to avoid regulatory checks at the Irish border

And finally…

  • America’s cheese stockpile hit an all-time high of 1.69bn pounds due to a fall in demand and a surplus of milk which has a longer shelf life when made into cheese – quantitative cheesing

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