Roy Morgan: Business focussed on “internal efficiencies”

Last week at the Senate Standing Committee on Economics, RBA Deputy Governor, Phil Lowe, argued that:

In our central forecast we have the unemployment rate drifting up probably to around 5½ per centsome time over the course of the next year and then gradually coming down a little bit. What we detect at themoment when we talk to business is some reticence about hiring. In 2010 businesses were prepared to hire on the prospect of stronger demand. Now they want to actually see the stronger demand before they commit to taking onextra workers. That is attributing to the softness in the labour market. Over time, if our view about the demand strength in the economy turns out to be true, I think businesses will feel that they have the confidence to actually go and hire workers a bit more aggressively again than they have over the past year and so the unemployment ratewill then drift down a bit. But most of the time over the next two years I think we will be sitting with the unemployment rate between five per cent and 5½ per cent.

Today Roy Morgan released some new research on actual business planning. The results were similar to Dr Lowe’s utterences:

“This new Roy Morgan survey reveals that many businesses are expecting the economy to play an increased role in business performance in the coming year. When looking at the results from a broader perspective, the overwhelming majority of all businesses expect the economy’s influence to either stay the same or increase over the coming 12 months, whereas only a tiny percentage expect the economy to have less influence. With this mindset it is not surprising that the single most often mentioned strategy is ‘internal efficiencies’, although business outlook and strategic perspective differs across industries even more than by business size.

“However, some businesses are looking for growth through new products and services, organic growth, and expansion into new geographic markets. Acquisitions and mergers are mentioned by 15% of medium and large companies, 11% of small companies and 4% of micro businesses.”

My view of this is that it is more permanent than Dr Lowe reckons. In fact, it is a new normal of lower demand growth, not any passing issue to be blamed on Europe or anything else. Business is steadily realising this and seeking efficiencies. As it finds them it will be able to grow more quickly without employing more people. We’ll all be better off, however, as we make more of our limited capital stock. That’s the productivity tradeoff.

Comments

  1. So productivity growth kicks in at exactly the right time when everyone is whining about it? And FairWork gets portrayed as a net positive since the increased unfair dismissal laws give better incentive to improve productivity rather than be lazy?

  2. Focusing on internal efficiencies = freezing or reducing employment. That’s what I am doing at the moment with my department. I began with freezing despite business growing reasonably well last year. Our neighbours upstairs went into liquidation at the end of last year. A few hundred people lost their jobs.