NAB sees 100k jobs falling off capex cliff

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From Sky News:

The jobless rate could soar to 6.5 per cent this year, and prompt another interest rate cut by the central bank, as the mining investment boom unwinds.

National Australia Bank chief economist Alan Oster expects mining investment to halve – from eight per cent of gross domestic product to four per cent – and result in the loss of 100,000 jobs lost over the next 12 to 18 months.

He also expects non-mining investment to struggle to fill the void left by the boom.

NAB sees unemployment tracking up from its current level of six per cent, to about 6.5 per cent, before coming down toward the end of the year on the back of government action.

‘Our assumption is that something is going to happen,’ he told the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) annual conference in Canberra on Tuesday.

‘You can’t have it at 6.5 per cent and the government not do anything.’

Meanwhile, the Guardian’s Greg Jericho has written a good analysis of last week’s disappointing capital expenditures (capex) survey, which seems to back-up NAB’s claims:

The capital expenditure figures released last week were the type of economic data that sends a chill though the economy. If any data released by the ABS can be scary, these were it, as hopes for a “soft landing” from the mining investment boom were obliterated…

If we focus on mining, we see the expectation for investment in 2014-15 is 25.2% below what the first expectation for such investment was in the 2013-14 year:

ScreenHunter_1478 Mar. 04 14.21

That [17% fall] is the biggest annual drop in mining capex expectations since 2000, and the second biggest fall since the ABS began compiling these figures in 1988…

The chill such a drop in expectations brings to the economy is obvious when you compare initial expectations of mining capex with the actual result:

ScreenHunter_1479 Mar. 04 14.24

The picture in manufacturing is no better. The initial estimate for manufacturing capex in 2014-15 is 19% below what was first expected for 2013-14…

It would also see manufacturing investment as low as it has been for 25 years.

…the investment boom is the one that leads to employment growth – because you need people to build those buildings, structures and to use that new equipment.

And, with this expected decline in investment, hopes for a pick-up in employment will have to come from industries less reliant on massive capital expenditure – namely the services sector.

 

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Comments

  1. ‘You can’t have it at 6.5 per cent and the government not do anything.’

    Is 6.5% really that high?

    Unemployment never got as low at that through almost the entire 1990s

      • Would that not risk further stoking inflation, and hence interest rate rises, since inflation is already borderline?

        One of the great boasts of the LNP during the Howard years was how low they kept interest rates.

        Regardless of the veracity of that statement, it is part of their mythology as “good economic managers”.

        They can maintain this, along with their other goal of further enriching the wealthy, through relative austerity.

      • I am waiting for someone to come and say we can “look through ” inflation this time. Treasury has already said it. When they do several million property investors will all edge their vote so I see it as inevitable.

      • Providing inflation is of the pig through the python variety they may well do that.

        But if the world’s factory has pricing power and starts raising prices or allowing its currency to rise (as an alternative to buying US treasuries by the boatload) we may find a congo line of piglets moving through the python down under and it may prove a lot more difficult to hose down inflationary expectations if that happens.

    • You’re right, but memories are short – unemployment seems high if it is high compared to any time in the last two or three years.

      But yes, it would be great if 6.5% was indeed the peak.

    • It’s abit like comparing interest rates in two eras. In the 90’s it was up was pushed wards of 17% to cool (and crash) the economy. In 2007 it only got to 8-9% to get the same effect. 6.5% (in reality 7.2%) is probably the economies pain threshold given the high debt levels that now require two incomes to support.

  2. lets not forget the divergence of ABS and RM figures.
    That 6.5% is ABS, and i question how accurate the ABS has been of late

  3. He forgot to mention the loss of the Auto industry as well. It is interesting that none of these bank hacks have the balls to say recession, but I suppose its always a good time to borrow more money even if unemployment is rising because of the RBA Put Option. But we are only 250bps away from the liquidity trap and deflation and then whole thing starts to get weird.

    I have waited patiently for this and its turning out better then I expected. I will buy my house with cash rates at 0% and the market in meltdown. I think after the LMI guys go down that will be the bottom.

  4. He forgot to mention the loss of the Auto industry as well. It is interesting that none of these bank hacks have the balls to say recession, but I suppose its always a good time to borrow more money even if unemployment is rising because of the RBA Put Option. But we are only 250bps away from the liquidity trap and deflation and then whole thing starts to get weird.

    I have waited patiently for this and its turning out better then I expected. I will buy my house with cash rates at 0% and the market in meltdown. I think after the LMI guys go down that will be the bottom.

  5. Indeed Rod and all the other industries and manufacturers that are either out of business or off shore.
    That’s the point these bwankers believe in the magic new jobs pudding and yet they lend very little to start ups or business.
    There are very few new jobs out there that on one wage will cover eating and a 500k mortgage…

    • There are very few jobs out there that on one wage would cover a $500k mortgage. Wanting to eat as well is just being unrealistic…

      • Yeah, exactly. I heard one of the financial commentators on Sky News loudly complain that nobody talks about all the new jobs created, only the job losses, but how many of those new jobs are full time or decent paying jobs?