How long will the jobs market hold up?

From Capital Economics:

123The Australian labour market appears to be coping surprisingly well with the end of the mining boom. However, we suspect that the recent data overstate the strength of the labour market. Moreover, if the economy slows sharply this year, as we expect, then jobs growth will follow suit. By the end of the year the unemployment rate may have risen from 6.0% in May to around 6.5%. This weakening in the labour market will be one of the factors that force the Reserve Bank of Australia to stop sitting on its hands and start cutting rates again.

3 While it may be too soon to dismiss the strength of the labour market as a statistical artefact, there are signs within the data that suggest the recent large gains in employment are unsustainable. In particular, they have been driven by large increases in just a couple of sectors and seem unlikely to be repeated. What’s more, we suspect that mining employment still has a long way to fall, which will weigh heavily on employment growth. (See pages 2-3.)

…We forecast that by the end of the year the unemployment rate will rise from 6.0% in May to close to 6.5%. We expect it will rise above the peak of 6.5% envisaged by the RBA next year too. The RBA will be hard pressed to stand by and keep rates on hold once the unemployment rate resumes its climb.

We at MB are not surprised by the recent firming of the labour market, though it is not terribly strong. If you run a rampant property bubble in your two most populous states then you’re going to get some jobs out of it for a while.

However, as the bubble slows, residential construction tops out, the mining construction boom continues its huge collapse and the vehicle assembly wind down begins, it is spectacularly foolhardy to conclude that the labour market weakness has passed.

Comments

  1. Annoying Devil

    Another sector to experience further falls over coming years is technology. As cloud matures and it becomes increasingly viable for larger businesses to procure their technology needs from a service provider in the US and Asia, many of the traditional IT jobs, that are supported by FIRE will disappear. We should be leading Asia in this space, but the investment and interest is too small.

    • Especially since we have the back haul and internet speeds to accommodate it – oh, hang on.

      I mean uploading and downloading gigabyte files in Sth korea take seconds, while it would take hours to upload one in Australia.

      Soooooo – yeah, nahh.

      LNP got one right for once.

      IT protectionism via isolation and technological ludditism.

      • Cant understand why everyone’s complaining. We copy our data to a usb stick then tie it to the feet of a homing pigeon that takes it to our remote offices. Tony Abbot understands fast internet is only for stupid things like watching movies.

      • Annoying Devil

        Galbraith Lol! Good one. LNP finally got something correct.

        Angry I just had to get a 1G file mailed on DVD because of internet speed issues. Add saving Aus post as another unexpected benefit.

    • Not really, is my take. This will take longer than people appreciate. It IS a trend and has been for 5+ years, but everyone always overestimates how fast these changes come.

      I have exposure to the IT decisions of a lot of companies in my sector and there is some consideration of it, but not much uptake. There are also a lot of failures that people are increasingly aware of. Using a cloud solution does not change your use of the software, which still requires design, implementation, integration etc. And it gives you a whole lot of new worries in your infrastructure, integration and security.

      Where cloud is having an impact is in, my guess, physical hardware sales, but not too many Aussie jobs dependent on that.

      • Biggest one I’ve seen is not meeting SLA. Plenty of times when cloud VMs slow down to a crawl during business hours because the provider haven’t provisioned enough hardware.

      • Don’t want to get into specifics here… but I have seen multiple problems with security and integration in particular. Companies commit to a cloud solution without a good understanding of how to get data in and out. Failure is the result. Very few corporate apps exist as standalone ie they all need to share data with other corporate apps. This is order of magnitude more difficult if one is in the cloud, and bloody impossible if several are in the cloud.

        Other common situation is the difficulty of customising apps in the cloud, because they are multi-tenant in many cases. This means the company has to substitute the missing functionality with something else, and the overall result is failure.

        But in reality, many cloud possibilities get left on the drawing board because of the above and other concerns. Lots of companies would love to get rid of their inhouse ERP and move to solutions like SAP in the cloud, but its just far too difficult.

    • Not true. Cloud is not necessarily a negative for IT workers here. Many companies have data retention requirements which specify days centre must be located in Australia, so I expect Microsoft and Amazon to increase their head count in Australia.

      Also, consultants design the software that goes on the cloud servers, so they will still be around. In fact they can expand their market to businesses that previously couldn’t justify enterprise level server software and hardware.

      I feel cloud had greatly expanded potential customers for IT consultants. In fact, I feel I’m contained by the state of Australian internet because I can’t provide some worthwhile services for some businesses because their internet is a show stopper.

      • alterbrainMEMBER

        OK then lets take the example of Converged Infrastructure where the experts needed to design and implement the hypervisor layer are being made surplus to requirements. Years of training and expertise soon to be worthless.

      • alwaysanonMEMBER

        The issue is that the likes of AWS and Azure eliminate many well-paid specialisations within the industry. You used to need the Load Balancer guy (F5 certified), the Firewall/Router guy (Cisco or Juniper Certified), the DBA, etc. Now with one comprehensive API all of the set up and maintenance of those services can be done with a few lines of code by a good DevOps person. The pendulum is going to swing back to quality over quantity of staff – there’ll be a few really unicorn people on $150k who can pull the IaaS/PaaS strings and scores of people no longer required. The good news is that the jobs will be in Australia – the bad news is that there will be far far fewer of them. The other good news is that a whole layer of middle-management and governance is going to go as well – if you have a handful of guys automating the job of whole teams then there are fewer people to manage…

  2. I fail to see why they need to cut rates again -I think that’s BS ! They should be raising rates together with certain Capital controls to lock in overseas Hedge Funds etc that may be tempted to shift large cash holdings in & out of our economy. The Reserve Bank could even have separate rates -higher for Domestic use & lower for Non residents. While I don’t rely at all on interest there is huge damage being done to average retirees who can’t get even a modest return on Capital. Forcing stupid & or ill informed people into our highly overvalued share market in the hope of a return is criminal & you guys know it !

    • Agree, but it’s the only tool left as fiscal expansion has been ruled out by the brains trust. When the Fed bump rates if we are caught in an easing cycle the poop will hit the fan big time.

  3. About 6% of the Workforce is Working Visas or International Students. If some go home, then unemployment doesn’t go up but amount of employed decrease. So it is hiding the job losses.

    • Just to add a bit of data to your reasonable point, from the most recent department of immigration report on 457s:

      “The number of primary visa holders in Australia on 31 March 2015 was 106,750, 4.5 per cent lower compared with the same period in the previous programme year”

      Note that primary visas refers to the ones who are allowed to work (secondary visas are their dependents. The decline seems to largely because fewer 457s are being granted – applications are up but grants are down.

    • The ABS report the total estimated workforce size as a part of the unemployment stats print – that has been growing continuously, not shrinking. So there goes that theory?

  4. C.M.BurnsMEMBER

    Yay, more rate cuts without macro prudential. Lorax will be so happy. I wonder how high the aud will go.