In the year to 2019 Q2, total employment grew by 364.2k or 2.9%yr. The lion’s share of this gain came from the 136.8k rise in business and household services industries. The next largest contribution was retail & wholesale, +107.9k, while leisure & hospitality added 71.5k and education & health added 69.7k. Construction was flat, with just +6.7k new employees in the year, while production employment (manufacturing, mining, utilities & agriculture) fell –28.5k.
It does appear that the key cyclical industries, which are those that historically dominate male employment, remain in the doldrums while the non-cyclical sectors (which tend to be more significant employers of females) are driving employment growth. To look into this further Westpac completed an industry breakdown analysis to try to cast some light on the “tension” between soft GDP and robust employment growth.
We define “non–cyclical” industries as covering: public administration; education and training; health care; agriculture and utilities. Cyclical industries are considered to be the other thirteen except professional services which are excluded due to their quasi status – i.e equally driven by both cyclical and non-cyclical factors. Cyclical industries include: construction; manufacturing; retail and wholesale trade; accommodation; transport; finance; mining; real estate; recreation; and media.
In the year to Q2 non-cyclical employment lifted 130k while cyclical employment has lifted 146k. In terms of pure contribution, it does appear that cyclical industries have been doing okay. But there are two important factors to consider, the relative size of the sectors and the choppiness in the data.
While in head count terms the sectors are similar, in growth terms non-cyclical is much stronger, a robust 3.3%yr compared to the more modest 1.9%yr pace for cyclical. On the second point, the employment in the cyclical sector stalled through 2018 Q3 to 2019 Q1, at which point annual employment growth was just 0.1%yr. Meanwhile the non-cyclical sector was storming along at 4.3%yr. The choppiness in the data masked the trend weakness in the cyclical sector at June.
Smoothing the data with a two quarter average highlights the underlying trends. On this basis, in the year to Q2, non-cyclical employment has grown by 149k while cyclical has lifted just 76k. Compared to total employment growth of 2.6%yr, noncyclical employment grew 3.8%yr while cyclical industries grew just 1.0%yr. You can still see the recent choppiness in the data, with six month annualised growth in non-cyclical employment slowing to 2.7% from 5.2% in Q1 while cyclical employment improved to 1.2% from –0.1% in Q1. Despite the recent improvement in cyclical employment this sector continues to underperform relative to the non-cyclical sector. In the last year cyclical employment has shrunk from 60.4% of total employment to 59.5% while non-cyclical has growth from 31.3% to 31.7% (the other 9% is the excluded professional services).
The following state analysis is based on two quarter average trend data. This data highlights that the weakness in cyclical industries is focused very much in NSW and Victoria while the gains in the non-cyclical industries have also been focussed in those states.
Construction remains weak shedding more than 20k employees in the year. The state data suggests the construction downturn is very much concentrated in NSW and Vic with each shedding about 12k employees. A correction in construction is continuing in WA where 7k employees were shed, while the main source of growth was the 9k gain in SA.
The production industries – manufacturing, mining and utilities – were the other main source of weakness shedding 18k employees over the year. NSW was the main source of weakness shedding 18k employees while Vic lost just 7k. The mining states were flat while SA and Tasmania managed to add around 3k each. The weakness in NSW was focussed in the 31k loss by manufacturing with small losses in utilities and mining. The big offset in the last year was a 21k jump in agriculture, forestry & fishing. Given the deepening and lengthening of drought conditions in rural NSW there clearly is a risk of a significant correction by year end, suggesting the weakness in NSW production employment could extend well into 2019.
More than offsetting the weakness in those cyclical sectors has been strength in what we define as business and household services industries. Employment here rose almost 220k in the year nationally with the gains focussed in NSW (+77k) and Vic (+101k). In Vic, the gains in business and household services represented 79% of that states lift in total employment, while in NSW it represented a smaller, but still significant 51% of that state’s gain in total employment. The gains in Vic were, in part, due to a solid 58k gain in professional services. But even outside of that, public administration grew 21k employees and administration & support lifted 14k. Non-cyclical industries remain key to robust employment growth in Vic.
The other sectors are more mixed by state but the standouts are the 73k gain in leisure & hospitality in NSW and the 30k loss in education and health employment in WA.
Another way to put it is that the Aussie labour market is currently a ward of the state.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
