The Australian economy has endured a difficult 2023. The Reserve Bank raised the cash rate 425 basis points in 18 months to try to curb inflation. This has weighed heavily on household spending and dwelling investment. As a result, we head into the summer months with extremely fragile consumer confidence, and business confidence is also starting to give way.
Despite the economic slowdown, the Australian labour market has performed strongly for most of this calendar year. In 2023, an additional 405,500 Australians are expected to have gained employment, the unemployment rate still hovers near a 50-year low, and labour force participation sits at a record-equalling high.
So far, the labour market has been resilient to wider economic forces and the rate hikes from the Reserve Bank. Job losses have been minimal so far, despite tougher conditions for many businesses. This could be because of labour hoarding – real output growth has slowed a lot quicker than employment growth, suggesting that employers may be hanging onto staff even when they are not fully utilised.
Retaining workers is often a sensible strategy when employers expect conditions to pick up again, particularly when it has been difficult to attract skilled workers. The risk is that if the downturn becomes protracted (perhaps driven by a trigger-happy RBA) unemployment could take a double hit in the year ahead.
Chart 1: National Employment Outlook (calendar year employment growth)
Source: Deloitte Access Economics Employment Forecasts: November 2023 edition
The latest Employment Forecasts notes that the labour market is likely to cool off significantly as we head into the summer months. Despite a remarkably low unemployment rate and high participation rate, most labour market indicators suggest a tipping point.
The first signs of trouble have been through job vacancies, which are now 15.2% lower than a year ago - indicative of lower demand for labour. Looking ahead to next year, Deloitte Access Economics expects tougher economic conditions to weigh down on firm hiring decisions. We are forecasting national employment growth of just 0.5% (75,000 workers) in calendar year 2024, before gradually increasing to 1.3% (177,000 workers) in calendar year 2025. We expect this to be accompanied by an increase in the unemployment rate, forecasting an increase to 4.5% by June 2024.
At an industry level, Deloitte Access Economics expects employment growth in manufacturing (4.2% decline, 38,700 workers) and wholesale trade (3.0% decline, 11,200 workers) will be hit hardest by the slowdown in calendar year 2024.
Due to the high share of blue-collar workers in the manufacturing industry, the blue-collar workforce will likely bear the brunt of the labour market slowdown. Without broad-based growth in other large industries to offset this decrease, the blue-collar workforce is expected to grow by just 0.3%, or around 10,300 workers, in calendar year 2024.
According to Employment Forecasts, following expected average growth of 4.9% per year between 2021 and 2023, gains in the human services workforce are expected to slow to a modest rate of 0.8% (43,300 workers) in calendar year 2024. This growth will be largely supported by health care and other smaller service-based industries. Retail on the other hand is expected to detract from human services employment growth in the year ahead.
In calendar year 2024, the white-collar workforce is expected to grow by a slim 0.4% (21,300 workers) – below the national average rate. The 2024 calendar year is set to be the slowest growth year for the white-collar workforce since 2017.
This newsletter was distributed on 23rd November 2023. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Tom Harding, Manager at Deloitte Access Economics.
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