Employment Forecasts – Jobs: growth and stagnation

The Australian economy is at a critical juncture. Two years of RBA interest rate hikes have helped contain price inflation, which is forecast to return to its target range of 2-3% by early 2025. But this has come at a cost to jobs and growth, with the economy stagnating and growing at its slowest rate (outside of the pandemic) since the early 1990s recession.

The latest Deloitte Access Economics Employment Forecasts report highlights evidence of a weak economy finally bleeding through to the labour market. Although employment has been growing at a healthy rate over 2024, employment gains in the year to March 2024 came from almost entirely the non-market sector. As a result, non-market sector employment grew by 7.6% in the year to March 2024, compared to just 0.1% growth from market sector industries.

It is clear the non-market sector is driving the resilience of employment growth while private sector hiring is stalling. Weakness in the private sector caused the unemployment rate to nudge up to 4.2% in July 2024 – a sign of additional slack in the labour market. Other indicators also highlight weaknesses in the labour market: job vacancies, job mobility and average hours worked are down, and job security fears are rising.

Chart 1: National employment growth

Source: Deloitte Access Economics Employment Forecasts

Beyond the labour market there are signs that economic conditions may be about to improve. Tax cuts and cost of living support will allow consumer spending to lift. Meanwhile, Deloitte’s CFO Sentiment report is showing an improvement in business confidence. The labour market tends to be more of a lagging indicator, trailing broader economic performance by around six months. That means the labour market may continue to get worse with unemployment rising at the same time economic green shoots are appearing elsewhere.

We expect to see weak employment growth through 2024-25 of 1.0% (or 147,400 additional jobs), following 3.1% jobs growth in 2023-24 (423,600 additional jobs). The unemployment rate is expected to rise to 4.5% across 2024-25 (which would mean an additional 101,500 unemployed).

This trend is foreshadowed in the responses to Deloitte’s latest CFO survey. While CFO optimism about own business performance has lifted, private sector CFOs are not planning to hire any more people in the next 12 months.

How does that play out by broad worker classification?

• 2024-25 looks bleak for white collar employment, with a 0.4% or 23,500 worker decline projected, given weakness in lending and professional services, and as businesses look to kick start activity without increasing headcount. It may be a short, sharp, dip with white collar employment expected to return to growth of 1.6% in 2025-26.
• Blue collar employment may benefit short term from a continued focus on construction, with employment growth of 2.0% or 74,300 workers in 2024-25, before then moderating to 0.4% in 2025-26.
• The focus on non-market employment plays well for human services, with employment growth of 1.9% or 96,700 workers expected in 2024-25, tracking steadily to 1.3% growth in 2025-26.

As employment growth moderates, businesses are also looking to deliver productivity gains, particularly through technology investment and particularly through AI. Tech-led productivity gains are seen as a key element to support the broader economic upswing over the next year.

This newsletter was distributed on 22nd August 2024. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Tom Harding, Manager & Hamish Burrell, Senior Analyst at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings:

• World Competitiveness Rankings 2024  (13 August)
• CFO sentiment: Emerging from the storm (06 August)
• Core inflation falls in pivotal CPI release (31 July)
• Deloitte Access Economics Business Outlook: A fork in the road (25 July)