Jobs Impacted by Drop in Private Sector Investment

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Wednesday, December 3rd, 2014
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It is an ugly set of numbers.

The economy not only grew at less than half the pace economists had expected in the September quarter, but the pattern of growth gave no reason to hope for an imminent resurgence.

The 0.3 per cent rise in gross domestic product was the slowest since floods and cyclonic weather pushed the economy into reverse in the first quarter of 2011.

That small advance in GDP will do nothing for employment.

Private sector investment, which includes spending on new housing, other construction, machinery and equipment, and minerals exploration, fell.

Investment drives employment growth, so that’s bad news.

Consumer spending rose, but by about three quarters of the average pace of the preceding decade.

Much of the increase was accounted for by non-discretionary spending like rent and utilities.

So there’s no joy there either.

The only notable source of growth was in foreign trade, where exports rose and imports fell, both meaning increased production for any given level of spending.

But mining, where much of the lift in exports is coming from, is not in a job creation phase.

By industry, the two biggest falls in production in the quarter were in construction and professional, scientific and technical services – which suffered its steepest fall in over a decade.

The declines in both those sectors were closely linked to the slump in mining investment.

To generate that rise in GDP, the number of hours worked only needed to rise by a tiny 0.3 per cent.

But the number of people wanting a job is rising five times faster.

That’s the story behind the current flat trend in employment, the incremental rises in unemployment over the past few years, and wages growth that’s struggling to keep up with inflation.

To lift the need for workers to put in more hours, thereby creating more jobs, GDP needs to grow faster.

Recently the Reserve Bank of Australia forecast GDP growth would be “a little below trend for the next several quarters”.

So it could be a while before there’s any positive news on jobs.

By Garry Shilson-Josling
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