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• THE ECONOMY• CONSTRUCTION• JOB MARKET

PROFESSIONALSAUSTRALIAEconomic Update May 2016

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PROFESSIONALS AUSTRALIA - ECONOMIC UPDATE MAY 2016Australia’s economy stuttered during the first quarter, spurring the chances of an interest rate cut over the coming months. Unexpectedly poor inflation data released in April has put a halt to a 7 year period of uninterrupted economic growth, with prices contracting by 0.2% in the first quarter. However, the news is not all bad, with headline figures influenced heavily by sharp declines in fuel prices and clothing, which are unlikely to negatively impact technical professionals.

In another positive sign for technical professionals, the value of building work done across Australia continued its upward trend, while the economy expanded overall and the unemployment rate remained steady.

THE ECONOMYThe Australian economy expanded by 3.0% over the year to December 2015 , according to the latest seasonally adjusted ABS data. This growth falls within the RBA target level, represents an improvement on the previous quarter. Much of the growth was due to relatively strong domestic consumption, which may signal some positive effects of record low interest rates, with further potential for growth ahead as the RBA cut rates again.

While GDP growth remained relatively solid, optimism was tempered in April by disappointing inflation data, falling by 0.2% over the quarter, to record overall growth of just 1.3% over the year to March 2016.

The RBA lowered the official cash rate for the first time in a year in May, at a new record low of 1.75%. The RBA had been reluctant to make a further cut as it would leave little room to move if further stimulus was required. However the poor Inflation figures have placed significant pressure on the RBA, encouraging them to pull the trigger and lower the official cash rate. Rate cuts will be welcomed by businesses, providing cheaper credit for both investors and businesses, and stimulating consumer spending by increasing disposable income.

CONSTRUCTIONThe latest building activity data published by the ABS provided some positive signs for technical professionals, with the value of work completed rising strongly by 5.7% overall over the past year . Residential building was again the primary driver of growth, rising by 11.1%. Record low interest rates have encouraged households to invest in property, with the low cost of capital supporting construction activity. In a further positive for the industry, a further cut to interest rates in May will likely to spur further investment. However, businesses have remained more cautious, despite cheaper access to credit, with non-residential construction declining modestly, down 1.5% over the past year.

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FIGURE 1: VALUE OF WORK BUILDING WORK DONE – PUBLIC SECTOR VS PRIVATE SECTOR

¹ABS Catalogue 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Dec 2015 ²ABS Catalogue 8752.0 - Building Activity, Australia, Dec 2015

Source: ABS Catalogue 8752.0 - Building Activity, Australia, Dec 2015

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Weaker public sector construction spending was a major contributor to the decline in non-residential building activity. The value of work done for and by the public sector in 2015 was 3.0% lower than during 2014³, leaving private sector demand to fill the gap. Budget constraints and political decision making are largely responsible for slower public sector investment. However, construction activity by and for the public sector improved during the final quarter, and is likely to continue into the new year as governments focus on infrastructure at budget time. Government agencies including Infrastructure Australia and state-based infrastructure bodies are campaigning for greater investment in infrastructure in order to reduce congestion on roads and the resulting economic loss.

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FIGURE 2: VALUE OF WORK DONE - FOR AND BY PUBLIC SECTOR

Source: ABS Catalogue 8752.0

³ ABS Catalogue 8762.0 – Engineering Construction Activity, Australia, Dec 2015

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⁴ABS Catalogue 6291.0 Labour Force, Australia

FIGURE 1: VALUE OF WORK BUILDING WORK DONE – PUBLIC SECTOR VS PRIVATE SECTOR

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JOB MARKET

Job data remained positive through the first quarter of 2016, with the trend unemployment rate holding firm at 5.8%. While the rate has remained on or around this level since January this year, the overall result is well below the highs of 6.1% reached at the same time last year. The challenge of driving further improvement in the unemployment rate is still present, with plenty of room for improvement left before we reach the long-term average of 5.2%. This rate falls largely in line with full employment levels, and the market cannot typically sustain lower unemployment for lengthy periods.

Over the past year, the labour market in industries that employ technical professionals have exhibited mixed results. Manufacturing industries performed the weakest, with employment levels declining by 2.3% according to the ABS⁴.

Construction employment renewed its long-term growth pattern, rising by 3.4% over the past year, while mining also returned to growth with an increase of 2.4%. Professional and technical services and provided the strongest source of growth, with the labour force expanding by 3.8%.

Source: ABS Catalogue 6202.0

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