Manufacturing not dead, just dieting
Here's a surprise: amid all the headlines about the demise of Australian manufacturing at the hands of our strong currency, militant unions, interfering governments, poor productivity and the solar eclipse, employment in the manufacturing sector actually grew in the year to the end of August.
What's more, productivity also has been improving and is now running at a bit above the average of recent years – admittedly faint praise. It still adds up to the standard liturgy chanted by the high priests of business being as dangerously outdated as the Catholic Church's celibacy and men-only rules.
The accompanying graph from the Reserve Bank's quarterly statement on monetary policy showing growth in the manufacturing workforce is indeed a surprise, running against a decade-long trend of falling employment as manufacturing slipped from being the nation's number one employer to fourth place. It also is a minor exception to the general rule of a weakening labour market, especially for males.
“Total male employment has been little changed over the past two years, and the ratio of male employment to male working-age population has fallen to around the same level as its trough in mid 2009,” observes the RBA. “This has coincided with a decline in the participation rate of both prime working-age males and males aged 15 to 24 years. Consistent with this, employment has been particularly soft in male-dominated industries such as construction and transport, postal & warehousing. In contrast, female employment has grown in line with the female working-age population in recent years.”
What the graph also shows is the diversity of our labour market, that we are not the one-trick pony – or mine site – that popular media and the more hysteric commentary sometimes pretends.
The non-resources construction industry has had the worst of it, with the slowdown in building activity wiping out about 7 per cent of that industry's jobs. Various governments hitting their fiscal walls with staff reductions are having the predictable result in the public administration sector and even mining “recorded a small decline in the three months to August, its first quarterly decline since mid 2009”.
On the other hand: “Employment growth has remained relatively strong in a number of business and household services industries, including professional services, health care and education. Recent data also suggest that manufacturing employment has increased slightly over the past year after falling sharply during the first half of 2011.”
That increase is indeed slight in light of the previous falls, but at the fall in manufacturing employment has outpaced manufacturing output: our productivity has lifted as manufacturers who want to survive have invested in best-practice machinery and smaller, more-skilled workforces. Manufacturing sector private capital investment rose in the last financial year.
The days of less-than-best-practice manufacturing are over and gone in Australia and even with the best machinery, the reality of being an expensive country undergoing massive restructuring is painful and financially dangerous. But we're also doing better than indicated by the steady diet of headlines about job losses here and factory closures there. You never have to worry about missing out on bad news, but you have to search for the good.
That good doesn't change the softened outlook, particularly with the working age population growth picking up again. The RBA summarises it thus:
“Labour market conditions continue to vary across states. Trend employment growth has slowed in Western Australia and Victoria since earlier in the year. In Queensland, the level of employment has fallen since the start of 2012, while it appears to have stabilised in South Australia and Tasmania.
Employment growth has picked up a little in New South Wales from the low levels seen earlier in the year.
“Leading indicators of labour demand have generally remained subdued, and point to only modest employment growth in coming months. The ANZ job advertisements series fell for the seventh consecutive month in October, to be around 15 per cent lower over the year. In contrast, the ABS measure of job vacancies increased in the three months to August, though this only partly reversed a fall in the previous three months. Reports from the bank's liaison suggest that businesses in many industries are cautious about hiring more staff.”
Michael Pascoe is a BusinessDay contributing editor.