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Labour productivity is lowest in 5 years, Job vacancies are highest in 5½ years Productivity; Skilled vacancies
Productivity: Labour productivity grew by 1.1 per cent on an hours worked basis and 0.5 per cent on a quality-adjusted worked basis in 2016-17 – the lowest annual growth in five years.
Skilled vacancies: The Internet Vacancy Index rose by 0.2 per cent to 83.6 in December in trend terms after increasing by a revised 0.5 per cent in November (previously reported +0.3 per cent). The index has now risen for 14 consecutive months – the longest period of growth since March 2011. The index has increased by 8.1% over the year to 5½-year highs. 
What does it all mean?
Growth in productivity is a key driver of incomes, living standards and economic growth. Labour productivity continues to stagnate in Australia, falling to five-year lows last financial year. Clearly, advances in technology around computers, the internet and smartphones aren’t yet significantly translating into worker efficiency gains.
So how do we increase labour productivity? One way is to improve infrastructure. The provision of better public transport, roads and rail through infrastructure spending could build efficiencies as workers spend less time commuting to work. Business logistics would also be improved. According to Deloitte Access Economics, Australia’s roads and transport infrastructure construction pipeline is poised to hit $16 billion through to 2022.
According to the Bureau of Statistics, business investment rose by around 7.8 per cent over the year to September and conditions are the best in around 9 years. Higher levels of spending on capital, such as plant and machinery, employee training, research and development could boost firm-level productivity gains.
Increased competition, entrepreneurship, training and education could also foster greater labour productivity through innovation.
Labour productivity is particularly strong in Australia’s Agriculture, Forestry and Fishing industries. Seasonal conditions were good in 2016-17. And Aussie agribusiness companies and their workers are clearly adapting to and benefiting from strong demand from China’s growing and wealthier middle class for high quality goods and services. Wine exports to China were up by 63 per cent to $848 million in 2017 amid an Aussie ‘Dining Boom’.
Internet job vacancies are rising as skills shortages emerge following near-record jobs growth in Australia. Candidate availability is clearly falling in the most sought-after technology, construction and trades sectors. Wage pressures could eventually emerge as the labour market begins to tighten. Engineers are in big demand, various construction trades as well as IT professionals and café/restaurant skilled staff.
What do the figures show?
Productivity
Labour productivity grew by 1.1 per cent on an hours worked basis and 0.5 per cent on a quality adjusted worked basis in 2016-17 – the lowest annual growth in five years.
According to the Bureau of Statistics: “Labour productivity exhibited weaker growth than 2015-16,attributable to both weaker Gross Value Added (GVA) growth and stronger hours worked growth in 2016-17.”
By industry on an hours worked basis, labour productivity growth was very strong for Agriculture,Forestry and Fishing (up 25.6 per cent) and Arts and Recreation Service (up 10.7 per cent).
According to the ABS: “The exceptionally high labour productivity growth in Agriculture, Forestry and Fishing was primarily driven by very strong GVA growth (up 16.3 per cent) due to an exceptionally good season for many agricultural products, coupled with a sharp decline in hours worked (up 7.4 per cent).”
A sharp decline in labour productivity was experienced in Construction (down 7.3 per cent), reflecting a 4.1 per cent decline in output and a 3.4 per cent rise in combined inputs.
The ABS said that “The sharp drop in GVA was driven by continued contraction in the Heavy and Civil Engineering, and Construction services subdivisions, reflecting reductions in mining and heavy industrial projects.”
Across industries, labour productivity was also strong for Electricity, Gas, Water and Waste Services (up 6.9 per cent), Professional, scientific and technical services (up 4.2 per cent) and Mining (up 4.1 per cent). While Manufacturing (down 6.8 per cent), Other Services (down 4.0 per cent) and Administrative and support services (down 3.5 per cent) all declined.
Skilled Vacancies
The Department of Jobs and Small Business Internet Vacancy Index rose by 0.2 per cent to 83.6 in December in trend terms after increasing by a revised 0.5 per cent in November (previously reported +0.3 per cent). The index has now risen for 14 consecutive months – the longest period of growth since March 2011. The index has increased by 8.1% over the year to 5½-year highs.
Job vacancies rose in five of the eight occupational groups during December. Increases were recorded for Technicians and Trades Workers (up 1.7 per cent), Machinery Operators and Drivers (up 1.2 per cent), Sales Workers (up 0.7 percentage points), Community and Personal Service Workers and Clerical and Administrative Workers (both up 0.3 percentage points).
Vacancies for Labourers (down 0.4 percentage points), Professionals (down 0.2 percentage points) and Managers (down 0.1 percentage points) all declined.
At a more detailed level over the year to December, increases in vacancies were recorded for Automotive and Engineering Trades Workers (up 33.9 per cent), Engineers (up 29.6 per cent), IT & Communications Professionals (up 18.0 per cent), Construction, Production and Distribution Managers (up 13.7 per cent) and General-Inquiry Clerks, Call Centre Workers and Receptionists (up 7.3 per cent).
Decreases were recorded for Education Professionals (down 9.1 per cent), Sales Representatives and Agents(down by 8.8 per cent), Cleaners and Laundry Workers (down 5.6 per cent), Sports, Travel and Personal Service Workers (down 2.2 per cent) and Medical Practitioners and Nurses (down 2.1 per cent).
Vacancies increased in six Australian states and territories during December, led by the ACT (up 0.9 percentage points), Victoria and South Australia (both up 0.8 percentage points), NSW (up 0.4 percentage points), Western Australia (up 0.3 percentage points) and Tasmania (up 0.1 percentage points). Northern Territory (down 2.3 per cent) and Queensland (down 0.6 percentage points) lagged.
Over the year to December, job vacancies increased in all states and territories: Western Australia (up 14.5 per cent), Northern Territory (up 11.3 per cent), Victoria (up 10.0 per cent), Queensland (up 9.1 per cent), ACT (up 8.9 per cent), South Australia (up 6.0 per cent), NSW (up 5.4 per cent) and Tasmania (up 1.8 per cent).
What is the importance of the economic data?
The Department of Labour releases a monthly Internet Vacancy Index. The index is based on a count of online job advertisements newly lodged on three main job boards (SEEK, CareerOne and Australian JobSearch) during the month. Output includes a time series of vacancies at various level, including at a national, State and IVI regional level, and at an occupational level.
The Australian Bureau of Statistics updates estimates of labour and multifactor productivity for the 16 industries defined to comprise the market sector from 1994-95. A longer time series is produced for 12 selected industries, and productivity growth cycles.
What are the implications for interest rates and investors?
Labour productivity measures the amount of output produced per unit of labour input – measured in hours worked. In Australia and across the developed world labour productivity growth is slowing. This could have an adverse impact on living standards and economic growth.
While technological advances are supposed to increase labour efficiency, part of the explanation for falling productivity could be due to the measurement of productivity. The number of hours worked by  Aussies surged by 3.2 per cent over the year to December due to the strengthening labour market. More jobs and more hours worked are positive developments for economic growth.
Job vacancies remain strong, pointing to further jobs growth. Skilled shortages are emerging in some occupations. A continued tightening in the jobs market is likely to erode slack in the economy. And companies could begin to face wage pressures in high demand specialist and skilled occupations.
On-line job advertiser Seek and recruiter Robert Walters have both identified likely pay rises in the Information Technology sector. Candidates have also declined across the Mining and Energy sectors as commodity prices recover. Skilled job vacancies were highest in Western Australia last year.
Job markets are tightening but wages aren’t yet lifting. Clearly this is an area to watch in the coming months.
CommSec expects official rates to remain stable until late 2018.
Originally published by Ryan Felsman, Senior Economist, CommSec