Biggest decline in skilled job vacancies in 5½ years

Slowest global growth in a decade
Skilled Job Vacancies; Manufacturing & Services sector; Economic growth

Skilled job vacancies: In trend terms, the Internet Vacancy Index (IVI) fell for the sixth straight month, down by 0.6 per cent in June to 79.6 – the lowest level since April 2017. The index is 6.7 per cent lower than a year ago – the biggest annual decline since November 2013.

Global growth: The International Monetary Fund (IMF) lowered its forecast for global economic growth to 3.2 per cent in 2019 and 3.5 per cent for 2020 (both down by 0.1 percentage point from the April projections). If realised this year, it would be the slowest pace of growth in 10 years. The 40-year average global growth rate is 3.5 per cent. While there was no update for Australia, the economy is forecast to grow by 2.1 per cent in 2019 and 2.8 per cent in 2020.

Manufacturing & services sectors: The Commonwealth Bank/IHS Markit ‘Flash’ Manufacturing Purchasing Managers’ Index (PMI) fell from 52.0 in June to 51.4 in July. And the Commonwealth Bank/IHS Markit ‘Flash’ Services PMI fell from 52.6 in June to 51.9 in July. Any reading over 50 indicates expansion.

The internet job vacancies data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies. The manufacturing data provides guidance for companies in the Industrials sector. The services sector gauge highlights conditions in the sector as well as providing guidance on the economy more generally. The global growth forecasts are a helpful guide to predicting where we are in the economic cycle.

What does it all mean?

• Global economic growth has lost momentum. The International Monetary Fund (IMF) has downgraded its world output forecast to 3.2 per cent in 2019. Should this materialise, it would be the slowest annual pace of growth since 2009.

• The IMF blamed trade policy “missteps” for derailing economic activity, projecting a weakening in global trade volumes in goods and services, reducing its forecast by 0.9 percentage points to 2.5 per cent growth in 2019.

• While forecasting a rebound in economic growth back to the 40-year average rate of 3.5 per cent in 2020, IMF economists warned, “The principal risk factor to the global economy is that adverse developments – including further US-China tariffs, US auto tariffs, or a no-deal Brexit – will sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline”.

• Australia did not feature in the July update. In April, the IMF forecast Aussie economic growth to slow to 2.1 per cent in 2019 – the second weakest rate since the 1990s recession.

• Aussie annual growth slowed to 1.8 per cent in the March quarter of 2019 – the weakest pace in 9½ years. But Commonwealth Bank Group economists expect output to lift modestly in the second half of this year. GDP growth is expected to average around 2.2 per cent over the calendar year.

• Stimulus in the form of personal income tax cuts, interest rate cuts, improving home loan accessibility, a modestly lower Aussie dollar, solid government infrastructure spending and Chinese policy easing are all expected to support growth.

What do the figures show?

Skilled Vacancies – June

• The Department of Employment Internet Vacancy Index fell by 0.6 per cent to 79.6 in June – a 26-month low. It was the sixth successive monthly decline. The index is 6.7 per cent lower than a year ago – the biggest annual decline in 5½ years – although it is still 11.5 per cent above the level recorded five years ago.

• Decreases in job advertisements were recorded all seven occupational groups in June with the largest falls recorded for Clerical and Administrative Workers (down by 1.2 per cent) and Managers (down 1.1 per cent). Vacancies remained steady for Community and Personal Service Workers.

• Over the year to June 2019, job advertisements fell in six occupational groups. The strongest falls were recorded for Machinery Operators and Drivers (down 17.3 per cent), Labourers (down 14.9 per cent) and Sales Workers (down 12.2 per cent). But increases were recorded for Community and Personal Service Workers (up 3.9 per cent) and Professionals (up 0.4 per cent).

• Job vacancies decreased in four states and one territory in June: NSW (down 1.4 per cent), Northern Territory (down 1.3 per cent), Victoria (down 0.4 per cent) and Queensland (down 0.3 per cent). Vacancies were steady in South Australia. But vacancies lifted in the ACT (up 0.3 per cent) and Tasmania (up 0.2 per cent).

• Over the year to June 2019, job vacancies rose in one state and one territory: Tasmania (up 10.5 per cent) and the ACT (up 7.1 per cent). But vacancies fell in NSW (down 10.8 per cent), Northern Territory (down 10.6 per cent), Victoria (down 6.6 per cent), Queensland (down 4.9 per cent), Western Australia (down 2.6 per cent) and South Australia (down 0.7 per cent).

Global economy

• The IMF’s World Economic Outlook Update for July 2019 has forecast the following economic growth for 2019 (previous forecasts April 2019):

Global growth down by 0.1 percentage point to 3.2 per cent;

Advanced economies up by 0.1 percentage point to 1.9 per cent;

United States up by 0.3 percentage points to 2.6 per cent;

Euro Area unchanged at 1.3 per cent;

Germany down by 0.1 percentage point to 0.7 per cent;

Japan down by 0.1 percentage point to 0.9 per cent;

UK up by 0.1 percentage point to 1.3 per cent;

Emerging market and developing economies down by 0.3 percentage points to 4.1 per cent;

China down by 0.1 percentage point to 6.2 per cent;

India down by 0.3 percentage points to 7.0 per cent;

Russia down by 0.4 percentage points to 1.2 per cent;

Brazil down by 1.3 percentage points to 0.8 per cent.

• As of April (latest update), the IMF projects the Australia economy to grow by 2.1 per cent in 2019 and 2.8 per cent in 2020.

Commonwealth Bank/IHS Markit Purchasing Managers’ Indexes – July

• The Commonwealth Bank/IHS Markit ‘Flash’ Manufacturing Purchasing Managers’ Index (PMI) fell from 52.0 to 51.4 in July. And the Commonwealth Bank/HIS Markit ‘Flash’ Services PMI fell from 52.6 to 51.9 in July. Any reading over 50 indicates expansion.

• According to the Commonwealth Bank/IHS Markit, “A slight retreat in growth momentum in business activity in July, although the index does sit comfortably above the critical 50 level that separates expansion and contraction”.

• And, “Overall the ‘flash’ PMI does suggest business activity should continue to expand in the September quarter. A combination of monetary policy stimulus, tax rebates currently hitting household bank accounts and early signs of a recovery in the housing market should see the Australian economy stabilise, if not pick up over the 2H 2019. The sharp fall in employment intentions underlines the importance of the tax cuts now filtering into the economy and calls for more policy stimulus via infrastructure spending and microeconomic reform. Input costs continued to lift and is worth watching if businesses can pass it on, we could see some impact on consumer inflation over the second half of 2019 and into 2020”.
What is the importance of the economic data?

• The Department of Employment 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. The index is the only publicly available source of detailed data for online vacancies, including around 350 occupations (at all skill levels), as well as for all states/territories and 37 regions.

• The International Monetary Fund (IMF) releases its World Economic Outlook in January, April, July and October each year. The Fund’s economic growth forecasts are widely observed by economists and market participants. The IMF’s primary purpose is to ensure the stability of the international monetary system – the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The Fund’s mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.

• The CBA and IHS Markit release surveys on the manufacturing and services sectors each month. The Australian surveys are the local equivalents of similar surveys released for other countries. The services sector surveys are useful, not just in showing how the sector is performing, but in providing some sense about where it is headed. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

• There is still a lot of spare capacity in the Aussie economy, so the Reserve Bank can continue to stimulate growth by keeping interest rates at 1 per cent or less, without too much concern about an inflation overshoot.

• In a speech yesterday, Reserve Bank Assistant Governor Christopher Kent said that “The goal there is to see spare capacity in the economy more generally, but also the labour market, to be reduced so wage pressures and price pressures can lift and we can get back to inflation that’s consistent with our medium term inflation target.”

• While keen to emphasise that policymakers aren’t targeting an unemployment rate, Mr Kent did acknowledge that “we do want to see it [unemployment rate] lower.”

• But leading indicators of job growth – such as skilled internet job vacancies and job advertisements from the Department of Employment, SEEK and ANZ – have all weakened, implying a moderation in jobs growth ahead. Together with record participation in the workforce and solid population growth, the task of getting Australia’s jobless rate down and wages growth up appears even more daunting.

• The Reserve Bank is expected to ‘sit pat’ on rates for now, assessing incoming economic data over the coming months before deciding the next move for the cash rate. But the Reserve Bank Board stands ready to act (cut rates further), “if needed” to support the economy and job market.

• The next key event is a speech by the Reserve Bank Governor tomorrow, followed by the release of June quarter inflation data in a week.

Published by Ryan Felsman,senior Economist,CommSec