Regional unemployment: Winners & Losers

Biggest lift in export prices in 3½ years
Regional jobs; Export/import prices

Regional jobless rates: Of the 15 regions with the highest average unemployment rates over 2020, Queensland had the highest representation with seven regions followed by NSW (three) and Victoria (two). NSW dominated the list of 15 regions with the lowest jobless rates.

Employment: More regions reported job gains over 2020 than those reporting job losses. Overall 45 of 87 regions reported gains, led by the Gold Coast (up 15,100)

Export & import prices: Import prices fell by 1.0 per cent in the December quarter (consensus: -1.0 per cent) to be down 7.3 per cent on a year ago – the biggest annual contraction in 10½ years. Export prices rose by 5.5 cent in the quarter (consensus: +5.3 per cent) to be up by 0.3 per cent on the year. The terms of trade probably rose by around 5.0 per cent in the quarter.

Regional job data highlights the regions of strength and weakness and can influence housing and spending activity. The terms of trade data is useful in assessing the outlook for the Australian dollar and therefore trade-exposed businesses.

What does it all mean?

• The performance of regional job markets in 2020 was remarkable. Over the year to May 2020, 734,000 jobs were lost. By December the situation had dramatically improved with 65,000 jobs lost in 2020.

• Despite the challenges posed by the Covid-19 virus, 45 of 87 regions posted job gains over the year. The Gold Coast led the way with more than 15,000 jobs created, but the job creating regions were spread across the nation.

• The regions with the highest unemployment rates in the nation were concentrated in Queensland in 2020. In fact in December alone the jobless rate in the Queensland Outback stood at 22.1 per cent and averaged 9.3 per cent in 2020.

• Aussie export prices soared by 5.5 per cent in the December quarter – the biggest lift in 3½ years – with commodity prices surging during the quarter. In fact the Reserve Bank’s index of commodity prices in SDR terms jumped 11.4 per cent in the December quarter and was up 9.0 per cent in Aussie dollar terms.

• Why? Increasing Chinese demand for iron ore pushed up metalliferous ores and metal scrap prices by 11.5 per cent in the December quarter. The bounce-back in global manufacturing activity contributed to a lift in non-ferrous metals of 9.6 per cent. Rising thermal coal demand in the northern hemisphere winter drove a 0.9 per cent lift in coal, coke and briquettes prices. And the recovery in global oil prices pushed up petroleum (+5.6 per cent) and natural gas (+2.1 per cent) prices.

• Of course, one of the by-products of rising commodity prices is that the highly correlated Aussie dollar (AUD) typically appreciates, cheapening the cost of imported goods. In fact the AUD rose on a trade‑weighted basis by 4.5 per cent in the December quarter and 5.1 per cent in calendar year 2020. The import price index fell by 7.3 per cent in the December quarter from a year ago – the biggest annual contraction in 10½ years – largely due to the pandemic recession. Over the year, petroleum prices plunged 36.6 per cent and office machines were down 6.8 per cent. While good news for motorists and those working from home, the release of the new iPhone 12 has coincided with a 3.3 per cent increase in telecommunications equipment prices.

What do you need to know?

Regional unemployment – December 2020

• Regions with the highest and lowest jobless rates were concentrated on Australia’s East Coast in 2020. Of the 15 regions with the highest average unemployment rates over 2020, Queensland had the highest representation with seven regions followed by NSW (three) and Victoria (two).

• Of the 15 regions with the lowest unemployment rates on average over 2020, NSW dominated with seven regions with Western Australia, Victoria and Queensland all with two regions.

• Unemployment can bounce around from month to month, so the regions with the highest jobless rate on average over 2020 were Queensland Outback (9.3 per cent) followed by Wide Bay in Queensland (8.8 per cent), and Adelaide-North (8.0 per cent). In December alone The Queensland Outback had the highest jobless rate (22.1 per cent) from Melbourne North West at 11.8 per cent.

• The regions with the lowest jobless rate on average in 2020 were the Sydney Northern Beaches and Eastern Suburbs, both at 3.1 per cent. In December alone the unemployment in the Riverina of NSW was just 1.2 per cent followed by the Sutherland Shire of Sydney and the Western Australian Wheat Belt at 1.7 per cent.

• Over 2020, 64,900 jobs were lost and job losses were spread over 42 of 87 SA4 regions. Job losses were concentrated in Victoria and NSW, led by Melbourne Outer East (down 30,300).

• But 45 regions actually reported job growth over 2020, led by the Gold Coast (15,100) and Toowoomba in Queensland (up 14,500).

International trade prices – December quarter 2020

• Import prices fell by 1.0 per cent in the December quarter (consensus: -1.0 per cent) to be down 7.3 per cent on a year ago. Export prices rose by 5.5 cent in the quarter (consensus: +5.3 per cent) to be up by 0.3 per cent on the year. The terms of trade probably rose by around 5.0 per cent in the quarter.

Import prices

• According to the Bureau of Statistics (ABS), “the main contributors to the fall were: Inorganic chemicals (-33.1 per cent), driven by an abundant international supply of caustic soda. Medicinal and pharmaceutical products (-3.3 per cent), recorded falls in prices of vaccines for the treatment of pneumococcal disease. Gold, non-monetary (-3.8 per cent), due to easing global uncertainty.

• “Offsetting rises occurred in: Telecommunications and sound recording equipment (+3.3 per cent), due to the release of new mobile phone models. Fertilisers (excluding crude) (+15.7 per cent), driven by increased international demand for urea and the recovery of energy prices increasing costs.”

Export prices

• “Main contributors to the rise were: “Metalliferous ores and metal scrap (+11.5 per cent), driven by the demand for iron ore from China. Non-ferrous metals (+9.6 per cent), due to increased global manufacturing demand. Petroleum, petroleum products and related materials (+5.6 per cent), reflecting the slow recovery in oil demand post COVID-19. Gas, natural and manufactured (+2.1 per cent), due to the oil-linked contracts capturing the beginning of the recovery in oil prices. Coal, coke and briquettes (+0.9 per cent), reflecting the demand for thermal coal during the northern hemisphere winter.”

• “Offsetting rises occurred in: Gold, non-monetary (-4.0 per cent), due to easing global uncertainty. Meat and meat preparations (-2.4 per cent), driven by competition in the global market and appreciation of the Australian dollar.”

What is the importance of the economic data?

• The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel. Detailed demographic and regional information is provided a week after top level estimates.

• The Australian Bureau of Statistics provides quarterly estimates of export and import prices. The figures assist in gauging inflationary pressures in the economy.

What are the implications for investors?

• The economic recovery continues. And nowhere is the recovery more pronounced that in the country’s job markets. Based on leading indicators, the job market is expected to heal further in coming months, buoying the outlook for retailers.

• High unemployment rates dominate in Queensland. So today’s decision to open domestic borders will be greeted warmly by businesses across the Sunshine State.

• Bloomberg estimates that Australia’s trade fight with China cost it around US$3 billion in lost commodities sales in 2020 when compared to the previous year. That said, iron ore prices straddled 9-year highs during the December quarter and Chinese purchases of the steel-making ingredient rose almost US$10 billion last year. Why? China’s industry-led pandemic economic snap-back has kicked off another infrastructure boom.

• But will it last? While the China Iron & Steel Association said Wednesday that apparent demand for crude steel rose 9.0 per cent in 2020, the steel body added that demand will grow by a much smaller margin in 2021.

• Commonwealth Bank Group (CBA) economists expect Australia’s terms of trade to have increased by around 5.0 per cent in the December quarter, boosting national incomes and the Federal Budget’s bottom line.

Published by Craig James, Chief Economist, CommSec