Victoria dominates job losses; Retail trade tumbles

Factory activity hits 29-month high; Job ads lift
Retail trade; Regional Payrolls; Job vacancies; PMIs; New Zealand interest rates

Retail trade: ‘Preliminary’ retail trade fell by 4.2 per cent in August after rising by 3.2 per cent in July. Spending in Victoria fell 12.6 per cent with turnover down 1.5 per cent for the rest of Australia. Retail spending is still up 6.9 per cent on the year and 6 per cent above pre-COVID-19 levels in February.

Regional payrolls: The Australian Bureau of Statistics (ABS) today released regional data on payrolls. Victoria dominates the regions recording the biggest falls in payroll numbers since mid-March. The smallest declines in payrolls can be found across Western Australian and NSW regions.

Skilled job vacancies: In seasonally adjusted terms, the Internet Vacancy Index increased by 1.3 per cent (or 1,700 job advertisements) in August to stand at 133,400. But vacancies are still down 19.5 per cent (or 32,400 job advertisements) from a year ago.

Purchasing managers’ indexes (PMI): The IHS Markit ‘flash’ PMI for manufacturing rose from 53.6 in August to 29-month highs of 55.5 in September. The services PMI lifted from 49 in August to 50 in September. The composite PMI rose from 49.4 in August to 50.5 in September. A reading above 50 indicates an expansion in activity.

Reserve Bank of New Zealand (“RBNZ”) decision: The RBNZ has held the Official Cash Rate (OCR) at a record low 0.25 per cent at its meeting today.

Retail trade data is important for consumer-focussed companies. The payroll and wage data helps government with decisions on assistance measures for households and businesses. Skilled vacancies highlights the strength of the job market and has implications for placement agencies and retailers. The purchasing manager’s survey shows activity in manufacturing and services sectors. Changes in New Zealand monetary policy settings can affect rates in Australia as well as the sharemarket and currency.

What does it all mean?

• Victoria’s virus flare up and subsequent lockdown has hit the south-eastern state’s economy hard. The implementation of level 4 restrictions in Melbourne and level 3 constraints in regional Victoria – including curfews – led to the shutdown of 90 per cent of Victoria’s shopping centres and retail stores in August, according to Kepler Analytics. So it’s no surprise that retail spending in Victoria fell by whopping 12.6 per cent in the month. According to Commonwealth Bank card spending data, Victorian credit and debit card spending plunged by 14.8 per cent in the week to August 14 from a year ago after being down just 0.8 per cent in the prior week.

• The damage to Victorian businesses and workers from the two COVID-19 lockdowns is evident in the latest Statistical Area 4 (SA4) weekly payroll jobs data. Since March 14 (the week Australia recorded its 100th confirmed COVID-19 case) payroll jobs have decreased most in Melbourne’s Inner (-9.8 per cent), North-Western (-9.3 per cent) and Western (-8.7 per cent) suburbs. And regional Victoria hasn’t been spared with payrolls down 8.8 per cent in North-Western Victoria and the Mornington Peninsula (-8.5 per cent). Job losses also exceed 7 per cent across Geelong, Ballarat, Bendigo and Latrobe-Gippsland.

• Victoria’s labour market scarring is likely to persist in the near term with skilled job vacancies falling 7.5 per cent in August – the only state or territory to post a decline in ads during the month. In Greater Melbourne job vacancies are down 44.6 per cent over the year to August.

• Australia’s manufacturers have weathered the coronavirus shock better than most sectors of the economy. Despite manufacturing’s share of Aussie economic output declining from peaks of just under 30 per cent of GDP in the early 1960s to 5.6 per cent of GDP in 2019, its importance has been underlined by global supply disruptions (freight delays and import restrictions) during the pandemic.

• Australia is making more hi-tech manufactured goods than ever before, including the manufacture of food, wine, beverages, vitamins, baby formula, building materials, mining machinery and medical equipment. In fact, the latest survey of purchasing managers shows that manufacturing activity rose to the highest level in 29 months in September, supported by a pick-up in production, sales, export orders and building capacity pressures.

• Importantly, IHS Markit report that manufacturers employed more factory workers for the first time since November 2019. This is good news given that manufacturing is Australia’s sixth largest employer, employing around 852,800 (or 7 per cent of the total workforce).

What do the figures show?

‘Preliminary’ retail trade – August

• ‘Preliminary’ retail trade fell by 4.2 per cent in August after rising by 3.2 per cent in July. Retail spending is still up 6.9 per cent on the year and 6 per cent above pre-COVID-19 levels in February. The final August data is scheduled for October 2.

• According to the ABS, “Victoria led the falls, down 12.6 per cent compared to July 2020. Stage-4 restrictions in Melbourne, and Stage-3 restrictions in Regional Victoria, restricted trading for non-essential retail businesses.

• “Excluding Victoria, the rest of Australia fell 1.5 per cent from July 2020 to August 2020.

• All industries fell, primarily driven by the Victorian result, although there were falls in most states and territories.

• At the industry level, Household goods retailing led the falls, although sales in this industry remain 20 per cent above the levels of August 2019.

• Clothing, footwear and personal accessory retailing, Department stores, and Cafes, restaurants and takeaway food services, also saw large monthly falls, with the largest falls recorded in Victoria. New South Wales saw a large fall in Cafes, restaurants and takeaway food services.

• Food retailing saw a small fall, with mixed results amongst the states and territories.”

Regional payrolls – Week ending September 5

• The Australian Bureau of Statistics (ABS) has released the regional (SA4) payroll indexes.

• Between March 14 (date of 100th case of COVID-19) and September 5, payrolls fell most in Melbourne – Inner (-9.8 per cent). Thirteen of the 15 regions with the biggest declines in payrolls can be found in Victoria. Sydney’s City and Inner South also feature with payrolls down 8.3 per cent for the period.

• Of the 15 regions with the smallest declines in payrolls over the period, seven can be found in Western Australia. Perth’s South-West recorded just a 1 per cent fall in payrolls from March 14 to September 5. But the New England and North-West region of NSW performed best with payrolls down just 0.9 per cent over the period.

Skilled job vacancies – August

• In seasonally adjusted terms, the Internet Vacancy Index (IVI) increased by 1.3 per cent (or 1,700 job advertisements) in August to stand at 133,400. Despite this increase, job advertisements are 19.5 per cent (or 32,400 advertisements) below the level recorded a year ago.

• In August, job advertisements increased in three of the eight occupational groups. The strongest gains were recorded for Professionals (up 2,300 or 5.8 per cent), followed by Clerical and Administrative Workers (up 350 or 1.9 per cent); and Managers (up 120 or 0.9 per cent). But ads fell most for Labourers (down 420 or 4.1 per cent).

• Over the year to August, job vacancies for Machinery Operators and Drivers (up 480 or 6.5 per cent) and Labourers (up 180 or 1.9 per cent) lifted most and now exceed pre COVID-19 levels. But vacancies fell for the other six occupational groups, led by declines for Managers (down 7,300 or 34.4 per cent) and Clerical and Administrative Workers (down 8,700 or 31.4 per cent).

• All states and both territories recorded an increase in job advertisements in August, except Victoria. NSW (up 2.4 per cent); Victoria (down 7.5 per cent); Queensland (up 0.4 per cent); South Australia (up 7.4 per cent); Western Australia (up 8.7 per cent); Tasmania (up 8.1 per cent); Northern Territory (up 6.8 per cent); ACT (up 8.3 per cent).

• Over the year to August, job ads increased in Western Australia (up 1,700 or 10.6 per cent), South Australia (up 760 or 10.2 per cent) and Tasmania (up 30 or 1.9 per cent). All remaining states and both territories recorded falls in job advertisements over the year with the biggest falls in Victoria (down 21,200 or 45.7 per cent) and NSW (down 11,500 or 20 per cent).

• Over the year to August, in three-month moving average terms, job ads increased in 20 of the 37 IVI regions. Dubbo & Western NSW posted the strongest increase in vacancies (up 50.7 per cent), followed by Southern Highlands & Snowy NSW (up 34.6 per cent), South-West Western Australia (up 32.5 per cent), Yorke Peninsula & Clare Valley South Australia (up 26 per cent) and Fleurieu Peninsula & Murray Mallee South Australia (up 24.2 per cent). But Melbourne recorded the biggest decline (down 44.6 per cent), followed by Sydney (down 38.4 per cent), Geelong & Surf Coast Victoria (down 32.0 per cent), Ballarat & Central Highlands Victoria (down 23.4 per cent) and Brisbane (down 20.7 per cent).

‘Flash’ IHS Markit Purchasing Managers’ Indexes (PMI) – September

• The IHS Markit ‘flash’ PMI for manufacturing rose from 53.6 in August to a 29-month high of 55.5 in September. The services PMI lifted from 49 in August to 50 in September. The composite PMI rose from 49.4 in August to 50.5 in September. A reading above 50 indicates an expansion in activity.

• According to IHS Markit economists, “The latest PMI data showed signs of stabilisation in Australia’s private sector business conditions during September, with activity and sales increasing marginally after falling in August amid tightening containment measures to contain a surge in new infection cases. However, other survey indicators suggest that the rebound may lack legs going forward. The absence of capacity pressure led to a further and sharper decline in workforce numbers, highlighting the prospect of rising unemployment.

• The survey also showed a divergence in the sectors participating in the economic recovery. Services business activity remained subdued, coinciding with weak sales as the sector was more adversely hit by COVID-19 restrictions. Meanwhile, manufacturing output continued to increase, supported by renewed growth in export sales.

• Government spending on public works and expectations of an eventual easing of containment measures, including crossborder restrictions, boosted business sentiment, which rose to the highest for just over two years.”

What is the importance of the economic data?

• The ABS now provides preliminary estimates for Australian retail turnover. “This estimate is compiled from the monthly Retail Business Survey and is based on preliminary data provided by businesses that make-up approximately 80 per cent of total retail turnover and is therefore subject to revision.”

• The ABS data Weekly payroll jobs and wages “provides indicative information on the economic impact of the COVID-19 coronavirus on employees, including changes in employee jobs, changes in total wages, and changes in average weekly wages per job.”

• 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.

• IHS Markit undertakes a survey of purchasing managers across manufacturing and services sector. The ‘flash’ or ‘early/preliminary ’readings provide timely information on the economy. As such, the survey is valuable for investors.

What are the implications for investors?

• Yet another central bank has provided an update on its policy ‘tool kit’ – this time the Reserve Bank of New Zealand. Kiwi monetary policy makers have made it abundantly clear that they will implement negative interest rates if more stimulus is required to prop up the economy after Auckland’s virus setback.

• As excitable Aussie investors reacted to Reserve Bank of Australia Deputy Governor Guy Debelle’s ‘monetary policy approaches’ speech yesterday by aggressively pricing in a rate cut to 0.1 per cent on October 6, Reserve Bank of New Zealand Governor Adrian Orr calmly reiterated that the Bank intends to hold the official cash rate at 0.25 per cent until March 2021 – as communicated on March 16. Governor Orr also suggested that instruments including a Funding for Lending Programme (FLP) and purchases of foreign assets are additional policy options, along with a negative official cash rate.

• The divergence between Victoria and the rest of Australia continues. The re-opening of the NSW-South Australian border is encouraging with border closures – and associated restrictions – inhibiting the economic recovery. What is also positive is that recruitment activity in South Australia and Western Australia is now above pre-COVID-19 levels with Tasmania just 1 per cent below these levels in August. Regional areas outside of Victoria are performing better than their city peers with lower unemployment, more job vacancies and more stable housing markets.

• The next few weeks are critical to the economic outlook. The Reserve Bank’s monetary policy meeting and Federal Government’s Budget are both delivered on October 6. Expectations for a co-ordinated policy response to Victoria’s health and economic crisis are growing. It appears that the Morrison Government will announce more infrastructure spending and bring forward personal income tax cuts at a time when the JobKeeper wage subsidy and JobKeeper government payments are reduced. But as yesterday’s weekly payrolls jobs data shows, a continued targeted approach in supporting small and medium sized enterprises (SMEs) is equally, if not more important. The acceleration of payroll losses (-1.9 per cent) for businesses with 20 or fewer employees between August 22 and September 5 will trouble policymakers.

Published by Ryan Felsman, Senior Economist, CommSec