Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Friday, 14 November 2014

Alarming Disparity in City vs. Country Employment Growth

The Alarming Disparity

The ABS released its Detailed Labour Force data today and, mirroring a point which I have been making on this blog since its very inception, it revealed a concerning and widening disparity between the prosperity of capital city Australia and our struggling regional centres. 

There's a bit of analysis to rip through here, so let's dive straight in and take a look in three short parts, commencing with...

Part 1 - Capital Cities are Dominating Employment Growth

In the two largest states, aggregate employment growth is now being driven entirely by the capital cities, although even therein the trend has softened.

Note that regional New South Wales has barely added any employment at all in aggregate (on a net basis) for more than 6.5 years. Regional Victoria has fared little better with total employment lower today than it was in January 2011.

Moreover, the trend in the regional employment has now clearly been down over the past couple of years.

There has only been one shining light in terms of regional jobs growth over the past half decade, that being regional Queensland.

Alas with the mining construction boom now unwinding total employment is now declining in regional Queensland too. The coal industry in particular looks vulnerable.

The size of the total workforce in South Australia has been shrinking, with regional employment falling significantly over the past five years and total employment in Adelaide now some 20,000 lower than it was around 18 months ago, with the fallout from the decline of the automobile manufacture industry probably yet to be felt in full. 

Not a pretty picture for SA.

Employment Over the Long Run

Now sure, property "advisors" are virtually all vested interests of one sort or another, and of course anyone can torture the figures until they confess.

One of the latest favourites has been the "strongest property market performer of the month!" proclamation which is appallingly misleading.

But through presenting the full data sets across a range of timelines as we shall now undertake below leaves far less wriggle room for blatantly making nonsense up.

Indeed this is a perennial problem in the real estate commentary space - as if by a force of nature few advisors will ever highlight risks facing regions they own property in themselves, which is understandable enough, but not very helpful for would-be investors.

Personally I own property in regional Victoria (and regional Britain) but I'm hardly going to recommend that it's likely a great idea right now from a macro perspective given what the graphic below tells us. Any credibility I have would quite rightly be shot to pieces!

Logically, from my perspective, property investment is likely to entail significantly more risk where employment is falling or flailing, so to my mind there is a good deal of more elevated risk facing parts of Adelaide and Canberra, as well regional New South Wales, regional Victoria, regional Queensland, regional South Australia and regional Tasmania.

Why? Because employment is falling.

It should - but probably doesn't - go without saying that we also continue to believe there to a very high level of risk associated with mining and resources towns and regions in the current climate, and indeed, going forward as the mining construction boom implodes.

There is always some risk involved in buying property, that's a given. Our recommendation is that if you're going to do it, minimise the risks to the extent that this is possible through detailed research at both the macro and the micro level.

Part 2 - Unemployment Elevated and Rising in Regional Australia

As noted here previously, headline unemployment figures as reported by the ABS can be a relatively crude and volatile measure, failing to adequately capture discouraged workers or the underemployed, for example.

Nevertheless, it is worth a look at what is happening around the states, and the general picture is that unemployment is rising sharply in the regions. 

Sydney remains well placed with a headline unemployment rate of only 5.1 percent and a huge volume of dwelling and infrastructure construction in the pipeline, yet in regional New South Wales the unemployment rate trend has been up to now sit above 7 percent, which is much too high for comfort,

Below we have presented the 3 month moving average figures for Victoria, but we note that this month's ABS data is now beginning to record a sizeable disparity here too, with Melbourne's 6.3 percent unemployment rate now substantially lower than regional Victoria at 7.2 percent.

The most concerning of all states, perhaps, is Queensland. While this is not yet fully reflected in the 3 month moving average figures, Brisbane's unemployment rate of 6.3 percent has diverged dramatically from regional unemployment which has leapt alarmingly to 7.7 percent. 

We have warned about parts of regional Queensland here repeatedly, particularly potential job losses in the coal mining sector.

With our chart pack on demographic statistics revealing a debilitating "brain drain" from South Australia in the form of net interstate migration, and the total size of the workforce having shrunk, it is perhaps unrealistic to expect elevated unemployment rates in the state's regions.

In fact the unemployment rate in regional South Australia has all but evaporated into thin air over the past month or two, but this is clearly not due to employment growth since there were more folk employed in regional South Australia way back in 2007 than there are today.

Adelaide's unemployment rate is too high for comfort at 6.9 percent.

Perth and WA still have the lowest headline unemployment rates respectively, although the trend in Perth has been steadily up since 2009 when the Western Australian capital city was effectively close to full employment.

Finally the unemployment rate appears to have fallen in Hobart which is wonderful to see, but regional Tasmania has even managed to record a double digit unemployment rate reading in the past two months, which is less heartening.

Part 3 - The Casualisation of the Workforce

I think we are about done for today, but let's just acknowledge here the likely gradual casualisation of the workforce which must be a key consideration for property investors, particularly in the regional Australia where full-time employment in aggregate appears to be in an entrenched decline.

The Wrap

We've covered a lot of ground in a short space here, but the macro picture is that unemployment rates are trending up worryingly in regional Australia with jobs growth overwhelmingly focused in only the four largest capital cities.


Last of all for today, to my knowledge this is one of very few blogs in Aussieland (Cameron Kusher of RP Data writes another excellent blog of a similar ilk) which provides this type of analysis - every day for more than 3 years, I might add! - without charging a hefty subscription fee or relentlessly spamming readers with weight loss/mature dating/online gambling or "get rich in 9 days by giving us a thousand bucks" type ads.

Therefore, do please kindly feel free to share a link to my blog on social media in the Twittersphere, on Facebook, through LinkedIn, or whatever else it is that people do on t'internet these days. 

Cheers for today! PW