Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), & CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he's one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written, yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data & charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, author of the New York Times bestsellers 'End Game' & 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - author of Things That Make You Go Hmmm, one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, 'MacroBusiness'.

Saturday, 20 June 2015

Rebalancing is now well underway

Services employment surges

Australia's monthly Labour Force figures have pointed towards some promising employment figures of late.

Another 42,000 jobs were added in the last month of data on a seasonally adjusted basis, taking total employment to a new high of well over 11.75 million.

The detailed quarterly figures released on Thursday shed further light on where the new jobs are being added (in short, services), and where they are not (mainly mining, manufacturing and agriculture).

Generally speaking this is positive news for the largest capital cities, but not such great news for cities with a heavy dependency on manufacturing.

And it is rather calamitous news for many resources regions.

Let's take a look via two charts...

Trend 1 - Mining & manufacturing decline

There are a few interesting points to note from the first chart below, within which I have pulled together figures from a selected range of industries.

Firstly, the light blue line indicates the long, slow and structural decline of manufacturing employment in Australia, from a peak of close to 1.2 million towards just 900,000 today.

The lower Aussie dollar might help the outlook over the medium term, but the long term trend is nevertheless down, down, deeper and down.

Secondly, mining employment is clearly now heading back down from whence it came, after the mining boom fired total employment to an exuberant peak of more than 275,000.

Despite the huge ramp up in resources export volumes, mining employment is likely to have some way further to fall - some marginal coal producers look particularly vulnerable according the Reserve Bank's liaison - although it is estimated that employment in the sector will remain considerably higher than its long run average before the mining boom began.

Thirdly, it is interesting and important to note that mining is in fact only a relatively small employer in absolute terms at around 229,000.

Healthcare, by comparison, is a booming sector which employs more than 1.48 million people, while professional, scientific and technical employment has surged to now also sit above 1 million.

Approximately 70 per cent of economic activity in Australia is accounted for by the services sector, and therefore it is critical to the rebalancing process that this sector continues to record strong employment growth.

Although I didn't include it in the above chart so as not to over-complicate matters, another key growth sector is set to be education which now accounts for 937,000 employees, or 8 per cent of the total workforce.

The growth in the booming export industry that is foreign students will have a key role to play here - this is another sector which benefits from a lower Aussie dollar, with a record 147,000 enrolments seen in the first quarter of 2015 alone. 

The good news is that, as the above chart clearly indicates, low interest rates are taking effect and services employment has surged materially higher over the past year.

Trend 2 - Services now driving employment growth

In the early stages of the rebalancing process jobs growth was very much about the residential construction boom story.

The flip side to this was that last year some 33,000 jobs have been shed from the mining sector, and it is sure to be a tough time ahead for many resources regions.

Manufacturing employment has also continued to shrink, albeit at not quite such a dramatic pace, while agriculture and fishing shed some 28,000 positions over the year to May 2015.

Despite the drag from these sectors the Australian economy has added more than 255,000 jobs over the past year according to the ABS "original" data series, very much driven by strong growth in services employment.

Healthcare added a whopping 98,000 new jobs in the year to May 2015, and this is a sector which is expected to thrive over the decades ahead as the Australian population both expands and ages.

Meanwhile professional, scientific and technical services accounted for a further 92,000 net new positions added in just the past 12 months.

Accommodation and food services employment has surged by 55,000 over the past year, and arts and recreational services added another 28,000 positions (#culture).

The lower dollar has helped to drive these two sectors in particular in a pincer movement of positive feedback - that pincer consisting of record tourist numbers visiting Down Under in the past year and fewer Australians holidaying overseas, a double whammy of the encouraging variety.

The above graphic underscores quite neatly how the next couple of years is likely to play out in Australia.

Mining employment is all set to continue its decline, that much seems clear, while there are also headwinds facing the manufacturing sector, particularly in automobile manufacture.

It will be services employment which needs to pick up the slack, and the latest data suggests that this rebalancing process is now well underway.

Futures markets expect that by June 2016 we might well have seen one further interest rate cut to a cash rate of just 1.75 per cent in order to generate the requisite growth.