The Australian economy is facing increasing headwinds as both business and consumer confidence continue to decline. Rising unemployment concerns, coupled with a growing financial strain on businesses, are casting a shadow over the nation’s economic outlook.
Australia’s business turnover saw a 1.0% increase in July, marking a rebound after two months of decline, according to figures released by the Australian Bureau of Statistics (ABS). Growth was led by the Transport, postal, and warehousing sector, which surged 4.0%, recovering from a previous fall. Other sectors such as Professional, scientific, and technical services and Construction also saw significant gains.
However, this positive development contrasts with a worrying drop in both business and consumer confidence throughout August. NAB’s Business Survey and Westpac’s Consumer Survey revealed deteriorating sentiment, with growing concerns around the employment outlook. Consumers, particularly those employed, are increasingly pessimistic about job prospects, while business confidence fell largely due to a drop in employment conditions.
With unemployment rising steadily and leading indicators such as trade payment defaults hitting record highs, analysts warn of a sustained increase in unemployment. The Reserve Bank of Australia (RBA) expects unemployment to reach 4.4% by December 2024, but with the rate already at 4.3%, concerns are mounting that the figure could surpass expectations.
These trends will be crucial in determining future economic policy, including the potential timing of RBA rate cuts.
Business Confidence Plummets
Both business and consumer confidence saw declines in August, with consumer sentiment remaining deeply negative and business confidence dipping back into negative territory. The biggest concern highlighted by NAB’s Business Survey and Westpac’s Consumer Survey is a worsening outlook for employment.
Consumers, particularly those currently employed, are increasingly pessimistic about job prospects. This sentiment was echoed in the business sector, where the business conditions index dropped significantly, driven by a sharp fall in the employment sub-index.
While the unemployment rate is rising gradually, forward indicators suggest that a sustained increase in unemployment is likely. CreditorWatch, a key indicator of business stress, reported that trade payment defaults reached record highs, surging by 68% over the year to August. This trend points to growing financial strain in the business sector.
The Reserve Bank of Australia (RBA) expects unemployment to rise to 4.4% by December 2024 and remain at that level until December 2026. However, with the seasonally adjusted unemployment rate already at 4.3%, there is growing concern that unemployment could overshoot these forecasts. The coming months will be critical in determining the pace of unemployment increases and could influence the timing of the RBA’s anticipated cash rate cuts, closely mirroring trends in the U.S. and other major economies.
Business Turnover rises
Business turnover in Australia saw a 1.0% increase in July, according to data released today by the Australian Bureau of Statistics (ABS), signalling a rebound after two months of decline. Robert Ewing, Head of Business Statistics at the ABS, noted, “Business turnover rose 1.0% in seasonally adjusted terms in July, driven by significant growth in several industries.” Overall, business turnover across the 13-industry aggregate rose 0.1% in trend terms and 1.0% in seasonally adjusted terms. Compared to July 2023, turnover increased for all industries except Mining, which recorded a 1.2% decrease. The largest annual gains were in Electricity, gas, water, and waste services (up 16.8%) and Professional, scientific, and technical services (up 8.4%).
U.S. Economy Shows Signs of Cooling
In August 2024, U.S. employment data revealed a slight dip in the unemployment rate to 4.2%, in line with expectations. However, payroll growth has decelerated, and the broader trend of rising unemployment remains in place, reflecting a cooling labor market that has slowed more than the Federal Reserve had anticipated earlier in the year.
Looking ahead, the Federal Open Market Committee (FOMC) is poised to make a cautious move with a 25-basis-point rate cut next week. NAB Group Economics still forecasts a total of 100 basis points in rate cuts by the end of 2024.
In a positive development, NAB has revised its GDP growth forecast for 2024, now expecting growth to hit 2.6%, up from the previous 2.5% estimate. The 2025 outlook has also been upgraded to 1.7%, from an earlier projection of 1.5%. This adjustment is partly driven by stronger-than-expected consumption through July, though concerns remain as consumption has outpaced income growth, suggesting a potential slowdown ahead.
On the inflation front, monthly core CPI inflation for August was slightly higher than anticipated, though this increase was not reflected in other underlying inflation measures. Core PCE inflation is expected to be lower than CPI, aligning with recent modest inflation prints.
A Snapshot of Australia’s Workforce
In June 2024, a total of 416,500 people were employed in Labour supply services in Australia. For 359,100 individuals, representing 86.2% of the sector’s workforce, this was their main job. Labour supply services made up 2.8% of the total employed population during this period.
According to data from August 2022, 81.2% of labour hire workers in the sector were employed full-time. However, a significant 83.6% of these workers lacked paid leave entitlements, highlighting the sector’s reliance on casual employment arrangements. Additionally, 18.0% of labour hire workers expressed a preference for working more hours.
A gender breakdown from 2020-21 revealed that 62.0% of workers in Labour supply services were men. Among job roles, 23.7% of those employed in the industry worked as Labourers, reflecting the manual nature of a considerable portion of the workforce.
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