Weaker economy ‘bleeding through to labour market’, says Deloitte

The Australian labour market is starting to show signs of weakness as job vacancies, job mobility and average hours decline, according to a new employment forecasts report.

Deloitte Access Economics partner David Rumbens said there is increasing evidence that the stagnation in Australia’s economy may be beginning to impact the labour market.

Deloitte’s latest edition of its Employment Forecasts report suggests that weakness is starting to emerge in parts of the labour market in the form of falling job vacancies, job mobility and average hours worked, while job security fears are rising.

Rumbens said that up until recently, the slowdown in growth has been most evident through the gross domestic product (GDP), retail spending and business insolvencies data rather than the labour market data, which has remained relatively resilient.

“That remains true, though if you look closely enough, you can see evidence of a weak economy finally bleeding through to the labour market. The unemployment rate has risen in recent months, nudging up to 4.2 per cent in July 2024,” Rumbens said.

He noted that employment has still been growing at a healthy rate over 2024, with employment growth averaging 45,400 workers every month.

“However, detailed labour market data shows that the private sector engine room of the economy has been sitting idle for a while,” Rumbens said.

According to the Australian Bureau of Statistics figures, employment gains in the year to March 2024 totalled 322,000 people. Of this, 316,000 people came from the non-market sector. As a result, non-market sector employment grew by 7.6 per cent in the year to March 2024, compared to just 0.1 per cent growth from market sector industries.

“It is clear the resilience of employment growth is being driven by the non-market sector, while private sector hiring is stalling,” he said.

Green shoots appearing for Australia’s economy

Despite some of the more negative data for the labour market, Rumbens said there are signs that economic conditions may be about to improve for Australia.

“Tax cuts and cost-of-living support will allow consumer spending to lift,” he said.

Deloitte’s recent CFO Sentiment Report also indicated there has been an improvement in business confidence.

Rumbens said the labour market tends to be more of a lagging indicator for the economy, trailing broader economic performance by around six months.

“That means the labour market may continue to get worse with unemployment rising at the same time economic green shoots are appearing elsewhere,” he said.

“Overall, we do expect to see weak employment growth through 2024–25 of 1 per cent (or 147,400 additional jobs), following 3.1 per cent jobs growth in 2023–24.”

In the recent CFO Sentiment Survey, CFOs said that while they were positive about business performance lifting, private sector CFOs are not planning to hire any more people in the next 12 months.

Rumbens said employment will still pick up in certain sectors, however, with healthcare expected to see 3.2 per cent growth in jobs, while construction is forecast to grow by 2 per cent as residential construction picks up.

He warned that the outlook for white-collar employment is bleaker, with a 0.4 per cent or 23,500 worker decline projected, given the weakness in lending and professional services.

“As employment growth moderates, businesses are also looking to deliver productivity gains, particularly through technology investment and particularly through AI,” said Rumbens.

“Tech-led productivity gains are seen as a key element to support the broader economic upswing over the next year.”