Disclaimer: The content from The Daily Reckoning Australia’s global cast of characters is their own view and opinion. It is not to be taken as investment advice.
The Future of Australian Employment
Aussies aren’t afraid of some ‘hard yakka’.
After all, that’s what our economy is built on, right?
Most of us connect the phrase with the stockman and the sheep shearers labouring away under the hot Australian sun.
The phrase ‘hard yakka’ was first recorded in 1847, however its roots come from the aboriginal word ‘yaga’, meaning hard work.
The saying has evolved from the outback to being used most amongst our tradies.
They’re the very backbone of the modern Aussie economy. The workers doing the hard yards, putting together the buildings we live in and the roads we drive on.
Theirs are the sort of jobs that make up more than 10% of our total employment.
A place to call your own
I often write about how Australia is a consumerist society.
We are a nation that buys things. More than 55% of our gross domestic product comes from the sales of goods and services.
That’s a fair chunk of income from one sector.
But construction in Australia contributes to almost 10% of GDP. Well above the 8% that mining does.
So, not only are we nation that buys things, but we are also a nation that builds things.
The problem is, we don’t build things to export. We aren’t a manufacturing country. We sent that job offshore to the lowest bidder a couple of decades ago.
No. What we build is just for us. And most importantly, it’s funded by ever-growing lines of credit.
As the demand for housing, apartments and commercial buildings grew over the past 15 years, so did the workforce.
In fact, the construction workforce has nearly doubled in size in that time.
Demand for work was one reason but the higher than average pay was another.
The average pole turner – I think traffic controller is the official job title – has a starting salary of $30 per hour. Add in hazard pay, site allowance and some overtime, and an unskilled position can earn someone $80,000 a year.
I have personally watched young women give up their low paid, $20 an hour child care role. They willingly walk onto a construction site, don the pink, steel-capped boots and a hi-vis vest. By flipping a pole around in the rain and wind, these young women have doubled their take-home pay.
Skilled labour rates are also high.
For example, a fully licensed electrician in Victoria has an hourly rate of $53. Again, throw in the union-deal sweeteners and the average sparky can bring more than one hundred grand a year.
The rates are pretty similar for fully qualified plumbers and carpenters, too.
With the construction demand high – and the generous wages – it’s easy to see why many are attracted to working in construction.
Work is plentiful, and the take-home pay offers a good lifestyle.
The problem is when the good times stop.
And it looks like that’s just about to happen.
Lining up for the unemployment queue
Since mid-last year, Australian property prices have been falling. Although, given the persistent coverage in the mainstream press, you’d have to be living under a rock to not know that.
At the same time, the value of housing finance has fallen. And with it, the number of new construction approvals.
And all of this is beginning to show up in the construction sector data.
One of my economic ‘health check’ tools is construction data. Given Australia’s reliance on building things – and how large the employment sector is – knowing where the construction industry sits gives you a good insight into what’s to come.
Before a building or a house comes ‘out of the ground’, the approval and planning process can take years.
So reading construction data is sort of a like crystal ball as to what’s ahead.
And my friend, things are starting to look bleak.
Australian performance of construction index
For September this year, the Australian PCI dropped below the critical level of 50, to 49.3. This is the first drop in ‘overall’ construction conditions in 20 months.
Anything below 50 suggests that construction is ‘contracting’. In other words, that type of work is shrinking.
But the overall outlook gets worse when you start digging through the details.
Both housing and commercial building activity are in decline.
Then, take a look at new orders and deliveries for apartments, housing and commercial construction – the measure of how much material is bought by construction companies. All of those are well under the crucial 50 mark, and suspected to fall further.
While we’re at it, employment in this industry dropped to 46.9.
You know what this tells us?
We haven’t seen the worst of it yet.
One million jobs on the line
The problem with falling house prices isn’t just the loss of a paper worth.
Falling house prices is much bigger than that.
Right now, there’s a focus on the banks and what their risk is if a few people default on their overpriced mortgage.
The truth is, even a slow decline in house prices could leave us with a giant mess, and some 1.1 million tradies with nothing to do.
The odd percentage drop here or there in the price of houses is only part of the problem.
The real danger of falling house prices is that it could lead to mass unemployment.
This is something we aren’t prepared for.