Below trend growth to continue
How big is the issue for SMEs?
The Australian labour market remains very tight with only incremental easing in job vacancies over the past year, and wage growth should continue to strengthen as a result before the slowing economy sees unemployment begin to rise. The most recent labour force data showed strong employment growth continued through May and the unemployment rate remained at historic lows at 3.6%.
More recent payroll data showed the number of jobs increased 0.3% to mid-June, suggesting the pace of employment growth may have eased slightly but nonetheless continued through the month. More significantly, the release of job vacancies data for Q2 showed a fall of just 2% to 432k. That leaves the number of vacancies down 10% from their mid-2022 peak, but still almost double their pre-COVID level, with the number of vacancies per unemployed at around 0.8.
Looking ahead, NAB expects the labour market to weaken with the rate of employment growth to slow (and vacancies to fall) over the second half of the year and through 2024 as the economy weakens enough to see the unemployment rate rise to around 5% by end-2024 (from the near 50-year low 3.6%). This would be a considerable rise but, importantly would still leave unemployment around its pre-COVID level.
With international borders now open, increased skilled migrant quotas and improved skilled migration program processes, there has been an easing of shortages in some industries. But for others, it will take time before these changes have a material impact with many firms continuing to experience severe recruitment difficulties.
Labour shortages were a little more problematic for Australian SMEs during Q2. When asked to rate the extent it was an issue for their business, on average they scored 4.9 pts (4.8 pts in Q1 but down from 5.1 pts in Q2’22). SMEs also scored a higher 5.0 pts when asked about the impact labour shortages may have on their business in the next 12 months (4.7 pts in Q1 but down slightly from 5.1 pts in Q2’22). Average scores suggest the impact of labour shortages is still quite “moderate”
That said, many SMEs indicated they struggled much more. In Q2, an unchanged 1 in 3 of all SMEs said labour shortages were a “very significant” issue for their business (scored 8+ pts) in the last 3 months – though this fell from 35% at the same time last year.
For more information, please see the full report Labour Shortages – The Perspective from Australian SMEs (Q2 2023)
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