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Clarius Skills IndexSeptember Quarter 2012

Prepared by KPMG Economics group Released November 2012

Prepared by KPMG Economics group

ForewordWelcome to the Clarius Skills Index. This is the 17th quarterly report analysing and reporting on the shortages and over-supply of skilled labour in 20 employment categories.

The Clarius Skills Index is the only national index which provides a clear picture of the availability of skilled labour against demand.

Labour market conditions have softened in the September quarter as total employment has decreased and the unemployment rate edged up marginally. The overall index for the 20 occupations decreased from 100.1 to 99.2 this quarter with labour demand decreasing for high-skilled occupations.

In this quarter, net skills shortages continue to be observed in Managers and Professionals, while Technicians and Trades Workers are balanced and Clerical and Administrative Workers remain in oversupply.

Australia has remained relatively well insulated from the direct effects of global economic troubles and continues to post solid economic growth and low unemployment.

This year Australian business has been in ‘reactive’ mode to external influences. Negative and cautious consumer and business sentiment and investment have directly affected hiring decisions and candidate behaviour.

Our people at Clarius talk to Australian employers and workers on a daily basis. From all reports it has been a year of recalibration, some tough ‘head down’ decisions, with a look towards 2013 as the year for growth.

As global economic uncertainty remains unresolved, consumer and business sentiment is expected to remain somewhat flat and consequently the labour market solid but subdued.

Australia continues to outperform most advanced economies. Overall, from the analysis conducted as part of this report, economic conditions should remain stable, and moderate economic growth is expected to be maintained.

Clarius Group has again combined the knowledge of the Australian employment market from its Alliance, Candle, Lloyd Morgan, SouthTech and The One Umbrella businesses, with the informed and technical advice of the respected economic consultants KPMG to analyse, index and estimate the labour skills shortage or oversupply.

This report and the market insights gathered will help you to make informed decisions about the labour market across the 20 key occupations examined.

Clarius Group is again proud to partner with KPMG to deliver this insightful index measuring the supply and demand of skilled labour.

Kym Quick Chief Executive Officer – Clarius Group

Administration, Sales & Marketing

Information Technology

Accounting, Banking, Finance and Insurance

IT Services

Payroll and Contractor Management

Aligned Services

Specialist White-Collar Recruitment for Permanent, Contract & Temporary Staff

Architecture, Construction, Consulting Engineers and Manufacturing

Library and Records Management

About Clarius GroupClarius Group (ASX: CND) is a specialist in the employment services market providing recruitment, contractor and staff services in the Accounting, Administration, Banking, Engineering, Finance, Information Management, Information Technology, Library, Marketing, Records, Sales and Senior Management markets to governments and corporations across the Asia Pacific region.

Established over 28 years ago and listed on the Australian Securities Exchange in 1997, Clarius Group has a reputation for high-quality delivery and remains one of the largest, longest standing and best performing recruitment suppliers in the region.

Clarius Group operates through a number of quality specialist brands including:

• Alliance Recruitment Administration, Sales & Marketing

• Candle Information Technology

• Lloyd Morgan Accounting, Banking, Finance and Insurance

• SouthTech Architecture, Construction, Engineering and Manufacturing

• The One Umbrella Library and Information Management

• Ignite Payroll and Contractor Management Services

• Jav IT Managed IT Services and Professional IT

Clarius Group employs over 320 staff through a network of offices located in Sydney, Melbourne, Brisbane, Perth, Adelaide and Canberra in Australia; Auckland and Wellington in New Zealand; Hong Kong, Beijing and Shanghai in China; and Singapore.

KPMG Economics groupKPMG Economics group is one of Australia’s leading independent economic consultancies specialising in economic modelling. Its work covers key areas of industry economics, social policy, tax policy and economic forecasting in Australia and internationally.

Established over 28 years ago and listed on the Australian Securities Exchange in 1997, Clarius Group has a reputation for high-quality delivery and remains one of the largest, longest standing and best performing recruitment suppliers in the region.

Sydney

Melbourne

Canberra

Perth

Shanghai

Beijing

Adelaide

BrisbaneAuckland

Wellington

Singapore

Clarius Group is represented throughout the Asia Pacific region

by a network of over 20 offices

How the Clarius Group KPMG Economics group Labour Skills Index works Clarius Group commissioned KPMG Economics group to analyse, index and forecast labour demand against labour supply across 20 occupation categories as defined by the Australian Bureau of Statistics (ABS).

The method used to determine the Index is based on the premise that where skilled labour demand (employment plus vacancies) equals supply (employment plus unemployment), the Index is balanced at 100.

During times of labour market tightness, when employers experience difficulty finding appropriately skilled employees, the Index is greater than 100. Conversely, at times when employees are easier to find (in a soft labour market), the Index is less than 100.

The Index has also been interpreted into a skills shortage barometer to highlight the levels of risks to employers in relation to the availability of skilled labour.

The Clarius Skills Index barometer now has seven readings that are based on the following ranges for the Index.

The readings are tighter than in previous indices and two extra readings have been added. The purpose of this update is to more readily alert the reader to changes in the Index through time.

Very low – index is less than 97.5

Low – index is between 97.5 and 98.4

Moderate – index is between 98.5 and 99.4

Balanced – index is between 99.5 and 100.5

High – index is between 100.6 and 101.5

Very high – index is between 101.6 and 102.5

Extreme – Index is greater than 102.5

VE

RY

LO

W

LOW

MODERATEBALANCED

HIGH

VERY HIG

H

EX

TRE

ME

Changes to the Clarius Skills IndexIn addition to the updated Index barometer readings, there have been two other key changes to the Index implemented in this report: a new occupation list; and the inclusion of improved vacancy data.

Occupations

Previously, the Clarius Skills Index reported against 20 occupations, which were based on the Australian Standard Classification of Occupations (ASCO).

ASCO has now been replaced by the Australian and New Zealand Standard Classification of Occupations (ANZSCO) and ANZSCO based analysis of occupations is the industry standard.

Accordingly, the Clarius Group has carefully selected 20 new occupations for the Index which are based on ANZSCO. These new occupations are as follows:

New ANZSCO Occupations:

Managers

Advertising and Sales ManagersChief Executives, Managing Directors and General ManagersConstruction, Distribution and Production ManagersCorporate Services ManagersFinance ManagersICT Managers

Professionals

Accountants, Auditors, Company SecretariesAdvertising and Marketing Professionals Engineering ProfessionalsFinancial Brokers and Dealers and Investment AdvisorsICT ProfessionalsInformation and Organisation Professionals Legal Professionals

Technicians

Building and Engineering TechniciansICT and Telecommunications Technicians

Clerical and Administrative Workers

Accounting Clerks and BookkeepersFinancial and Insurance ClerksInquiry Clerks and ReceptionistsOffice and Practice ManagersPersonal Assistants and Secretaries

The new list using ANZSCO refines the old (ASCO) one, better targeting the Index at occupations that are of particular interest to our audience.

While some of the new occupations on the list are closely related to those on the old, such as ANZSCO’s ICT Professionals and ASCO’s Computing Professionals, they are not identical.*

* The concordance of occupations between ANZSCO and ASCO can be found in the ABS publication 1220.0 ANZSCO - Australian and New Zealand Standard Classification of Occupations, First Edition Correspondence Tables - ANZSCO First Edition to ASCO Second Edition

Vacancy data

A key benefit from moving to the new ANZSCO occupations is the ready availability of more detailed data.

In particular, this publication makes use of DEEWR’s Internet Vacancy Index (IVI) rather than from its superseded newspaper based Skilled Vacancy Index (SVI).

This is an improvement to the underlying data used in the Index and follows the “ongoing decline in the level of vacancies in the newspaper based SVI [which] has adversely affected the ability to analyse vacancy trends by occupation’.

As such, “the [SVI] series is no longer a reliable indicator of labour demand. By contrast, the Internet Vacancy Index has a strong correlation to the employment figures, and has been shown to be a two month leading indicator of employment change”.*

Impact on the Index

The three changes, namely: the new barometer readings, the new ANZSCO occupations and the IVI-based vacancy series have all been included to update and improve the Index.

They also represent a structural change and, as such, the ANZSCO-based Index readings in this report are not directly comparable with the ASCO-based Index readings from previous quarterly reports.

To facilitate proper comparison between quarters and through time, it is necessary that the new Index for each ANZSCO occupation can be examined against history.

Accordingly, the changes applied to the December quarter 2011 Index have also been consistently applied to the historical ANZSCO data, which commenced in 2006. All figures (current and historic) presented in this report are based on the updated approach.

ContentsExecutive Summary ........................................................................................................................................ 1

Clarius Skills Index – September Quarter 2012 ............................................................................................... 3

Top Ten Occupations with the Highest Levels of Skills Shortages.................................................................... 4

At the Coalface ............................................................................................................................................... 5

Skill Shortages at the Occupation Level ........................................................................................................ 15

Climate Survey ............................................................................................................................................. 19

Key Economic Issues of 2013 ...................................................................................................................... 23

Labour Market Analysis ................................................................................................................................ 27

State Comparisons ....................................................................................................................................... 32

Methodology, Definitions and References ..................................................................................................... 39

Clarius Skills Index – June Quarter 2012 ....................................................................................................... 44

Clarius Skills Index – March Quarter 2012 ..................................................................................................... 45

* Vacancy Report, October 2011 from the Australian Government’s Department of Education, Employment and Workplace Relations.

Disclaimer

This publication is produced by Clarius Group and KPMG Economics group, with all economic modelling and forecasting undertaken by KPMG Economics group. It is intended to provide general information in summary form on specific topics, current at the time of printing. The contents do not constitute formal advice and should not be relied upon as such. The findings are also subject to unavoidable statistical variation. While all care has been taken to ensure that the statistical variation is kept to a minimum, caution should be taken whenever using this information.

Modest employment growth is expected to continue in the medium term. This growth will likely be driven by direct and indirect demand from the booming resources sector in the medium term, and from other industries taking advantage of meeting growing demand in emerging economies, particularly in Asia.

At present, households and businesses appear to be less optimistic about Australia’s economic outlook than the economic data and measures of actual business conditions suggest they should be.

Clarius Skills Index September Quarter | 1 Clarius Skills Index September Quarter | 2

Executive Summary

The Clarius Skills Index covers 20 selected occupations from the Australian and New Zealand Standard Classification of Occupations (ANZSCO)1 and about 2.6 million workers. The index showed a decrease in the September quarter 2012.

In the September quarter there was a skilled labour surplus of 19,500 across the 20 occupation categories, compared to an over demand of 2,300 in the June quarter 2012.

The turnaround was driven by an increase in unemployment since June 2012 combined with a decrease in employment opportunities. The skills gap can fluctuate between quarters due to the volatility of the data.

The index weakened from 100.1 ‘balanced’ in the June quarter to 99.2 “moderate” in this quarter.

Seven of the 20 occupations analysed in this report are in shortage. This is a decrease of two occupations compared with nine in the June quarter 2012, and the same as the March quarter 2012.

Most of the indices decreased compared with the previous quarter. This has occurred as sales and profitability of business have decreased and some economic uncertainty has arisen following the slowdown in the Asian region. The national unemployment rate has edged up to 5.4 percent this quarter, up from 5.1 per cent last quarter.

The relative labour market dynamics of these 20 occupations indicates that the softening of the labour market is primarily in high-skilled occupations and technicians and trade workers.

At present, households and businesses appear to be less optimistic about Australia’s economic outlook than the economic data and measures of actual business conditions suggest they should be. While some concerns over the Eurozone crisis have moderated, domestic sales and profitability have decreased and the slowing of China’s economic growth has dampened household and business confidence this quarter. Nevertheless, growth in China is still strong and is expected to increase from 7.8 per cent in 2012 to 8.2 per cent in 2013.2

On the other hand, the multi-speed economy is creating divergence in perceptions of economic performance.

The outlook for occupations within and related to the mining sector continues to remain strong at the expense of occupations in other industries such as manufacturing, and tourism, as the latter group tries to adapt to a higher exchange rate and softness in domestic demand. With the higher exchange rate, demand for domestic output is partially met by higher imports.

The September 2012 ABS trend labour force data3 show that there was a decrease in employment, with the economy shedding 1,000 jobs this quarter.

The unemployment rate has increased to 5.4 per cent since the June quarter, but the seasonally adjusted participation rate remained at 65.2 per cent. Aggregate monthly hours worked also decreased.

As outlined in the June quarter 2012 Clarius Skills Index, the fact that the participation rate is unchanged and the unemployment rate has increased means there is additional labour that is not fully utilised in the economy.

Unemployment Rate by State (per cent)

Australian Bureau of Statistics, Labour Force, Australia, Catalogue Number 6202.0, September 2012 Note: All rates are seasonally adjusted with the exception of NT and ACT which are Trend data

NSW VIC QLD SA WA TAS NT ACT AUST

Sep-12 5.2 5.6 6.3 5.6 4.0 7.3 3.9 3.8 5.4

Mar-12 5.0 5.5 5.5 5.2 4.0 7.0 4.0 3.5 5.2

Jun-12 5.1 5.5 5.3 6.4 3.5 7.4 4.2 3.6 5.2

In October 2012, against a backdrop of deteriorating global conditions, the Reserve Bank of Australia cut the official cash rate by 25 basis points to 3.25 per cent. Australia’s economic performance had not diminished significantly, however it was hoped that the rate cut would boost consumer and business sentiment and deter precautionary behaviour.

Reserve Bank Governor Glenn Stevens credits Australia’s considerable resilience in the face of ongoing international economic troubles to four key factors: a well-managed and well-prepared banking system, scope for monetary and fiscal stimulus, the rapid rebound of China’s growth after the crisis, and our floating exchange rate which cushioned the economy by responding appropriately to shocks.4

As a result, Australia has low levels of government debt, low unemployment and a strong growth rate compared with other advanced economies. Due to a flexible and credible economic framework, Australia is well placed to respond to further shocks and mitigate downside risks. This is cause for optimism despite concerns elsewhere in the global economy.

Consequently, although the outlook is not robust, Australia is still expected to grow at 3.0 per cent in 2013.5 Modest employment growth is expected to continue in the medium term. This growth will likely be driven by direct and indirect demand from the booming resources sector in the medium term, and from other industries taking advantage of meeting growing demand in emerging economies, particularly in Asia. The degree of labour mobility in Australia will determine whether vacancies in stronger sectors can be filled with displaced workers from weaker sectors.6

4 Stevens, G, 2012, The Lucky Country.5 IMF 2012, World Economic Outlook: Coping with High Debt and Sluggish Growth.6 RBA, May 2012, Statement on Monetary Policy.

1 ABS Cat No. 1220.0 - ANZSCO - Australian and New Zealand Standard Classification of Occupations, First Edition, Revision 1. 2 IMF, World Economic Outlook: Coping with High Debt and Sluggish Growth.3 ABS Cat No. 6202 – Labour Force, Australia, September 2012.

Clarius Skills Index September Quarter | 3

Most of the indices decreased compared with the previous quarter. This has occurred as sales and profitability of business have decreased and some economic uncertainty has arisen following the slowdown in the Asian region. The national unemployment rate has edged up to 5.4 percent this quarter, up from 5.1 per cent last quarter.

Seven of the 20 occupations analysed in this report are in shortage. This is a decrease of two occupations compared with nine in the June quarter 2012, and the same as the March quarter 2012.

Clarius Skills Index – September Quarter 2012

Note: Total labour demand and total labour supply have been seasonally adjusted, the underlying data is in original terms. The historical skills indicies for each occupation are updated each time with new seasonal factors. The underlying official data sources have had revisions to their historical data, which are reflected in the results above. Clarius Skills Index September Quarter | 4

Seasonally Adjusted

% Change(Jun-12 to Sep-12)

Labour Demand

(‘000)

Labour Supply(‘000)

Difference (‘000)

(Supply less demand)

By Occupation Sep-07 Sep-09 Sep-11 Jun-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12

Managers

Chief Executives, Managing Directors, and General Managers 99.1 98.4 97.8 98.4 97.4 -1.0% 126.9 130.3 3.3

Advertising and Sales Managers 107.2 103.0 102.9 103.0 102.7 -0.4% 122.8 119.6 -3.2

Corporate Services Managers 104.7 99.6 107.2 106.3 111.6 4.9% 6.6 5.9 -0.7

Finance Managers 101.5 99.6 99.4 99.6 98.6 -1.0% 54.5 55.3 0.8

Construction, Distribution and Production Managers 105.5 101.7 101.1 100.9 99.7 -1.2% 177.6 178.2 0.5

ICT Managers 101.1 99.5 98.3 98.7 97.6 -1.1% 53.9 55.2 1.3

Professionals

Accountants, Auditors, Company Secretaries 106.5 101.8 101.2 102.0 101.5 -0.5% 191.0 188.3 -2.7

Financial Brokers and Dealers, and Investment Advisors 102.7 99.1 99.3 99.6 99.2 -0.5% 85.1 85.8 0.7

Information and Organisation Professionals 99.3 97.9 98.0 99.2 98.1 -1.1% 21.2 21.6 0.4

Advertising and Marketing Professionals 103.2 99.2 100.2 100.7 100.2 -0.6% 116.7 116.5 -0.2

Engineering Professionals 110.7 102.8 105.4 106.7 104.9 -1.7% 145.9 139.0 -6.9

ICT Professionals 111.4 103.5 104.5 103.8 102.7 -1.1% 224.5 218.6 -5.9

Legal Professionals 109.6 101.9 101.0 101.6 100.9 -0.7% 79.3 78.6 -0.7

Technicians

Building and Engineering Technicians 102.3 98.0 100.0 100.3 98.5 -1.8% 123.3 125.1 1.9

ICT and Telecommunications Technicians 102.0 96.7 98.5 99.4 97.8 -1.6% 62.1 63.6 1.4


Office and Practice Managers 97.5 96.2 96.9 97.0 96.1 -0.9% 146.3 152.2 5.9

Personal Assistants and Secretaries 100.6 97.4 99.7 98.1 97.6 -0.4% 130.7 133.8 3.1

Inquiry Clerks and Receptionists 100.3 97.1 98.4 98.0 97.2 -0.8% 291.5 299.8 8.3

Accounting Clerks and Bookkeepers 101.1 97.1 98.3 97.8 97.2 -0.6% 303.2 311.9 8.7

Financial and Insurance Clerks 102.3 97.6 98.7 97.9 97.3 -0.6% 122.2 125.6 3.4

Total 103.3 99.3 100.2 100.1 99.2 -0.8% 2,585.3 2,604.8 19.5

Seasonally Adjusted

% Change(Jun-12 to Sep-12)

Labour Demand

(‘000)


Difference (‘000)


By Occupational Group Sep-07 Sep-09 Sep-11 Jun-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12

Managers 103.9 100.9 100.6 100.5 99.6 -0.9% 542.4 544.5 2.1

Professionals 107.5 101.7 102.3 102.6 101.8 -0.8% 863.6 848.3 -15.3

Technicians and Trades workers 102.2 97.6 99.5 100.0 98.3 -1.7% 185.4 188.7 3.3

Clerical and Administrative Workers 100.4 97.0 98.3 97.8 97.1 -0.7% 993.9 1,023.3 29.4

Total 103.3 99.3 100.2 100.1 99.2 -0.8% 2,585.3 2,604.8 19.5

Top Ten Occupations with the Highest Level of Skills ShortageThe index focuses on a selection of 20 ANZSCO occupations accounting for about 2.6 million workers across Australia as at the September quarter 2012.

Almost all the indices were lower than with the previous quarter, as demand has fallen marginally more than supply. There were seven occupations in the September quarter 2012 showing skills shortages, compared with nine occupations in the June quarter 2012.The table below presents the top ten occupations according to their index ranking for the last three quarters based on the updated data.

September 2012

Occupations Index Reading1. Corporate Services Managers 111.6 Extreme

2. Engineering Professionals 104.9 Extreme

3. ICT Professionals 102.7 Extreme

4. Advertising and Sales Managers 102.7 Extreme

5. Accountants, Auditors, Company Secretaries 101.5 High

6. Legal Professionals 100.9 High

7. Advertising and Marketing Professionals 100.2 Balanced

8. Construction, Distribution and Production Managers 99.7 Balanced

9. Financial Brokers and Dealers, and Investment Advisors 99.2 Balanced

10. Finance Managers 98.6 Balanced

June 2012

Occupations Index Reading1. Engineering Professionals 106.7 Extreme

2. Corporate Services Managers 106.3 Extreme

3. ICT Professionals 103.8 Extreme

4. Advertising and Sales Managers 103.0 Extreme

5. Accountants, Auditors, Company Secretaries 102.0 Very High

6. Legal Professionals 101.6 Very High

7. Construction, Distribution and Production Managers 100.9 High

8. Advertising and Marketing Professionals 100.7 High

9. Building and Engineering Technicians 100.3 Balanced

10. Financial Brokers and Dealers, and Investment Advisors 99.6 Balanced

At the CoalfaceEmployers now have far greater expectations in terms of what they’re looking for in candidates and they’re prepared to pay for it. High on their agenda is finding and retaining good staff and building far stronger, leaner teams that they can depend on going into the future, whether that be more tough times or good times.

At the Coalface Clarius Group Ltd

2012 has been a tough year for Australian business and its ‘toughened’ as the year progressed. In short, it’s been a roller coaster period for Australian businesses.

We’re all aware of the positive impact the mining boom has had on the Australian economy however in recent months there’s been some concern about the slowing down of the mining and resources sector as Asian markets recalibrate their requirements.

This has contributed to a contraction in hiring activity in this quarter. And this has been the pattern through 2012 - any one piece of news can make or break the market.

We do know that employers have requirements. In August we polled 100 employers nationally to gain some insights into their hiring intentions. 63 per cent of respondents said they had hiring intentions and while the majority expected headcount to remain stable, 34 per cent indicated headcount growth. The main driver was new projects coming online followed by increasing workloads.

From a macro perspective, the GFC is continuing to impact with levels of employment in 2012 matching, and in some instances more challenging than the GFC.

Businesses are aggressively managing their cost structures to be more efficient, productive and to get the best bottom line they can. And in many cases, even for those businesses performing well, it’s been at the cost of headcount.

In the latter months of 2012, WA and Queensland slowed in demand for people. QLD experienced a double whammy with demand in resources contracting and extensive job losses in the government sector.

Across the market, there’s been a lot of change that will continue into the foreseeable future... the reality is that this is the new normal.

The expectation on employees has shifted. When conditions are buoyant, employees could come in at 8:30am and leave at 5:30pm and get paid overtime but that expectation has changed.

Most organisations are asking people to do more work to cover those redundant positions because while the people may not be there anymore, the task is. And that’s not necessarily a bad thing as Australia has struggled with productivity gains.

Employers now have far greater expectations in terms of what they’re looking for in candidates and they’re prepared to pay for it. High on their agenda is finding and retaining good staff and building far stronger, leaner teams that they can depend on going into the future, whether that be more tough times or good times.

From a candidate point of view there’s been some good things come out of this environment.


Global markets are showing signs of life which should instil more confidence locally. The view of our colleagues in China is that the powerhouse nation will be back in full swing mid 2013. Until then, it’s going to be a slow and careful recovery.

Pre-GFC a lot of talk was about Generation Y, their expectations from the world of work and what they were prepared to give in return. That’s been levelled somewhat as employee expectations are now more realistic - they’re prepared to give a bit more because they appreciate the fact they’ve got a job having seen many others face a very different scenario.

There appears to be a meeting of employee and employer expectations as opposed to a big divide we saw previously.

On the flip side, employers are respecting their people more because they’re investing more time into hiring and they’re expecting more from them.

There appears to be a bit more camaraderie in the workforce. People need to achieve results and work harder and together to achieve them.

Reported Australian employment figures remained stable for October, however at Clarius and across our brands we’ve seen some companies ask people to work less hours and nine day fortnights. So there appears to be an anomaly between what the reported employment figures are and the reality at the coal face.

Potentially we’re getting into a cycle where some employed people are actually under employed, and people who are looking for full time work will accept part time work just to secure some income.

Global markets are showing signs of life which should instil more confidence locally. The view of our colleagues in China is that the powerhouse nation will be back in full swing mid 2013. Until then, it’s going to be a slow and careful recovery.


At the Coalface Administration, Sales & Marketing

We’ve been experiencing a two-speed employment market, characterised by conservatism and ‘stops and starts’ in recruiting patterns. Businesses are cautious, as are candidates, and that has led to some demand inertia and dips across a number of occupations.

The sentiment of the Australian economy changes daily and that affects hiring intentions. We see roles posted only to be withdrawn, and it’s not because the need no longer exists, it’s because employers are nervous and reacting to market sentiment.

This quarter we have seen increased demand for Corporate Services Managers – now the most ‘in demand’ occupation across the Index. This demand is in line with the general market where fewer people are being asked to do more and by virtue of the role, corporate services managers have broad levels of responsibility.

These roles have also become very compliance focussed and there has been a genuine increase in compliance demands adding to the demand.

Demand for highly skilled sales and marketing professionals spiked midyear as companies focused on growing the bottom line. However this sales focus came at the expense of non revenue generating occupations like administrators, receptionists and data entry operators where demand was flat.

Western Australia continued to be robust in both temporary and permanent positions. NSW showed a renewed confidence in the first half of 2012 but dropped back towards the back end of the year.

Trading conditions are hard for most businesses and, over the past five years, much has been learnt about productivity gains: managing performance of personnel, reward and recognition for high performers and basic business rules are now prevalent. Businesses no longer have “nice to have” roles – they simply can’t afford them.

Recruitment of top quality people has remained challenging as good candidates don’t want to risk a move. The current ‘cautious’ business environment, and recent learnings post GFC, have changed the recruitment process.

Employers are undertaking greater scrutiny of candidates and when a decision is made the probation period has doubled from three months to six months. This gives employers a greater ability to ‘test’ the performance of a hire, and ensure the position itself can be sustained in turbulent trading conditions.

Interview processes have become longer where the amount of testing is more onerous and the number of people candidates meet is growing. Employers are saying the only way to sustain growth moving forward is with good people and they’ll do anything to get those people because they understand the cost of bad hires.


The sentiment of the Australian economy changes daily and that affects hiring intentions. We see roles posted only to be withdrawn, and it’s not because the need no longer exists, it’s because employers are nervous and reacting to market sentiment.

At the Coalface continued... Clarius Group Ltd

Recruitment of top quality people has remained challenging as good candidates don’t want to risk a move. The current ‘cautious’ business environment, and recent learnings post GFC, have changed the recruitment process.

At the Coalface continued... Administration, Sales & Marketing

Candidates, regardless of economic conditions, need to be clear about what they’re looking for, who they want to work for, and be prepared to go through a vigorous testing and validation process.

November, December and January are typically slow months in the recruitment market with companies in shutdown mode for Christmas and New Year – it’s cyclical, as distinct from economical.

We predict 2013 to be the start of a slow, moderate and sustained recovery with a significant jump in sales and marketing requirements. This will have a knock-on effect for demand across other non-revenue generating occupations.

We’re already seeing increased interest, it’s just on the other side of Christmas.


At the Coalface Information Technology

The ICT market has been very unpredictable in the latter parts of 2012 resulting in some unexpected and unusual outcomes.

Business sentiment and the resulting uncertainty has left the market extremely difficult to predict. For those companies hiring, it’s literally been a month to month operating decision making process.

The Sydney and Melbourne markets were quite flat in the earlier stages of 2012 but have picked up for permanent staff in the back half. Conversely, the WA market has come to a halt in the last quarter with many projects shelved until 2013, much of which is in reaction to China re-evaluating its resource requirements.

Across Australia, other than Queensland, demand continues for Project Managers and Business Analysts which means work is being scoped.

South Australia has remained steady in the contract market and Canberra continues to have demand, but Queensland is very flat following massive government cutbacks.

On the upside, demand for permanent staff in the banking and insurance sector has picked up.

And we have seen a slight swing back to insourcing (as opposed to outsourcing), possibly because they are not getting the quality of the work they want.

ICT people are moving to where the jobs are, however in the last three months it’s our experience that east coast candidates have preferred a move to New Zealand rather than the west coast due to the distance and costs involved. This may change when the economy lifts and projects recommence.

Given the market, employers have been able to fill much of the demand with local candidates rather than looking further afield.

Contract rates have dropped across the board of between 10 and 20 per cent.

Employers continue to want to see extreme value for money - their wish lists are much longer, budgets tighter and they’re expecting more from people. They’re trying to get all that because there’s more people available in the market.

Employers want to see what a candidate can do technically and where else they can add value in the business, for example in client communication.

However when the market picks up, and demand increases, contract rates will also rise and there will be a return to focusing on technical skills.

We tell candidates to be flexible, keep up-to-date with technology, ensure they are across new trends and to look to areas which will be in high demand as a result. This is the best way to future proof career prospects.

An Austrade benchmark report says Australian companies are set to spend $66 billion in ICT in 2013.

ICT people are moving to where the jobs are, however in the last three months it’s our experience that east coast candidates have preferred a move to New Zealand rather than the west coast due to the distance and costs involved.


For example, mobile technology has been a key growth area and will continue into 2013. It’s predicted that by the end of 2013 more than three million Australians will have purchased a tablet. Usage numbers are set to double again in 2013. And this opens up great opportunity for ICT people to support areas like sales and marketing, app development and the application of such devices to the workforce. People with skills in security will also benefit as greater numbers of Australians telework.

Despite the opportunity, the Australian Computer Society reported midyear that ICT university enrolments have dropped by 50 per cent in the last decade and by 40 per cent in the vocational sector. The feedback we receive in talking to the market is that little is being done to successfully reinvigorate interest in an occupation that will be in demand for the long term.

And as we move into 2013, we should see that demand increase again, from around March. Technology is one area that simply has to move forward and our clients are already talking about projects for the New Year.

It’s predicted that by the end of 2013 more than three million Australians will have purchased a tablet. Usage numbers are set to double again in 2013. And this opens up great opportunity for ICT people to support areas like sales and marketing, app development and the application of such devices to the workforce.


At the Coalface continued... Information Technology At the Coalface Accounting, Banking, Finance and Insurance

Business sentiment has been cautious throughout the year, fuelled by media reports, which has had a cascading effect to the hiring intentions of many line managers.

The result has been a conservative market where both employers and candidates have ‘bunkered down’ waiting for a sustained period of good economic news.

The banking and finance sector has remained flat in the latter parts of 2012 – investment has been down, consumer and business confidence has been shaky, and many back office functions have been outsourced or automated. The sector is simply not as reliant on human capital as in the past.

During the year there were some spikes in demand, particularly around end of financial year and reporting periods. This was followed by a natural lull afterwards which contributed to the Index showing less demand than in the past quarter.

Demand for financial brokers and dealers dropped slightly reflecting a leaner investment appetite. People and investors are holding onto their cash so the need for those types of brokers has diminished as a result.

Lloyd Morgan was launched in Western Australia late last year where there has been a massive increase in commercial accounting needs. In particular, auditors and wealth management professionals have been in demand - indicative of a market experiencing solid growth.

Across the board there continues to be demand for highly skilled practitioners, specifically in the $150K plus executive roles and this is where employers are really looking for quality and experience.

While the larger organisations, including the big four accounting firms, have shed staff and remain static in their candidate requirements, the SME market in accounting and finance experienced solid growth.

SMEs are becoming more sophisticated and increasingly want to ensure their books are clean, that they’re recording revenue appropriately, and they’re solvent. So while the big players are reducing head count to retain profits, the smaller companies are picking them up.

However many employers are being very selective about the type of skills they want from candidates, which is translating into rigorous testing of candidates and the validation of their abilities. It’s far more onerous than it ever has been and includes testing for soft skills.

Formerly prospective employers tested for people’s technical ability, now it’s cultural fit, their ability to work well under pressure, and a whole raft of other skills that candidates need to possess to be successful in the role.

In terms of 2013, we expect an improvement in demand as employers have indicated there is the requirement and we expect to see the beginning of a long, slow recovery.

Across the board there continues to be demand for highly skilled practitioners, specifically in the $150K plus executive roles and this is where employers are really looking for quality and experience.


While engineers continue to be one of Australia’s most ‘in demand occupations’ with a large pipeline of projects, there has been a demand dip in the back end of 2012.

On a positive note as this report goes to print, financial experts in South East Asia have declared that China’s economic slowdown has bottomed and there are signs of a rebound led from China’s manufacturing sector.

At the Coalface Building and Engineering

The mining boom has led to increased opportunities across many occupations, however the benefactors from an employment and wealth perspective have primarily been in regions where the resources are located – Western Australia and central and northern Queensland.

In 2012 engineering professionals were certainly benefactors becoming the most in demand occupation with an extreme shortage of qualified professionals. This shortage peaked mid-year with an undersupply of 8,564 driven by major engineering and infrastructure projects across the resources sector.

The shortage was further acerbated with projects struggling to find enough professionals with the right technical and industry expertise. And with most projects located in more remote areas, we’ve seen reluctance for Australian skilled professionals to relocate.

In fact the wins from the recourses sector and the employment opportunity it has created has been a highlight in 2012 because it’s been a patchy and tough year for many other sectors.

While engineers continue to be one of Australia’s most ‘in demand occupations’ with a large pipeline of projects, there has been a demand dip in the back end of 2012.

The export of Australia’s resources is heavily aligned to Asian economies and the local market reacted sharply to the news of China’s economic slowdown. As a result, we felt an impact on our Perth operation quite quickly.

With the investment appetite shrinking, mid-tier mining operations – those with a market value of less that $500 million – are struggling for funding which is constraining project development and employment opportunities.

For example, managing director of Perth-based Arafura Resources Chris Tonkin has publicly reported that his operation is short of funds required to undertake a feasibility study for a rare earths mine.

All these scenarios have a knock on effect on the demand for construction, distribution and production managers as major projects have been put on ice, or not getting to the next stage of implementation where they need these type of workers.

On a positive note as this report goes to print, financial experts in South East Asia have declared that China’s economic slowdown has bottomed and there are signs of a rebound led from China’s manufacturing sector. This is the type of news resource companies in Australia need to get these projects moving again and create job opportunities for engineers and construction specialists.

Consumer and business sentiment remained flat during 2012 with people simply holding onto their money. We hear about the retail sector struggling but it’s also impacted the housing sector where residential construction is experiencing a downturn. This has also impacted the demand for construction professionals. The housing industry predicts a patchy recovery in some States in 2013.


At the Coalface Business and Information

This year we have seen companies across the board shave off headcount in a bid to cut costs. It’s been one of the side-effects of the GFC and continues to create some pain in the workforce. With little opportunity to grow the top line, companies are focussed on three key outcomes: improving productivity, efficiencies and managing expenses.

There continues to be lot of attention on creating stronger sales forces and investing in new people at the frontline, but the flip side is the consolidation of functions in the back office.

With mounting shareholder scrutiny in company performance, the impact has been most keenly felt in the non-revenue generating roles and roles not business and service critical. These are the ones that have been shed or outsourced and have resulted in lower demand, particularly in the second part of the year.

The knowledge management area is one of those functions deemed not mission critical. Businesses have been reluctant to spend money on information management systems and personnel and there has also been a trend to consolidate roles and to blend functions between the IT and the information management sectors.

There’s still demand there, it’s not a drastic decline, it’s just a more cautious approach and when the economy strengthens, companies will refocus on these functions.

We still have relatively low unemployment and there remains opportunity for highly skilled people who are looking for career opportunities.

We still have relatively low unemployment and there remains opportunity for highly skilled people who are looking for career opportunities.


7 The underlying official data sources have had revisions to their historical data, which are reflected in the results above.

While the Clarius Skills Index has shown overall market conditions have generally picked up since March quarter of 2010, all the occupation groups have experienced a soft patch in the September quarter of 2012, and it is at its lowest since March quarter of 2010.

Skill Shortages at the Occupation LevelThe index focuses on 20 selected ANZSCO occupations and these are each allocated to one of four occupation groups - Managers, Professionals, Technicians and Clerical and Administrative Workers.

All four groups had lower index readings in the September quarter 2012. Almost all the indexes have decreased this quarter.

In terms of people, the revised7 shortage of 2,900 people in the June quarter 2012 across the 20 selected occupations decreased to become an oversupply of 19,500 people in the September quarter.

Difference (supply less demand '000)

Sep Qtr12 Jun Qtr12 Mar Qtr 12

Managers 2.1 -2.8 -2.4

Professionals -15.3 -22.3 -12.3

Technicians 3.3 0.0 1.0

Clerical and Admin Workers 29.4 22.9 28.7

All 20 listed occupations 19.5 -2.3 15.0


Note: the underlying official data sources have had revisions to their historical data, which are reflected in the results above.

The figure indicates that higher qualification based groups have in general experienced greater index readings, showing signs of skills shortages. This compares with those requiring lower qualifications, which have been in oversupply since the December quarter of 2008.


While the Clarius Skills Index has shown overall market conditions have generally picked up since March quarter of 2010, all the occupation groups have experienced a soft patch in the September quarter of 2012, and it is at its lowest since March quarter of 2010.

The figure indicates that higher qualification based groups have in general experienced greater index readings, showing signs of skills shortages. This compares with those requiring lower qualifications, which have been in oversupply since the December quarter of 2008.

Further analysis of the Index for each occupation group reveals the following results for the quarter.

In terms of the overall index (representing all 20 selected ANZSCO occupations), it has become “moderately” oversupplied at 99.2 with a fall in labour demand marginally faster than labour supply. The figure following is the historical time series of the index. Updates to the methodology first implemented in the December quarter 2011 report have been consistently applied to the historical ANZSCO data.

The shortage of professionals has increased since the March quarter of 2012 as engineering construction continues to grow. The industry has grown by 31.9 per cent for the year preceding June 2012,8 and is expected to post solid growth in 2013 as high volume of major projects continue to progress through the development pipeline to the construction stage.9

Managers

Professionals

Technicians and Trades Workers


All

109.0

107.0

105.0

103.0

101.0

99.0

97.0

95.0

Sep-0

6

Dec-0

6

Mar-07

Jun-

07

Sep-0

7

Dec-0

7

Mar-08

Jun-

08

Sep-0

8

Dec-0

8

Mar-09

Jun-

09

Sep-0

9

Dec-0

9

Mar-10

Jun-

10

Sep-1

0

Dec-1

0

Mar-11

Jun-

11

Sep-1

1

Dec-1

1

Mar-12

Jun-

12

Sep-1

2

Clarius Skills Index at Occupational Group Level

Source: KPMG Modelling

8 ABS 2012 Engineering Construction Activity, Australia, June 2012 , Cat No. 8762.09 Australian Industry Group, Construction Outlook May 2012

Managers:

In the September quarter, the index for Managers moved from “High” at 100.5 to “Balanced” at 99.6, reflecting an excess of 2,132 people.

Construction, Distribution and Production Managers

The index for Construction, Distribution and Production managers has decreased this quarter, moving from “High” at 100.9, a shortage of 1,465 people to “Balanced” at 99.7 with an excess of 547 workers.

Vacancies are at their lowest point since the start of the index, and unemployment is at the second highest since the downturn in 2008.

Residential construction is currently experiencing a downturn, which is likely contributing to increasing unemployment and reduced vacancies in this occupation group. Reluctance of consumers to take on debt and housing affordability is seen as the main obstacle to new building, and there is a growing concern over rising construction costs. Furthermore, employment security has become entrenched as the biggest impediment to purchasing existing property, especially in Victoria and Queensland.10 This is likely to continue, as confidence in construction is among the lowest of all Australian industries.11

On the other hand, non-residential and engineering construction are performing well thanks to the large pipelines of resources projects. This will support demand particularly for engineering managers.

Professionals:

The index for Professionals remains “Very High” amid a slight fall in the index from 102.6 in June to 101.8 in September, with a shortage of 15,279 people.

The persistent shortage evident across the Professionals contained in the Clarius Skills Index is principally being driven by large ongoing shortages among engineering professionals and ICT professionals. Smaller shortages for accountants, auditors and company secretaries, and legal professionals have also prevailed in the September quarter, while advertising and marketing professionals have moved from a “High” to a “Balanced” status in the same quarter.

Growth in labour demand in the Australian economy is primarily occurring for higher-skilled occupations and professionals representing a significant proportion of employment in growth industries. Furthermore, Professionals throughout the Australian economy have a relatively low unemployment rate compared with all occupations. The unemployment rate for professionals was 1.8 per cent compared with the national rate of 5.4 per cent.12


The persistent shortage evident across the Professionals contained in the Clarius Skills Index is principally being driven by large ongoing shortages among engineering professionals and ICT professionals.

The unemployment rate for professionals was 1.8 per cent compared with the national rate of 5.4 per cent.

10 NAB 2012, Quarterly Australian Residential Property Survey, September 2012.11 NAB, 2012, Quarterly Business Survey September Quarter 2012.12 DEEWR, 2012, Professionals in the Australian Labour Market.

IT Professionals

The shortage of ICT professionals decreased to 5,925 this quarter; however, the shortage remains “Extreme” at 102.7, down from 103.8.

This occurred as demand has decreased marginally while supply has increased. A drop in vacancies caused the fall in demand for ICT professionals, even though employment has increased in the September quarter. Total employment of this occupation has increased and continued its upward trend since September 2011. Based on the Vacancy report published by DEEWR, vacancies have dropped to an all time low. However, IT professionals remain a high-demand occupation.

Nevertheless, demand for ICT professionals is expected to grow in the longer term. Some specific areas where demand is displaying strong growth include cloud computing, mobile development, information management and business intelligence. The NBN and high-speed broadband applications, mobility convergence, e-health, e-security and other initiatives continue to drive demand for ICT skills.13 With the increasing demand of ICT across various industries particularly in fast growing industries such as mining, energy and transportation, demand for ICT professionals is expected to increase in the future.

Engineering Professionals

The index for Engineering professionals decreased from 106.7 to 104.9, maintaining a barometer reading of “Extreme”. The current shortage is 6,880 workers.

The decrease in the index followed after labour supply outgrew labour demand in the September quarter, with vacancies dipping and unemployment rising.

Major engineering projects in the resources sector are driving a strong market for these professionals. However, the decrease in vacancies and increase in unemployment came after a downturn in business conditions in the mining sector, falling from a peak in April, with noticeable impact in WA.14 This softening in mining conditions has coincided with recent sharp declines in non-rural commodity prices, which have been driven by a slowing demand from China, as well as the general weakness in global economic activity.

Nevertheless, the demand for engineering professionals is expected to remain strong in the medium term, as non-residential and mining investment is expected to increase in the medium term, and there is still a significant amount of work in the pipeline yet to be completed.15

Some specific areas where demand is displaying strong growth include cloud computing, mobile development, information management and business intelligence. The NBN and high-speed broadband applications, mobility convergence, e-health, e-security and other initiatives continue to drive demand for ICT skills.


13 Withers 2012, Is there an ICT skills shortage in Australia and New Zealand.14 NAB 2012, State Economic Update – October 2012.15 Ibid.


A random sample of 100 Clarius Group clients paints a more positive picture towards hiring/business than perception.

Hiring plans for the next six months

62 per cent of respondents indicated hiring intentions, of which 22 per cent were seeking permanent staff only, 10 percent contract/temporary staff only, and 30 per cent hiring both perm and contract staff.

Primary reasons for headcount growth were:New projects coming online – 46 per centIncreasing workload – 39 per cent Replenishing staff after steep redundancies – 9 per cent

4134%

17 7%

%

% Expectation on headcount movementMost businesses expected headcount to remain stable but encouragingly 34 per cent indicated headcount growth while only 17 per cent expected reductions in headcount.

2

3

4

5

6

7

8

9

0% 5% 10% 15% 20% 25%

1

10

(Extremely Negative)

(Extremely Positive)

7.4%14.9%

22.3%18.1%

16.0%14.9%

4.3%1.1%1.1%

Optimism on business conditions

Top Five immediate business concerns are:

45% of all respondents are feeling somewhat positive (rating of 7 and above) towards business conditions over the next six months. This optimism is mainly driven by the growth in demand for their product/services.

1. Talent attraction/retention2. Skills shortage3. Global outlook4. Local outlook5. Market sentiment

46639 9% %

%

%

Climate Survey

Permanent Contract/Temporary Both Perm and Contract


Key Economic Issues of 2013Despite the release of reasonably strong economic data in recent months, the mood of consumers and businesses within the economy remains somewhat pessimistic. The September quarter NAB Business Survey16 indicated business confidence (defined as expectations for trading conditions, profitability and employment in the next 3 months) remains soft, and sits well below its long-run average.

Slowing business capital expenditure and employment growth outlook particularly in the non-resource sectors in the next 6-12 months points to softening business investment growth and lowered business confidence expectations for the future.17

In creating a business plan for next year, it is important to consider the current and future economic conditions in both international and domestic markets. Below we discuss some important issues that could influence Australia’s business growth path in 2013.

Fiscal Consolidation by the Federal GovernmentThe Mid-Year Economic and Fiscal Outlook 2012-13 (MYEFO) highlighted that the Federal Government is projecting to deliver a small budget surplus in 2012-13, which will be the first surplus since 2007-08. The size of the surplus estimated in the MYEFO is $1.1 billion (0.1 per cent of GDP), lower than the $1.5 billion projected in May.

The downward revision in the size of the surplus and tax receipts is a result of deteriorating economic conditions both internationally and domestically. Despite the downward revisions to tax receipts and upward revisions in a number of expense categories, the government is committed to surplus, and has announced $2.1 billion in savings in 2012-13 and other measures as part of the MYEFO.

The savings measures designed to return the Budget to surplus from 2012-13 that were introduced by the Federal Government both in the 2012-13 Budget and MYEFO have implications for the broader economy. This is particularly the case when the Federal Government saving measures are combined with the sharp spending cuts by state governments. Over the next few years, public final demand (government spending) is forecast to detract from economic output in Australia; Treasury forecasts that government spending will fall by 0.5 per cent in 2012-13 and by 0.25 per cent in 2013-14.

The drive towards achieving a surplus this financial year may impose some risk given:

> The current uncertainty and downside risks in the global economy> The drag on the economy caused by the sharp swing from deficit to surplus> Concurrent fiscal tightening being implemented by state governments> Australia’s relatively strong current federal net debt positionAustralia’s fiscal position – in terms of both the primary Budget position and net debt – is relatively strong, particularly when compared to many of the major advanced economies. With a surplus of 0.1 per cent of GDP and net debt of 12 per cent of GDP in the 2012 calendar, Australia’s fiscal position compares favourably to the G-20 economies, which are, on average projected to report a deficit of 3.7 per cent of GDP and net debt of 84 per cent.18

16 NAB, 2012, Quarterly Business Survey September Quarter 2012.17 Ibid. 18 IMF, World Economic Outlook: Coping with High Debt and Sluggish Growth.


The weakness in advanced economies has begun to affect emerging market economies in Asia, which are now experiencing decline in economic activity largely as a result of weaker demand from advanced economies.

These factors have meant that world commodity prices have begun to fall; spot prices for Australia’s key non-rural commodity exports (iron ore, thermal and metallurgical coal) have fallen by 15 to 33 per cent since the Budget.26 This, in turn, has underpinned a sharp decrease in Australia’s terms of trade from their recent highs, although the terms of trade remain high by historical standards. The MYEFO estimates that the terms of trade will decline by 8 per cent in 2012-13 (previously forecast was a 5.75 per cent fall), and by 2.75 per cent in 2013-14. These factors, combined, have contributed to the downgrade in economic growth forecasts for 2012-13, from 3.25 per cent to 3 per cent.

The EU has recently shown some stability in equity and commodity markets following the implementation of strong policy actions in reforming the EMU framework. This has significantly reduced downside risks to the growth outlook and boosted confidence in the financial market. Nevertheless, economic growth may be affected because of fiscal austerity measures. European growth continues to contract in many countries, and the IMF now estimates that output in the Euro area will decline by 0.4 per cent in 2012.19

In the US, the pace of recovery has picked up a little, with the economy forecast to grow 2 per cent in 2012, 2.25 per cent in 2013 and 2.5 per cent in 2014.20 However, the US has been slower to consolidate than expected. One of the key factors that influence future growth is its ability to balance between short-term fiscal support and medium-term fiscal consolidation. One of the key issues is the significant fiscal consolidation that is set to occur in January 2013 known as the ‘fiscal cliff’, as a result of tax rate increases and spending cuts. These measures would reduce the federal budget deficit by more than 4 percentage points in 2013, but such rapid fiscal consolidation would, according to the IMF, result in annual average growth in the US being 3-4 percentage points lower than otherwise in 2013.21

Currently markets appear to be sanguine about the ability of the United States to meet its sovereign debt obligations and the upcoming ‘fiscal cliff’ and future market concerns may emerge in the absence of credible and substantive medium-term fiscal consolidation plan.22

Nevertheless, elsewhere in Asia, the outlook remains positive, with the region showing signs of recovery after being affected by weaknesses in the euro. A recovery in the euro area and ongoing moderate growth in the US are expected to help boost growth in east Asian economies to around trend.23 Growth in China is expected to remain solid, growing a little over 8 per cent in 2013 and 2014 despite some slowing in the domestic activity and the deterioration in external demand.24

With China expected to grow at 8.2 per cent and developing Asia to grow at 7.2 per cent,25 the domestic market is poised to gain from strong growth emanating from its major Asian trading partners.

19 IMF 2012, Fiscal Monitor – Taking Stock: A Progress Report on Fiscal Adjustment.20 Ibid.21 RBA 2012, Statement of Monetary Policy – November 2012.22 IMF 2012, Fiscal Monitor – Taking Stock: A Progress Report on Fiscal Adjustment.23 RBA 2012, Statement of Monetary Policy – November 2012.24 Ibid.25 IMF, World Economic Outlook: Coping with High Debt and Sluggish Growth. 26 The Treasury, Mid-Year Economic and Fiscal Outlook and Budget Papers,2012-13

Global growth

Declining Terms of Trade

Terms of Trade Index

Source: ABS Cat No. 5206.0 and MYEFO 2012-13

Jun-04

Index (2009-10 =100)

Budget

MY EFO

Forecasts

40

60

80

100

120

140

Jun-06 Jun-08 Jun-10 Jun-12 Jun-14

Key Economic Issues of 2013

Emerging AsiaThe global economy is undergoing a structural change with the weight of economic activity shifting quickly towards Asia. Emerging economies, particularly Asia, have become a key driver of global growth and are expected to contribute around three quarters of the world’s economic growth over the next five years.

While China has been a significant contributor due to its size and strong growth, all the key emerging economies of Asia (including India, Indonesia, Malaysia and Vietnam) have grown faster than advanced economies.

Australian businesses have been re-orientating their exports toward emerging Asia for many years and this shift has been even more marked since the global financial crisis.27

Australia’s business sectors are poised for positive economic growth as the emergence of Asia is likely to provide increasing opportunities for Australia’s service sectors. With large populations and strong income growth, China and India are expected to experience a surge in middle-income consumers in coming years. As their incomes increase they will spend more on high-value manufactured goods (such as medical and pharmaceuticals) and services (such as education, finance and tourism), providing opportunities for Australian businesses.

Strong Investment Growth

Clarius Skills Index September Quarter | 25 Clarius Skills Index September Quarter | 2627 Ibid.

28 http://www.news.com.au/business/companies/mining-trouble-as-900-jobs-slashed/story-fnda1bsz-1226471085799.29 http://www.bree.gov.au/media/media_releases/2012/20120524-mining-industry.html.30 RBA 2012, Statement of Monetary Policy – November 2012.

The outlook of Australia’s real GDP growth continues to be underpinned by a surge of investment in the resources sector, and growth in the volume of commodity exports.

Based on the 2012-13 MYEFO, new business investment is expected to reach 50-year high as a share of GDP, driven by the resources sector. Over $260 billion of resource investments have received final investment approval and the majority of these projects are already under construction. Resources investment as a share of GDP is expected to peak in the next two years and remain at historically high levels through to at least the middle of this decade. Following 75 per cent growth in 2011-12, the latest capital expenditure survey suggests a further 45 per cent increase in mining investment in 2012-13.

Recent falls in global commodity prices have led to some scaling back of investment plans, largely in the coal sector where the pace of expansions has slowed and the closure of a few high-cost mines has been brought forward.28 However, the resources investment pipeline is dominated by large LNG projects where investment decisions are taken over long time horizons, underpinned by projections of energy needs of the Asian region over a period of decades.29

The resources investment peak will coincide with the start of the production and exports phase of many projects, with the resources sector expected to make a significant contribution to real GDP growth over the next two years. On the other hand, lower interest rates, rising rental yields and an improvement in conditions in the established housing market are expected to support rising dwelling investment. Business investment outside of the resource sector, which has been low, is likely to gradually recover over the next two years, through business surveys and liaison point to muted growth in the near term.30

Source: ABS Cat No. 5206.0 and MYEFO 2012-13

New Business Investment (share of GDP)

Whilst there are a number of factors in play that stand to influence the economic well being of Australia, we are placed favourably amongst the world’s advanced economies. At Clarius, we anticipate 2013 to be the beginning of a long but slow recovery.

1959-60

Per cent

1965-6610

12

14

20

18

16

1971-72 1977-78 1983-84 1989-90 1995-96 2001-02 2007-08 2013-14

Key Economic Issues of 2013

Labour Market AnalysisAustralia has remained relatively well insulated from the direct effects of global economic troubles and continues to post solid economic growth and low unemployment. However, we are experiencing some indirect effects from the ongoing global uncertainties, persistently high Australian dollar, weak forward orders and fiscal consolidation by the state and federal government.

In its October 2012 update of the World Economic Outlook, the IMF has lowered its forecast for 2013 growth from 2.0 percent to 1.5 percent for advanced economies, and from 6.0 percent to 5.6 percent for emerging market and developing economies.31

While global recovery continues, overall growth has slowed, for the most part affected by fiscal consolidation and still-weak financial systems in advanced economies.32 Low growth and uncertainty in advanced economies are affecting emerging market and developing economies, through both trade and financial channels, adding to homegrown weaknesses.33 One of the key reasons that major advanced economies have not rebuilt confidence in the medium-term is that policies have not mitigated tail risks, such as those relating to the viability of the euro area or major US fiscal policy mistakes.34

A number of emerging market economies including Brazil, China and India, displayed lower growth than expected, a result of policy tightening in response to capacity constraints, weaker demand from advanced countries and country-specific factors. Australia may be particularly vulnerable to a possible slowdown in growth should investment growth diminish as a result of overcapacity in a number of industry sectors.35

Growth in the United States has been below trend, business investment indicators have noticeably weakened, and exports are falling. A big uncertainty is over the direction of business investment in the US with partial indicators of current investment declining. The NAB surveys suggest that capex intentions are weak but still positive and the main risks is the possibility that fiscal policy may destabilise confidence and/or be contractionary in 2013.36

Australia continues to display resilience despite global economic challenges, however it is still the case that strong performance in the resources sector is making up for weakness elsewhere. Business conditions in the wholesale, retail, constructing and manufacturing industries are the weakest.37 Sales and orders have become the most constraining factor on output this quarter, which led to dampened capital expenditure and investment activity.38

In October, the RBA made the decision of lowering the cash rate by 25 basis points, after reports for the outlook of the world economy softened, and growth in China slowed down.39

Conditions in the mining sector have diminished since September last year, primarily due to softening commodity prices. The terms of trade has declined by over 10 per cent since the peak last year. Underlying confidence in the sector has also been dented somewhat by the introduction of the mineral resources rent and carbon taxes, according to the NAB survey.40

Australia has remained relatively well insulated from the direct effects of global economic troubles and continues to post solid economic growth and low unemployment. However, we are experiencing some indirect effects from the ongoing global uncertainties, persistently high Australian dollar, weak forward orders and fiscal consolidation by the state and federal government.


31 IMF, 2012, World Economic Outlook Update October 2012.32 Ibid.33 Ibid.34 Ibid.35 Ibid.36 NAB 2012, United States Economic Update – October 2012.37 NAB 2012, Quarterly SME Survey – September Quarter 2012.38 Ibid.39 RBA, Minutes of the Monetary Policy Meeting of the Reserve Bank Board - October 2012.40 NAB, 2012, Quarterly Business Survey September Quarter 2012.

While private investment as reported by the ABS Survey of New Capital Expenditure has been strong in the June quarter, the NAB survey measure of business capital expenditure for the September quarter points to a softening in business investment growth.42 The lower investment expenditure seems to largely flow from lower confidence especially in the mining sector.

More generally, weaker global circumstances have moderated demand for our exports and have impaired local business and consumer confidence.

The September quarter has seen a significantly weaker demand growth with growth in current and forward orders declining, largely reflecting weakness in current forward orders in manufacturing.

While private investment as reported by the ABS Survey of New Capital Expenditure41 has been strong in the June quarter, the NAB survey measure of business capital expenditure for the September quarter points to a softening in business investment growth.42 The lower investment expenditure seems to largely flow from lower confidence especially in the mining sector.43

In October 2012 the Westpac-Melbourne Institute Index of Consumer Sentiment44 increased by 1 per cent, lower than the increase of 3.7 per cent in the June quarter. However, it remains below par of 100. This improvement was attributed to the effects of the recent interest rate cut. Nevertheless, pessimism still exists with fiscal policy in the contractionary zone, and future growth forecasts lowered.45

On the other hand, the NAB survey46 reported that average hours worked increased marginally from 40.0 to 40.1 hours per week in September, which implies that employers have chosen to add employees’ hours over increasing numbers. By industry, average hours worked is highest in mining followed by construction. Against that the lowest hours worked are in recreation and personal services, and retail/wholesale trade, which may reflect a higher resort to casual/part-time workers in these industries.

The international and domestic economic circumstances outlined above provide context for Australia’s current labour market conditions.


41 ABS Private New Capital Expenditure and Expected Expenditure, Australia, September 2012.42 NAB 2012, Quarterly Business Survey September Quarter 2012.43 Ibid.44 Westpac-Melbourne Institute, 2012, Index of Consumer Sentiment.45 Ibid.46 NAB, 2012, Quarterly Business Survey September Quarter 2012.

The following chart presents seasonally adjusted employment levels over the past ten years.

Seasonally adjusted employment increased by around 11,400 over the September quarter 2012. Total seasonally adjusted employment of 11,506,900 represents an increase of 0.5 per cent per cent from September 2011. In trend terms, employment has dropped by 10,700 jobs in the September quarter, leading to an increase in unemployment rate of 5.4 per cent.

According to the DEEWR Vacancy data,47 internet vacancies in September decreased by 9.1 per cent compared with June. Vacancies were down across all occupation groups and in every state.

Vacancies tend to be an indicator of hiring intentions and therefore employment growth. The fact that vacancies have been declining suggests the labour market will remain soft for some time.

The September quarter 2012 NAB Business Survey48 echoed this, revealing a continuing mood of caution when it comes to hiring and investment decisions of businesses. The fact that the index for confidence is lower than that for conditions indicates that businesses are more concerned about their outlook than the current climate might dictate. Its view is that while skills shortages still exist in certain industries, they are largely well contained. Furthermore, it reported that employment expectations had softened, suggesting there will be sluggish employment growth in the September quarter.

Clarius Skills Index September Quarter | 2947 Department of Education, Employment and Workplace Relations, Vacancy Report Data, October 2012.48 NAB, 2012, Quarterly Business Survey September Quarter 2012.

Vacancies tend to be an indicator of hiring intentions and therefore employment growth. The fact that vacancies have been declining suggests the labour market will remain soft for some time.

Source: Labour Force, Australia, ABS Cat No. 6202.0

Employment (millions of persons)

8.0

10.5

11

11.5

12.0

10.0

9.5

9.0

8.5

Sep-0

2

Apr-03

Nov-0

3

Jun-

04

Jan-

05

Aug-0

5

Mar-06

Oct-06

May-0

7

Dec-0

7

Jul-0

8

Sep-0

9

Feb-

09

Nov-1

0

Apr-10

Jan-

12

Jun-

11

Aug-1

2

The national rate of unemployment is illustrated in the following chart.


0.0

5.0

6.0

7.0

4.0

3.0

2.0

1.0

Sep-0

2

Sep-0

3

Mar-03

Mar-04

Mar-05

Mar-06

Sep-0

4

Sep-0

5

Sep-0

6

Mar-07

Sep-0

7

Mar-08

Sep-0

8

Mar-09

Sep-0

9

Mar-10

Sep-1

0

Mar-11

Sep-1

1

Mar-12

Sep-1

2

Unemployment Rate (%)

In the September quarter the national unemployment rate increased to 5.4 per cent. This is a 0.4 per cent increase since September 2011.

The participation rate in the September quarter stayed at the same level as the June quarter at 65.2 per cent. This is below the rate of 65.5 per cent seen for most of 2011, and below its peak of 65.9 per cent in December 2010. Tim Colebatch points out that if participation had remained at that level, the unemployment rate would now exceed 6 per cent.49

The falling participation rate indicates a weaker labour market than the constant unemployment rate implies. The unemployment rate does not capture those people who stop looking for work and leave the labour force altogether, while a decrease in the participation rate does. In relation to the Clarius Skills Index, when the participation rate is lower, unemployment is lower, which reduces labour supply and inflates the index.

Softness is expected to continue for the rest of the year, however if employment growth accelerates further, it may encourage higher participation.

Clarius Skills Index September Quarter | 3049 Colebatch, T, 2012, Nullabor widens as WA leaves rest behind.

Softness is expected to continue for the rest of the year, however if employment growth accelerates further, it may encourage higher participation.

Australia continues to outperform most advanced economies. As global economic uncertainty remains unresolved, consumer and business sentiment is expected to remain somewhat depressed and consequently the labour market is solid but subdued.


Although the reduction of the cash rate in October did not suggest domestic economic conditions were substantially weaker than forecasted, it was clear that both global and domestic conditions had declined.

Consumer and business sentiment had deteriorated on the back of deteriorating sales figures and economic data out of China had been less robust than anticipated.

It was hoped that the rate cut would reduce tendencies towards precautionary behaviours.

On each occasion, domestic indicators suggested a certain level of softness, however the Reserve Bank Board determined that following rate cuts in earlier months there was no need for further adjustment as the full effect of the rate cut can be expected over time.50

Australia continues to outperform most advanced economies. As global economic uncertainty remains unresolved, consumer and business sentiment is expected to remain somewhat depressed and consequently the labour market is solid but subdued. Overall however economic conditions should remain stable, and moderate economic growth is expected to be maintained.

Seasonally adjusted labour force participation rates are illustrated in the following chart.


Participation Rate (% of labour force)

61.5

64.0

64.5

65.0

65.5

66.0

66.5

63.5

63.0

62.5

62.0

Sep-0

2

Mar-03

Sep-0

3

Mar-04

Sep-0

4

Mar-05

Sep-0

5

Mar-06

Sep-0

6

Mar-07

Sep-0

7

Mar-08

Sep-0

8

Mar-09

Sep-0

9

Mar-10

Sep-1

0

Mar-11

Sep-1

1

Mar-12

Sep-1

2

State ComparisonsWhile the performance of the Australian states and territories continues to diverge based upon their key economic drivers, this gap did narrow minimally in the September quarter due to weaker mining conditions. Business conditions slowed in Western Australia, yet they remain the strongest in Australia.51

The strongest performers in terms of annual economic growth have been the resource-rich jurisdictions: the Northern Territory, Western Australia and Queensland. Growth in these states continues to be driven by huge amounts of private investment, construction activity and exports. Unemployment rate is lowest in the Northern Territory and Western Australia supported by the strong growth in the resource sector.

The strongest performers in terms of annual economic growth have been the resource-rich jurisdictions: the Northern Territory, Western Australia and Queensland. Growth in these states continues to be driven by huge amounts of private investment, construction activity and exports.

Clarius Skills Index September Quarter | 3251 NAB, 2012, Quarterly Business Survey September Quarter 2012.

NSW VIC QLD SA WA TAS NT

7.0

8.0

9.0

6.0

5.0

4.0

3.0

2.0

Jan-

06

Mar-10

May-1

0

Jul-1

0

Sep-1

0

Nov-1

0

Jan-

09

Mar-11

May-1

1

Jul-1

1

Sep-1

1

Nov-1

1

Jan-

12

Mar-12

May-1

2

Jul-1

2

Sep-1

2

Unemployment rates by state (per cent)

Australian Bureau of Statistics, Labour Force, Australia, Catalogue No. 6202.0, September 2012Note: All rates are seasonally adjusted with the exception of NT which is trend data.

50 RBA, Minutes of the Monetary Policy Meeting of the Reserve Bank Board - November 2012.

States relying on industries most affected by global fluctuations and the high exchange rate continue to struggle, for example Victoria, New South Wales and especially Tasmania.

Because of global uncertainty and weak consumer confidence, a number of states are expecting slower growth and slightly higher unemployment in the short term before a recovery.

In the first quarter of 2012, wages growth largely reflected economic activity, and was strongest in Western Australian and weakest in Tasmania. Growth in labour demand in the mining states should create upward pressure on wages in the short term.

The Commsec State of the States publication discusses housing finance as an important determinant of construction activity and financial activity, as well as dwelling commencements, each of which has flow on effects to overall economic performance. Each of the states and territories aside from the ACT continue to record housing finance commitments below decade averages which reflects softness in the Australian economy.52

The oft-discussed ‘multi-speed economy’ continues to prevail. States relying more heavily on resources continue to perform well thanks to the relatively strong performance of their trading partners. On the other hand, industries such as finance and insurance, residential and non-residential construction, retail and manufacturing have been negatively affected by poor global conditions and consequent weak domestic confidence, as well as Australia’s high exchange rate.

The softness in the retail sector has been one of the main reasons for the decreased business confidence in the last quarter, as the lack of demand has been impacting on profitability.53 The September quarter seasonally adjusted retail numbers shrunk by 0.1 per cent, with the ACT and WA the only state and territory experiencing growth in the last quarter.54


Percentage Change in Retail Trade from June to September Quarter 2012

ACT

-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

1.3

WA 1.2

SA 0.0

VIC

Total -0.1

-0.1

QLD -0.3

NSW -0.5

NT -0.7

TAS -2.0

ABS, Retail Trade September 2012 Cat No. 8501.0

These forces are contributing to softer business conditions and performance in Australia as a whole. Their impacts can be isolated by looking at the states individually.

New South Wales

New South Wales has a diversified economy and as a result its economic performance is usually quite indicative of the national outlook. It is seen as Australia’s finance and business hub, and additionally dominates professional, scientific and technical services, and information media and telecommunications.55 New South Wales also boasts strengths in tourism, education and manufacturing; however these sectors have been negatively impacted by the high Australian dollar.

New South Wales’ unemployment rate was 5.2 per cent in September which was marginally lower than the national rate of 5.4 per cent, however it is expected to increase a little over the next two years.56 Compared to the other non-mining states and territories, New South Wales’ performance has been relatively strong. Unlike its southern neighbour, New South Wales does have an investment driver, with around $20 billion in the mining investment pipeline. New South Wales also has the tightest housing market in the country, suggesting that dwelling investment could provide a catalyst for growth.57 However, the strong and growing trade relationship with China, means that NSW is not isolated from the impact of a slowing of China’s economy.58

While New South Wales’ economic growth is currently below trend, the 2012-13 Budget Papers expresses confidence that Gross State Product (GSP) growth will accelerate in the next year on the back of improved housing investment, mining investment, lower interest rates, higher exports, and the dispersion of mining boom benefits across Australia.59 Furthermore, of all the states, NSW has the largest value of public private partnerships projects in the pipeline, which will contribute to state economic growth in the near future.60

Employment growth was impacted by structural change and weak overall demand and was therefore rather limited in 2011-12, but growth of around 1 per cent is expected over the next year. Increases were experienced in public administration and safety, finance, construction, accommodation and recreation, and mining. However there were falls in manufacturing, agriculture, education, utilities, transport, wholesale trade and real estate.61

Australian Capital Territory

After slowing in 2011, ACT economic growth has accelerated and is now averaging 2 per cent a quarter.62

In the quarter, retail growth was the strongest in the ACT, growing at 1.3 per cent from the previous quarter. The ACT has also performed strongly in housing finance and dwelling starts thanks to its low unemployment rate and above average population growth. However it was the worst performed in terms of equipment investment, and its retail trade is also struggling.63

The ACT economy is highly influenced by changes in Federal Government expenditure. As a result, fiscal consolidation is expected to moderate the Territory’s economic growth and draw employment growth to a halt in the short term.

This will particularly impact upon public service employment. Nevertheless, unemployment is expected to remain below the Australian rate.64 In September it sat at 3.8 per cent.

While New South Wales’ economic growth is currently below trend, the 2012-13 Budget Papers expresses confidence that Gross State Product (GSP) growth will accelerate in the next year on the back of improved housing investment, mining investment, lower interest rates, higher exports, and the dispersion of mining boom benefits across Australia.

52 CommSec, July 2012, State of the States.53 NAB, Quarterly Business Survey September Quater 2012.54 ABS, Retail Trade September 2012 Cat No. 8501.0.

55 NSW Department of Trade and Investment, Regional Infrastructure and Services, 2011, National Economy.

56 NSW Government, 2012, NSW Department of Trade and Investment, Regional Infrastructure and Services Annual Report.

57 NAB, State Economic Update – October 2012.58 NSW Government, 2012, NSW Department of Trade and Investment, Regional Infrastructure

and Services Annual Report.

59 Ibid.60 Ibid.61 Ibid.62 Propell ACT Economic Outlook September 2012.63 Ibid.64 ACT Government Treasury, 2012, Budget Outlook.

The oft-discussed ‘multi-speed economy’ continues to prevail. States relying more heavily on resources continue to perform well thanks to the relatively strong performance of their trading partners.

Victoria has an educated workforce and therefore is reasonably well placed to take advantage of increased demand for high-skilled roles.


The benefits of ongoing rebuilding work in Queensland are beginning to flow through to retail spending and overall investment.

Victoria

The NAB State Economic Update reported difficulty in identifying a driver of Victorian economic growth as its traditional strengths, manufacturing and services trade, moved into negative territory.65 The Victorian economy continues to perform below the national average, with State final demand66 (SFD) growth slowing to 2.1 per cent in 2011-12 while Victorian businesses are among the least confident in the country.67 These pressures, combined with weak domestic demand, translate to a soft short-term employment outlook. However, Victoria has an educated workforce and therefore is reasonably well placed to take advantage of increased demand for high-skilled roles.68

Victoria does not have the resources to profit directly from the current mining boom, but its knowledge-based services may indirectly benefit from interstate trade with resource-rich states. To improve its economic performance, Victoria must focus on productivity growth and the stimulation of economic activity, which will also contribute to improving employment outcomes.69

Victoria has displayed relative strength in housing market indicators compared with the other states, with housing finance figures ranking the highest of all states.70 Furthermore, while house prices are still weak, dwelling starts in the June quarter is 5.0 per cent above the decade average.71 It is expected that solid population growth should continue to support this.

Victoria’s unemployment rate was 5.6 per cent in September, which was above the national average. GSP growth of 1.75 per cent is anticipated in 2012-13.

South Australia

South Australia’s economic performance has been less than stellar compared with the other states and territories.72 The relatively weak population growth and business conditions continue to restrain retail spending and overall economic growth.

There is some hope that improved business investment on the back of some major resource projects may begin to boost the South Australian economy, but the decision by BHP Billiton not to proceed on the Olympic Dam expansion in the short term will affect momentum in the economy. Overall, the current pipeline of public and private investment is worth $109 billion.

More recently, South Australia has seen a slight pick-up in growth in non-residential building construction although this has been largely offset by broad-based weakness elsewhere.73

South Australian unemployment was 5.6 per cent in September, which has dropped significantly from the previous quarter of 6.4 per cent, however the unusually large jump in the previous quarter and therefore may reflect the volatility of monthly seasonally adjusted figures. The South Australian Budget Papers forecast GSP growth of 2.75 per cent in 2012-13.


Queensland

In terms of economic growth, Queensland is firmly growing with State final demand growth having accelerated to 9.5 per cent in 2011-12. Underpinning growth was a massive 38 per cent increase in private business investment as construction phase of a number of major coal and LNG projects kicked off.74 The benefits of ongoing rebuilding work in Queensland are beginning to flow through to retail spending and overall investment. The pipeline of resource projects is also having a positive impact on the economy through business investment. Overall, the Queensland Mid-Year Fiscal and Economic Review 2011-12 has forecast a 5.0% GSP growth in 2012-13, with the recovery in exports and continuing strong growth in the resource sector.75

On the downside, the non-resource sectors are showing signs of weakness, particularly in the south-west. The high AUD is biting into tourism, international student enrolments and manufacturing exports while a weak housing market in the south-east has kept dwellings investment subdued.76 Similarly, with most growth in Queensland taking place in the more capital intensive parts of the economy, unemployment is among the highest in the country.

In comparison with the other states, Queensland has performed strongly in household consumption expenditure, private gross fixed capital formation and exports. On the other hand, its September unemployment rate compared unfavourably with most of the other states at 5.3 per cent. While it did improve in September, employment growth is expected to remain subdued in the short run.77

Western Australia

The Western Australian economy is in a league of its own, with SFD growth of almost 15 per cent in 2011-12, underpinned largely by a 42 per cent increase in private business investment.78 Even the household sector is strong with household consumption increasing 6.3 per cent and discretionary spending has been solid. The strong emergence in consumption is largely due to income growth rather than a reduction in the savings rate.79

Its only relative weaknesses lie within the housing market. Nevertheless, although dwelling investment is weak, it is expected to unwind given the uplift in underlying demand.80

Western Australia’s unemployment rate was 4.0 per cent in September, which is well below the national average of 5.4 per cent. While strong employment growth is expected to continue, it may be restrained somewhat by tightening labour supply in the short term. Looking further ahead, as construction of resources projects begins to wind up, employment growth may moderate.81

The mining boom has flow-on effects across the West Australian economy. Population growth has been above average, which in turn improves household consumption. Exports have obviously been strong, although there is a slight offsetting effect from capital machinery and equipment imports.82

The prospects for Western Australia are for above average growth in the short term, as mining activity is mostly responsible for Australia growth at present.83 However, mining conditions deteriorated a little in the September quarter due to softer commodity prices. Nevertheless, its business conditions remain the strongest.84

65 NAB, 2012, State Economic Update – October 2012.66 State final demand measures economic demand for products in the economy by summing

private and public consumption and gross fixed capital formation. It excludes international and interstate trade as well as changes in inventories.

67 Ibid.68 Victoria Treasury, 2012, Budget Paper No. 2: Victorian State Budget 2012-13.

69 Victoria Treasury, 2012, Budget Paper No. 2: Victorian State Budget 2012-13.70 CommSec, October 2012, State of the States. 71 Ibid.72 CommSec, October 2012, State of the States.73 NAB, State Economic Update – October 2012.

74 Ibid.75 State Government Queensland, Mid Year Fiscal and Economic Review 2011-12.76 NAB, 2012, Quarterly Business Survey September Quarter 2012. 77 Queensland Treasury and Trade, 2012, Queensland Economic Review September 2012.78 Ibid.79 Ibid.

80 Ibid.81 The Government of Western Australia, 2012, Budget 2012-13 Economic and Fiscal Outlook

Budget Paper No. 3.82 Ibid.83 Propell, WA Economic Snapshot – September 2012.84 NAB, 2012, Quarterly Business Survey September Quarter 2012.

Western Australia’s unemployment rate was 4.0 per cent in September, which is well below the national average of 5.4 per cent. While strong employment growth is expected to continue, it may be restrained somewhat by tightening labour supply in the short term.


85 NAB, 2012, State Economic Update – October 2012.86 Ibid.87 ABS Retail Trade, Cat No. 8501.0.88 CommSec, State of the States October 2012.89 Parliament of Tasmania, 2012, Budget Paper No. 1 The Budget.

Tasmania

Tasmania’s economic performance continues to be weakest of all the states and territories. Its SFD contracted by 1.2 per cent in 2011-12 while the outlook remains very bleak.85 According to the CommSec State of the States October publication, Tasmania SFD growth has registered 2.9 per cent in the last quarter, which is the weakest amongst all states.

Tasmanian consumers are the most cautious in the country, and government deleveraging is felt more harshly in Tasmania as public demand accounts for 29 per cent of SFD.86 Retail turnover has been declining since a peak in 2009, decreasing 2.0 per cent from the previous quarter on seasonally adjusted numbers,87 and 2.6 per cent from a year ago.88

Propell’s publication of Tasmania Economic Snapshot reports that the level of housing finance in Tasmania fell 8.4 per cent (original series numbers) in the year to May 2012, well below the national average of +5.7 per cent, and while there was a growth in demand of 13.1 per cent, it was still well below the national average of 24.2 per cent.

The CommSec State of the States reports that construction activity in Tasmania is the weakest amongst all states. This is partly due to annual population growth of 0.25 per cent, the weakest in a decade and a massive 69 per cent below the decade average of 0.81 per cent. Over the past two quarters, Tasmania had a significantly pull-back gross fixed capital formation with a contraction of 15.6 per cent in public sector investment. While private investment increased, total gross fixed capital formation fell by 3.8 per cent, which was the lowest amongst all states.

One bright spot has been the growing private investment in the state. This appears to have had indirect benefits for construction investment and building approvals which have recently displayed growth. Furthermore, investment into hydro and dairy related has also increased. These factors may be tentative signs of recovery; however the outlook is still for a softer growth in 2012-13.

Some of Tasmania’s leading industries, including tourism and manufacturing, have been highly exposed to the high Australian dollar and global downturn. Additionally, the struggles of the forestry industry, for example the downsizing of timber operations, have had a significant impact on employment outcomes.

Better employment prospects offered by the other states and territories have resulted in the migration of Tasmanians to the mainland. This has negatively affected both the labour force and overall consumption.89

The Tasmanian Budget forecasts economic growth of 1.25 per cent in 2012-13, driven by exports to mainland Australia. It projects employment to decline by 0.25 per cent and the unemployment rate to rise slightly.

There is some hope that improved business investment on the back of some major resource projects may begin to boost the South Australian economy, but the decision by BHP Billiton not to proceed on the Olympic Dam expansion in the short term will affect momentum in the economy. Overall, the current pipeline of public and private investment is worth $109 billion.


90 Northern Territory Government, 2012, Chapter 7 The Territory Economy. 91 CommSec State of the States October 2012.92 Ibid.

Northern Territory

The Northern Territory’s economy is driven by natural resources, a large public sector, and a substantial defence presence. CommSec, in the latest State of the States, wrote that while “Western Australia leads, but here comes the Northern Territory”. The Northern Territory’s has shown a strong recovery in 2012 with hefty growth of 32.3 per cent for the year to June 2012, a strong comeback given growth has stalled from 2009 through to 2011. This is a one third growth in the economy in a year.

Private sector investment has been a large contributor to GSP this year thanks to large projects including a correctional facility in Darwin, the Marine Supply Base, and the INPEX LNG plant. These projects will provide a needed boost to population growth, and will also increase employment in the medium term. The INPEX project alone will require 3000 workers during construction, and 700 workers to operate and maintain the facility once completed.90 However, there is a risk that demand from resource projects will create skills shortages in non-resource sectors.

The Northern Territory Budget Papers project increasing employment growth and a decreasing unemployment rate in the 2012-13. The Northern Territory’s trend unemployment rate was 3.9 per cent in September, down from 4.2 per cent in the previous quarter and well below the national rate of 5.2 per cent. These factors will help to improve consumer confidence and overall consumption. The CommSec State of the States reported retail spending as the Northern Territory’s strength.91

Because the Northern Territory is a small, open economy, it can be adversely affected by global economic fluctuations through its international trade. Tourism in particular has been negatively affected by the high exchange rate.

Nevertheless, economic growth for the year as measured by CommSec is almost 39 per cent above its decade average levels of output – highest in Australia – and growth is expected to stay strong in the near future with significant projects already in the pipeline.92

Methodology, Definitions and References

Methodology

The Clarius Group – KPMG Economics group Labour Skills is calculated as: Labour Demand

Labour Supply

Where:

Labour demand = number of skilled employed persons + number of skilled job vacancies

Labour supply = number of skilled employed persons + number of skilled unemployed persons

The number of skilled employed persons is based on ABS employment by occupation data (catalogue number 6291.0.55.003, Labour Force, Australia, Detailed, Quarterly, November 2011).

The number of skilled unemployed persons is based on ABS unemployment by occupation data (catalogue number 6291.0.55.003, Labour Force, Australia, Detailed, Quarterly, November 2011). Those included in the ‘worked more than two years ago’ and ‘never worked for two weeks or more’ categories are separated into occupations, using the same profile as the unemployed persons who are assigned occupations.

The number of skilled job vacancies is based on DEEWR job vacancy data (State Occupation Counts data). The DEEWR data is based on a count of online vacancies newly lodged on SEEK, My Career, Career One and Australian JobSearch during the month. The IVI vacancies have been coded by DEEWR to occupations based on the Australian and New Zealand Standard Classification of Occupations (ANZSCO).


DefinitionsEmployed: This includes people aged 15 and over who are working full time or part time. Employment represents labour demand.

Unemployed: This includes people aged 15 and over who are looking for full-time work or part-time work, or waiting to start a new job.

Unemployment rate: The number of unemployed persons expressed as a percentage of the labour force.

Labour Force: This includes the total number of people employed and unemployed (see above). The labour force represents labour supply.

Participation Rate: The percentage of the population aged 15 and over that is in the labour force.

Average earnings: The average gross (before tax) earnings of employees. It is estimated by dividing quarterly total earnings by the number of employees.

The following occupation definitions have been reproduced from the ‘Australian and New Zealand Standard Classification of Occupations’, 1st Edition, ABS cat. No, 1220.0.

Managers

Advertising and Sales Managers: Plan, organise, direct, control and coordinate advertising, public relations, sales and marketing activities within organisations. (minor group 131)

Chief Executives, Managing Directors, and General Managers: Determine, formulate and review the general policy programs and the overall direction of organisations within the framework established by boards of directors and similar governing bodies. (unit group 1111)

Construction, Distribution and Production Managers: Plan, organise, direct, control and coordinate building and construction, engineering, importing, exporting and wholesaling, manufacturing, production, supply and distribution activities within organisations. (minor group 133)

Corporate Services Managers: Plan, organise, direct, control and coordinate the overall administration of organisations. (unit group 1321)

Finance Managers: Plan, organise, direct, control and coordinate the financial and accounting activities within organisations. (unit group 1322)

ICT Managers: Plan, organise, direct, control and coordinate the acquisition, development, maintenance and use of computer and telecommunication systems within organisations. (minor group 135)


Professionals

Accountants, Auditors, Company Secretaries: Plan and provide accounting, financial auditing and treasury valuation services and systems to individuals and organisations, and plan and review legislative compliance activities. (minor group 221)

Advertising and Marketing Professionals: Develop and coordinate advertising strategies and campaigns, determine the market for new goods and services, and identify and develop market opportunities for new and existing goods and services. (unit group 2251)

Engineering Professionals: Fly and ensure the safe operation of aircraft, control and manage the operation of ships, boats and marine equipment, design buildings, landscapes and products for manufacture and visual communication, design, plan and organise the testing, construction and maintenance of structures, machines, production systems and plants, and perform analytical, conceptual and practical tasks in relation to the chemical and physical properties of the universe, living organisms, and the environment. (sub-major group 23)

Financial Brokers and Dealers, and Investment Advisors: Conduct financial market transactions on behalf of clients, sell loans and insurance, buy and sell commodities, offer financial investment advice and plans, and develop and manage financial plans for individuals and organisations. (minor group 222)

ICT Professionals: Perform analytical, conceptual and practical tasks which support the efficient and secure provision of information and communication technology (ICT) services to government, commercial and industrial organisations, and individuals. (sub-major group 26)

Information and Organisation Professionals: Support organisations, government, individuals and the community by analysing, organising and managing information and data, and by providing advice on policy, business and organisational methods, and the value of property and other items. (minor group 224)

Legal Professionals: Provide legal advice, prepare and draft legal documents, conduct negotiations on behalf of clients, plead cases in courts and tribunals, hear legal and other matters in courts and tribunals, and interpret, analyse, administer and review the law. (minor group 271)

Technicians

Building and Engineering Technicians: Perform tests and provide technical support to Construction Managers, Architects and Engineering Professionals in research, design, construction, operation and maintenance of equipment, distribution systems and installations, and resource estimation and site inspection. (minor group 312)

ICT and Telecommunications Technicians: Provide support to the development and maintenance of computer infrastructure, web technology and telecommunications networks, and the diagnosis and resolution of technical problems. (minor group 313)



Accounting Clerks and Bookkeepers: Compile, record and process documents relating to creditors and debtors, operating costs, financial transactions and payrolls. (minor group 551)

Financial and Insurance Clerks: Receive deposits and pay out money in financial institutions, process credit, loan and insurance applications, maintain records of securities transactions and registrations, offer odds and accept bets, and compile data and undertake statistical and actuarial computations. (minor group 552)

Inquiry Clerks and Receptionists: Respond to requests for information, and receive and greet people. (sub-major group 54)

Office and Practice Managers: Organise and manage the functions and resources of offices and professional practices such as administrative systems and office personnel. (minor group 512)

Personal Assistants and Secretaries: Perform organisational, clerical, secretarial and other administrative tasks in support of Managers and Professionals. (sub-major group 52)

ReferencesAustralian Bureau of Statistics, Australian and New Zealand Standard Classification of Occupations, First Edition, Catalogue Number 1220.0, 2006.

Australian Bureau of Statistics, Average Weekly Earnings, Australia, Catalogue Number 6302.0, August 2011.

Australian Bureau of Statistics, Labour Force, Australia, Catalogue Number 6202.0, March 2012.

Australian Bureau of Statistics, Labour Force, Australia, Detailed, Monthly, Catalogue Number 6291.0.55.001, March 2012.

Australian Government Budget Outcome, http://www.budget.gov.au/2010-11/content/fbo/html/part_1.htm, accessed 11/5/12, last updated 2011.

Budget 2012-13 Getting Australians job ready and into work, http://ministers.deewr.gov.au/macklin/budget-2012-13-getting-australians-job-ready-and-work, Accessed 11/5/12, last updated 8/5/12.

Business Spectator, 2012, Federal Budget 2012: States decry lost funding in budget, http://www.businessspectator.com.au/bs.nsf/Article/Budget-strips-11bn-in-funding-from-WA-U4FUZ?OpenDocument&src=hp15, Accessed 10/5/12, last updated 8/5/12.

Colvin, J, 2011, Asia: Power shift firms up regional legal market. http://www.lawcouncil.asn.au/lca/index.cfm?E88AD37F-E278-2074-B743-EC549CAAFB6E. Accessed 22/5/12.


CommSec, 2012, State of the States April 2012, http://images.comsec.com.au/ipo/UploadedImages/stateofstatesaa78dcf4d899477fba1ffb51bedd81b6.pdf, accessed 10/5/12, last updated 23/4/12.

Department of Education, Employment and Workplace Relations, Vacancy Report Data, March 2012.

The implications of global economic transformations for Australia, Economic Roundup Issue 4, 2011, Speech by Dr Parkinson. Treasury, Canberra.

Hilvert, J, 2012, Budget 2012: IT spared in spending cuts, http://www.itnews.com.au/News/299919,budget-2012-it-spared-in-spending-cuts.aspx, Accessed 11/5/12, last updated 9/5/12.

Hilvert, J, 2012, ICT vacancies on the rise, http://www.itnews.com.au/News/298497,ict-vacancies-on-the-rise.aspx, Accessed 4/5/12, last updated 27/4/12.

NAB, 2012, Monthly Business Survey, http://www.nab.com.au/wps/wcm/connect/nab/nab/home/Business_Solutions/10/1/4, Accessed 4/5/12, last updated March 2012.

Nguyen, D, 2012, ACS and CAUDIT partner up to boost ICT industry relations, http://www.computerworld.com.au/article/423623/acs_caudit_partner_up_boost_ict_industry_relations/, Accessed 4/5/12, last updated 4/5/12.

RBA, May 2012, Domestic Economic Conditions, http://www.rba.gov.au/publications/smp/2012/may/pdf/dom-eco-cond.pdf, accessed 22/5/12

Wade, M, 2012, Fear factor puts state in catch-22, http://www.smh.com.au/national/fear-factor-puts-state-in-catch22-20120504-1y450.html, Accessed 10/5/12, last updated 5/5/12.

Welke, A, 2012, Construction Confidence Grows, http://www.gladstoneobserver.com.au/story/2012/05/06/construction-confidence-grows/, Accessed 10/5/12, last updated 6/5/12.

The West Online Group, 2012, The Changing Landscape of Legal Jobs and Perth and WA. http://westjobs.com.au/jobseeker/legal-jobs-in-perth-wa.html, Accessed 4/5/12, last updated 2012.


Clarius Skills Index – June Quarter 2012

Note: Total labour demand and total labour supply have been seasonally adjusted, the underlying data is in original terms. The historical skills indicies for each occupation are updated each time with new seasonal factors. The underlying official data sources have had revisions to their historical data, which are reflected in the results above.

Seasonally Adjusted

% Change(Mar-12 to

Jun-12)

Labour Demand

(‘000)


Difference (‘000)


By Occupation Jun-07 Jun-09 Jun-11 Mar-12 Jun-12 Jun-12 Jun-12 Jun-12 Jun-12

Managers

Chief Executives, Managing Directors, and General Managers 98.4 97.7 98.4 98.4 98.4 0.0% 142.3 144.7 2.3

Advertising and Sales Managers 106.3 102.0 104.2 102.5 103.0 0.5% 135.3 131.4 -4.0


Finance Managers 101.0 99.1 100.3 99.4 99.6 0.2% 51.6 51.8 0.2

Construction, Distribution and Production Managers 104.2 101.2 101.8 100.9 100.9 0.0% 171.6 170.1 -1.5

ICT Managers 100.7 98.6 99.0 98.7 98.7 0.0% 48.2 48.8 0.6

Professionals

Accountants, Auditors, Company Secretaries 106.0 101.3 101.8 100.7 102.0 1.2% 195.0 191.2 -3.8

Financial Brokers and Dealers, and Investment Advisors 101.8 98.7 99.4 98.6 99.6 1.1% 87.6 87.9 0.3

Information and Organisation Professionals 98.7 98.0 98.1 98.6 99.2 0.7% 24.5 24.7 0.2

Advertising and Marketing Professionals 102.2 98.8 100.3 99.5 100.7 1.3% 125.1 124.2 -0.9

Engineering Professionals 108.6 103.1 105.6 105.6 106.7 1.1% 135.7 127.1 -8.6

ICT Professionals 110.2 103.6 105.3 102.6 103.8 1.2% 225.2 217.0 -8.3

Legal Professionals 107.1 101.4 101.2 100.7 101.6 0.9% 80.7 79.4 -1.3

Technicians

Building and Engineering Technicians 102.1 97.9 100.8 99.9 100.3 0.4% 122.8 122.4 -0.4

ICT and Telecommunications Technicians 101.6 96.4 99.7 98.5 99.4 0.9% 61.2 61.5 0.4


Office and Practice Managers 97.2 95.5 96.3 96.4 97.0 0.6% 169.8 175.1 5.3

Personal Assistants and Secretaries 100.1 96.5 98.3 97.6 98.1 0.5% 134.0 136.6 2.6

Inquiry Clerks and Receptionists 99.9 96.3 97.8 97.4 98.0 0.6% 282.1 288.0 5.9

Accounting Clerks and Bookkeepers 100.3 96.4 97.6 97.3 97.8 0.6% 293.1 299.6 6.5

Financial and Insurance Clerks 101.7 96.8 98.1 97.5 97.9 0.4% 121.9 124.5 2.6

Total 102.4 98.7 100.2 99.4 100.1 0.7% 2,617.1 2,614.9 -2.3

Seasonally Adjusted

% Change(Mar-12 to

Jun-12)

Labour Demand

(‘000)


Difference (‘000)


By Occupational Group Jun-07 Jun-09 Jun-11 Mar-12 Jun-12 Jun-12 Jun-12 Jun-12 Jun-12

Managers 102.9 100.2 101.5 100.4 100.5 0.1% 558.5 555.7 -2.8

Professionals 106.2 101.5 102.6 101.5 102.6 1.1% 873.8 851.6 -22.3

Technicians and trades workers 101.9 97.4 100.4 99.4 100.0 0.6% 183.9 183.9 0.0

Clerical and Administrative Workers 99.8 96.3 97.6 97.2 97.8 0.6% 1,000.8 1,023.7 22.9

Total 102.4 98.7 100.2 99.4 100.1 0.7% 2,617.1 2,614.9 -2.3

Clarius Skills Index September Quarter | 45Note: Total labour demand and total labour supply have been seasonally adjusted, the underlying data is in original terms.

The historical skills indicies for each occupation are updated each time with new seasonal factors.

Clarius Skills Index – March Quarter 2012

Seasonally Adjusted

% Change(Mar-11 to

Jun-11)

Labour Demand

(‘000)


Difference (‘000)


By Occupation Mar-07 Mar-09 Mar-11 Dec-11 Mar-12 Mar-12 Mar-12 Mar-12 Mar-12

Managers

Chief Executives, Managing Directors, and General Managers 97.7 97.5 97.4 98.3 98.4 0.1% 126.9 129.0 2.1

Advertising and Sales Managers 105.2 102.7 102.6 102.6 102.5 -0.1% 135.8 132.5 -3.4


Finance Managers 100.3 99.3 99.1 99.6 99.4 -0.2% 58.1 58.4 0.4

Construction, Distribution and Production Managers 102.1 101.3 100.6 101.1 100.9 -0.2% 174.6 173.0 -1.6

ICT Managers 100.1 97.8 97.9 98.8 98.7 -0.2% 43.7 44.3 0.6

Professionals

Accountants, Auditors, Company Secretaries 104.5 100.9 100.3 101.0 100.7 -0.2% 196.4 195.0 -1.5

Financial Brokers and Dealers, and Investment Advisors 100.3 97.8 98.6 98.8 98.6 -0.2% 83.0 84.2 1.2

Information and Organisation Professionals 97.8 96.9 97.2 98.2 98.6 0.4% 18.9 19.1 0.3

Advertising and Marketing Professionals 100.6 98.2 99.1 99.6 99.5 -0.2% 126.6 127.3 0.7

Engineering Professionals 106.3 105.4 103.8 105.7 105.6 -0.1% 131.9 124.9 -7.0

ICT Professionals 108.4 102.9 104.2 103.2 102.6 -0.6% 218.2 212.7 -5.5

Legal Professionals 104.3 101.7 99.7 100.9 100.7 -0.3% 74.7 74.2 -0.5

Technicians

Building and Engineering Technicians 99.9 99.6 100.0 100.2 99.9 -0.3% 116.4 116.5 0.1

ICT and Telecommunications Technicians 99.8 97.5 98.5 98.7 98.5 -0.2% 58.3 59.2 0.9


Office and Practice Managers 97.0 95.6 96.3 96.3 96.4 0.1% 180.1 186.8 6.7

Personal Assistants and Secretaries 99.4 96.9 98.2 98.1 97.6 -0.5% 128.6 131.8 3.2

Inquiry Clerks and Receptionists 99.5 96.6 97.6 97.6 97.4 -0.2% 282.1 289.7 7.6

Accounting Clerks and Bookkeepers 99.6 97.0 97.5 97.5 97.3 -0.2% 297.3 305.7 8.4

Financial and Insurance Clerks 100.9 97.1 98.1 97.9 97.5 -0.4% 114.5 117.4 2.9

Total 101.3 99.1 99.4 99.6 99.4 -0.2% 2,575.5 2,590.5 15.0

Seasonally Adjusted

% Change(Mar-11 to

Jun-11)

Labour Demand

(‘000)


Difference (‘000)


By Occupational Group Mar-07 Mar-09 Mar-11 Dec-11 Mar-12 Mar-12 Mar-12 Mar-12 Mar-12

Managers 101.6 100.4 100.2 100.6 100.4 -0.2% 548.5 546.1 -2.4

Professionals 104.4 101.4 101.2 101.8 101.5 -0.3% 849.7 837.4 -12.3

Technicians and trades workers 99.9 98.9 99.4 99.6 99.4 -0.2% 174.8 175.7 1.0

Clerical and Administrative Workers 99.2 96.7 97.5 97.4 97.2 -0.2% 1,002.6 1,031.3 28.7

Total 101.3 99.1 99.4 99.6 99.4 -0.2% 2,575.5 2,590.5 15.0

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