The Fair Work Commission has announced a 3.75% increase to the National Minimum Wage from 1^st July, 2024. The national minimum wage now increases to $915.90 per week, or $24.10 per hour. The minimum superannuation guarantee also increased to 11.5%. The Fair Work Commission cited cost-of-living expenses as the primary reason for the increase.

This year’s increase is smaller than the 5.75% increase that occurred in 2023, with the Fair Work Commission noting that inflation has started to decrease, and many employees will soon receive the benefit of tax cuts and other cost-of-living relief measures.

Please note that there is not necessarily an obligation to pass on a wage increase to all employees. You may wish to ready my article ‘How Much Should I Get Paid (or Pay)?’ [link] for further information.

In my article last month “From Woe to Go” [link] I discussed some serious challenges, particularly when it comes to the lull and the current economic environment, which impacts on staffing levels and recruitment.

This month I wanted to share with you the current state of the market and what is concerning both business owners, workers and candidates. Understanding these dynamics can help construction businesses adapt and thrive despite the changes.

The Current State of the Construction Industry

Recent data indicates a notable deceleration in some areas of the construction sector. According to the Australian Bureau of Statistics (ABS), building approvals have fallen by approximately 7% in the past year, with residential construction being hit particularly hard, whilst civil works has had a slight increase. This decline in residential construction is largely attributed to rising interest rates, increased material costs, and a more cautious lending environment.

Interest Rates, Consumer Price Index (CPI) and Wages

Housing contributes a lot to high inflation through rent paid, the cost of new dwellings, and the renovation buzz that we are still seeing. Interest rates, set by the Reserve Bank of Australia (RBA), are a crucial lever for managing economic activity. In response to inflationary pressures, we are all painfully aware that the RBA has increased interest rates several times recently (from 0.1 in November 2020 to 4.35% at 19 June 2024). Higher rates impact borrowing costs for both consumers and businesses, dampening investment and spending in the construction sector.

Consequently, this affects the CPI, a measure of inflation, and consequently wages and charge out rates, as housing and construction costs form a substantial part of this index. Core Logic advise that housing makes up around 33% of the CPI basket that is used to calculate inflation over time (in fact housing has the largest weighting of all components within the CPI calculation). The rate of increase in rents is finally slowing according to Core Logic, suggesting some hope for tenants that the rental market may turn a corner.

Things to consider when working out your ‘New Normal’: Economic Distortions and Contributing Factors

The broader Australian economy presents a mixed picture. While immigration, the National Disability Insurance Scheme (NDIS), and large-scale civil construction projects like infrastructure upgrades provide pockets of growth, they can distort the overall economic outlook. For instance, the influx of migrants boosts housing demand temporarily, masking underlying weaknesses in other areas of the housing market. Similarly, the NDIS injects significant funds into the economy, yet this does not necessarily translate to broader economic health.

Overall, these factors can create a misleadingly positive economic picture, concealing deeper systemic issues including: -

1.     Labor Market Challenges:

• Underemployment: According to the Australian Bureau of Statistics, the seasonally adjusted unemployment rate rose by less than 0.1 percent to 4.1 percent in June. Bjorn Jarvis, ABS head of labour statistics said: “With employment rising by around 50,000 people and the number of unemployed growing by 10,000 people, the unemployment rate rose slightly to 4.1%, and the participation rate rose to 66.9%. While employment figures may appear stable, underemployment remains a significant issue. Many workers are employed in part-time or casual jobs, often with insufficient hours and job security, leading to financial instability.

• Employment Numbers: Whilst residential construction has decelerated, there has been a rise in some sectors of construction and this rise is attributed to several ongoing large-scale infrastructure projects. Despite this increase in this sector faces, the usual challenges of supply chain issues and skill labour shortages continues, which continues to impact productivity and project timelines. We are therefore seeing movement between candidates between tiers and sectors as the workforce is mobilising differently to past years.

• Skills Mismatch: There is still a mismatch between the skills of the workforce and the needs of the economy. Despite high levels of immigration, which can fill certain job gaps, many sectors, particularly in construction, still face skill shortages.

2.     Housing Market Vulnerabilities:

• Affordability Crisis: The temporary boost in housing demand due to immigration and a shortage of stock available can exacerbate the already critical issue of housing affordability. As demand increases, prices rise, making it harder for first-time homebuyers and low-income families to enter the market.

• Overreliance on Real Estate: The Australian economy has a heavy reliance on the real estate sector. When this sector shows growth, it can mask weaknesses in other economic areas. However, an overdependence on real estate can lead to a housing bubble, which poses a risk of collapse and subsequent economic downturn. Core Logic advise that the housing market is defying high interest rates and low consumer sentiment, underpinning pressure on housing values. Immigration and tight rental markets are also at play, with unusually high rent growth and low vacancy rates prompting more people to purchase housing.

• Low Consumer Sentiment: Westpac and the Melbourne Institute produce the ‘consumer sentiment index’, which provides a good read on how households feel about their own finances, economic conditions and demand for purchases. There was a slight rebound in the consumer sentiment index this month off the back of interest rates holding steady, though the index remains in pessimistic territory.

3.     Economic Inequality

• Wealth Disparity: The Australian Council of Social Service (ACOSS) and University of New South Wales (UNSW) Report: "The latest data from the Australian Council of Social Service and UNSW Sydney shows that wealth inequality in Australia has been increasing over the past decade. The richest 10% of Australians own almost half (46%) of the nation’s private wealth, while the bottom 60% own just 16%”. The Reserve Bank of Australia research indicates that wealth inequality has significant implications for consumption patterns and overall economic stability.

• Limitation of Spending: This disparity affects overall economic health, can hinder social mobility and perpetuate economic inequality across generations. It limits the spending power of a large portion of the population, thereby stifling economic growth and exacerbating social inequality.

• Access to Services: Inequality also affects access to essential services such as education and healthcare. Limited access to these services can prevent individuals from improving their employability and economic situation, perpetuating the cycle of poverty.

4.     Dependence on Natural Resources affects CPI

• Commodities Market Volatility: Australia's economy is heavily reliant on the export of natural resources, particularly coal, iron ore and natural gas. When these commodity prices rise, the cost of goods and services related to these resources also increases, contributing to higher CPI increases. Periods of high commodity prices can lead to rapid economic growth in this market, while downturns in commodity prices can result in economic slowdowns. This dependence makes the economy vulnerable to fluctuations in global commodity prices, which can lead to economic instability, and have a marked effect on employment levels, consumer spending, overall economic activity and the CPI adjustments we face with wage increases.

5.     Government Policy and Economic Management

• Short-Term Focus: Government policies often focus on short-term economic gains rather than long-term sustainability. This week, Prime Minister Anthony Albanese and Opposition Leader Peter Dutton have expressed support for changing Australia’s 3-year parliamentary terms to 4 years, renewing public discussion on the merits of a longer electoral cycle to enable them to take longer term views of their management and policies. However, voters appear ambivalent on the proposal. A previous referendum called by Bob Hawke back in 1988 for longer terms failed to reach majority support. Short-term terms however can  lead to measures that provide immediate economic boosts, such as infrastructure projects, without addressing underlying systemic issues.

• Fiscal and Monetary Policy Constraints: There are limitations to how much fiscal and monetary policies can achieve in isolation. While government spending and interest rate adjustments can stimulate the economy, they cannot resolve structural issues like skill mismatches or housing affordability on their own.

• Political Climate and Its Economic Impact: With an upcoming election being touted in the media, economic policies and promises from political parties can create uncertainty. Historically, election periods tend to slow down economic activity as businesses and consumers adopt a 'wait and see' approach. Potential changes in government policies, particularly those related to taxation, infrastructure spending, and housing affordability, can influence the construction industry significantly.

6.     Media Influence and the Importance of Independent Research

The media plays a pivotal role in shaping public perception of the economy. Often instead of traditional journalism that was research based, media outlets do a ‘hear and repeat’ version of what is happening in the news. Headlines often highlight negative trends or sensationalise economic data, contributing to a climate of fear and uncertainty. It's essential to approach media reports critically, recognising potential biases. For instance, some outlets may emphasise negative aspects to generate clicks and views, while others might downplay issues to align with political affiliations.

I would recommend you become your own ‘fact checker’ and for detailed statistics and insights, consider visiting reputable sources such as the Australian Bureau of Statistics, the Reserve Bank of Australia, Core Logic and industry reports from organisations like the Housing Industry Association and Master Builders.

Embracing your ‘New Normal’ and Enhancing Efficiency

Despite the challenges, it's important to maintain a positive outlook. Our industry has a history of resilience and adaptability.

Accepting the current economic conditions and factors as the ‘new normal’ is crucial for construction business owners today. This period offers an opportunity to review and refresh staffing levels to ensure efficiency and productivity, as well as exploring different ways of working.You may want to read my article “From Woe to Go” [link] for more detailed ideas, but in essence these could include: -

1. Assess and Refresh Your Workforce: By assessing the skills and performance of your workforce, business owners can identify areas for improvement and potential cost savings.
2. Diversification: Explore opportunities in different segments of the construction industry, such as renovations, sustainable building practices, or niche markets.
3. Innovation: Invest in new technologies and methods to improve efficiency and reduce costs.
4. Outsourcing Employment: Ensures your budget remains flexible to match your projects, and that you can meet timelines without penalty with labour-hire solutions. For permanent solutions, matching the right person to the right job, culture, and skillset is crucial.
5. Outsourcing Recruitment: There are innumerable savings that you can achieve by using SiteForce Recruitment as your provider of choice. Plus in the ever-changing world of complexity in awards and employment law, you can simply outsource the problem to an expert and keep to your own lane. You may want to read more in our articles: 
   Labour Hire Done Differently [link] and
   Unlocking Choice, Efficiency and Agility in Construction [link]

Winding Up

The construction industry in Australia is undoubtedly facing a slowdown in some areas and acceleration in others, influenced by a complex interplay of economic policies, immigration, and civil projects.

By staying informed, critically assessing media reports, and adopting proactive strategies, construction businesses can navigate these challenging times. Embracing change and focusing on long-term resilience will help ensure continued growth and success in this dynamic industry.

Here to Help

As the construction industry navigates this new financial year, strategic planning, smart staffing, and operational efficiency will be key to sustaining growth and overcoming recruitment challenges. By taking proactive steps during quieter times, businesses can set themselves up for success in the year ahead.

As always, I am here to help you and your workforce and SiteForce Recruitment is a hub of activity and information that I am sure you will find invaluable in facing the diverse and complex challenges we are facing today. Call me.

For the full range of changes implemented by Fairwork as at 1^st July, 2024:
https://www.fairwork.gov.au/about-us/workplace-laws/annual-wage-review/2023-2024-annual-wage-review

Our Superpower

Our leading 'superpower' is attracting and retaining quality team members who share our values of honesty, integrity, diligence, and service, allowing us to deploy quality team members on client sites quickly.

Our team member's superpower is being motivated, prepared and ready to enthusiastically contribute to the projects at hand, more than just a pair of hands.

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Read other informative articles for both employers and workers at: https://www.siteforcerecruitment.com.au/blogs

Chantal Penny is the Director with Superpowers of SiteForce Recruitment. A thought leader in the industry, Chantal, based on her expertise and industry perspective, offers unique guidance, inspiration, and influence in the industry. Chantal Penny is also a thought leader in the industry with her Podcast, Talent Instinct, which is available at:
https://talentinstinctpodcast.libsyn.com/site

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