Random Analytica

Still a Tough Old Road

In my most recent analysis of the mining sector the March data highlighted a return to positive employment sentiment for the first time in nine months backed by a series of increasing commodity price gains across most mineral commodities. Unfortunately for manufacturing the Workforce Planning Scan has shown a steep decline since commodities withdrew from historical highs (around May/June 2012). I’m sure the sector would be happy with a return back to the period when the data was at best flat or when it experienced its last Australian employment increase (up by 5,300 according to the ABS data from November 2011 through to February 2012).

Looking at the positive/negative index for Employment over the past 13-months you can easily identify the flat, almost neutral period prior to End-Of-Financial-Year 2011/2012 and the subsequent decline since July 2012. January 2013 was the worst month on record while February and March saw a small improvement (all tracked via the 3-point polynomial trend-line). It should be noted however that any indicator which records <5 negative readings is in a very poor state.

An almost 5:1 ratio of bad over good news stories saw Employment continue to lead the story count, the seventh consecutive month and counting. Engagement (20%) came in a close second with 11-stories, mainly focussed on what seems to be an annual March-April conference season (something I intend to look at in detail next month). Third was Learning & Development/Research & Development (16.4%) tracking a little bit higher than its 12-month average of 10.2%.

Learning & Development/Research & Development with a sentiment score of +3 was the only positive indicator for manufacturing in March! L&D/R&D generally tracks positively and March saw some good news from ongoing research and an extension of the Apprentice Kick-start Initiative by the federal government with the hope of boosting new entrants into building, construction, and engineering.

As mentioned previously Employment continued to disappoint with a -7 sentiment for March. Migrate/Visa finished the month on -2 after the Prime Minister, Julia Gillard, contentiously raised the issue of 457-visa’s (skilled workforce quota).

It is my view that this indicator would have finished with a greater proportion of stories and a more negative sentiment; however the 21^st March internal Labor spill that didn’t really occur robbed the government of its 457-topic momentum. Remuneration also finished weaker on -2 after reports of weaker wages growth.

Here is a look at the indicator data for March.

No entries for Augmentation and Australian Made in March. The lack of Augmentation stories especially is interesting, given that there is now some consensus that the high Australian dollar is here to stay and productivity via technology is a must-have option.

Another interesting point. So far in 2013 there hasn’t been a single Diversity, Recruit/Retain, Skills Shortage or Work/Life story recorded which reflects the sectors weakened state and its inability to compete for employees due to high cost inputs and global competition.

March was the first month of 2013 when jobs lost did not top the four-figure mark, although the monthly average is still over 1,100.

Given the trend at the moment a loss in the hundreds is much better than in the thousands.

It wasn’t the manufacturing hubs which dominated the story count this month. New South Wales topped the list with 16-stories (10.9%) followed by Victoria and South Australia at 11-stories apiece (7.5%) and the mining states of Queensland and Western Australia with nine each (6.1%).

National stories were aplenty with Australian topics recording 66 (44.9%). Of the final international Workforce Planning stories, four (2.7%) were global, seven were European (4.1% with 3 from that continents manufacturing powerhouse, Germany), four were Asian (3 from China) and New Zealand recorded two.

The story of the month was in relation to the death of a glass worker at Wollongong. This was the third consecutive month with a reported death, two of which were in glass manufacturing and the second in New South Wales this year. It run could have been worse, as a tonne of glass fell on a worker in Queensland in December causing severe injuries and three other Australian workers were killed in separate incidents during October and November.

Manufacturing can be dangerous so be careful out there.

Final thoughts and two indicators to watch…

Outside of some recent talk about increased productivity as business starts to respond to the high Australian dollar and creates efficiencies to counteract global competiveness I can see no reason why anyone would be even remotely optimistic about manufacturing in this country.

Possibly one of the best guides on how poorly the sector is performing was Manufacturing Australia’s own call for cheaper energy via Sue Morphet, effectively a request for industry subsidies. Sue replaced Dick Warburton in March as the Chairman for Manufacturing Australia and did not deny the sectors woes during her 7.30 interview.

Having ‘structurally adjusted’ Pacific Brands as its CEO with the loss of 1,850 Australian manufacturing jobs (to Asia) why would any other CEO credibly listen to her asking them to save Australian positions?

The attacks by the Labor government recently of the 457-program which is a skilled visa entry rather than a more detailed discussion on Enterprise Migration Agreements (effectively a non-skilled program) could make Migrate/Visa an indicator to watch. I hope that I am wrong and sanity returns to that area.

Employment plus the jobs gained and lost is still the only important manufacturing indicators at the moment. One can only hope the numbers going forward will be kinder than the ones we have seen over the past 12-months.

I’m still very bearish about Australian manufacturing and I very much doubt that we have reached the end of the current negative cycle.

The Australian manufacturing sector continued to retract with another month of job losses and negative sentiment even after the federal government stepped in, announcing approximately $1 billion in support of a number of initiatives including dedicated manufacturing hubs and local content requirements for major projects. R&D tax concessions would be cut to offset the costs of the new programs.

The announcements made by the Prime Minister, Julia Gillard and the Minister for Industry and Innovation, Greg Combet were largely drowned out by more Labor leadership speculation. That being said, any announcement that concerns manufacturing with its long implementation lead times has the upcoming federal election (due on the 14^th September 2013) as a backdrop. Further to that, any announcement made by the current government also has to be considered very carefully by the sector given that with most polls now showing Labour has a 2-party preferred of just 31% they would be suffering a devastating defeat.

Let’s have a look at this month’s data:

Figure 1: Australian Manufacturing Workforce Planning Scan (Jan – Feb 2013). Source: Manufacturing Monthly. Some stories have been verified against primary resources.

Figure 2: Australian Manufacturing Workforce Planning Positive/Negative Index (Jan – Feb 2013). Source: Manufacturing Monthly.

The four most dominant Workforce Planning issues for February were Employment (30.2%), IR (15.1%), then Engagement and WH&S both of which finished at 11.3%. Only Engagement (+3) and L&D/R&D (+1) finished the month in positive sentiment territory while Employment again finished negatively (-12) followed by WH&S (-4).

The Employment category which tracks employment gains, losses and general sentiment continued to dominate the manufacturing news. Representing 30.2% of all WFP stories (-17.2%mom), this included 11-negative stories offset by just 3-positives. This month the job losses were 1600 compared with just 42-added. I did include the 650-jobs which might have been created by Fresh Bins which were targeted for Victoria. According to the company’s founder, Paul Sewell, a lack of support from local and state governments forced him to relocate to Texas. With my Manufacturing Workforce Planning Scan data going back as far as May this is the 9^th consecutive month of negative employment sentiment in which time 8,590 jobs have been lost, an average of 954 per month.

IR which tracks all aspects of industrial relations was the second leading category for February at 15.1% (+4.6%mom) due in large part to ongoing commentary and engagement by union leaders (4-stories) and two negative stories which were linked to medical manufacturing. The story which was most notable was Alan Kohler’s discussion on Inside Business with Cochlear CEO, Chris Roberts. I’m a big fan of Inside Business and an avid watcher so I was struck by Chris Roberts carefully worded criticism of Australian IR and productivity. Although he would not be directly called on offshoring I got the sense that it’s a decision on his and the Cochlear Board’s mind.

Equal third on 11.3% for February were Engagement (-2.9%mom), which includes items such as exhibitions and staff awards and WH&S (+0.8%mom) which covers all aspects of Work, Health and Safety. For a sector in trouble, manufacturing loves award ceremonies and conferences and this was reflected again in this month’s positive +3 Engagement sentiment (steady from January). Unfortunately, the -4 WH&S sentiment included another factory death, this time in Western Australia (the second consecutive month were a death has been reported) and a serious injury of a worker in a mushroom factory in Melbourne.

Here is a look at the February data.

Table 1: Data for Australian Manufacturing Workforce Planning Scan (Jan – Feb 2013). Source: Manufacturing Monthly.

Finally, here is a look at the Employment Gains/Losses tracker for 2013.

Table 2: Manufacturing employment gains and losses for 2013. Source: Manufacturing Monthly.

The start of the New Year has brought fresh lows to the manufacturing sector with the month of January dominated by job losses, business suspensions and a lack of overall confidence.

Figure 1: Australian Manufacturing Workforce Planning Scan 2012 (Jan 2013). Data sourced from Manufacturing Monthly Newsletter & News Archive. Some stories have been verified against primary resources.

Figure 2: Australian Manufacturing Workforce Planning Positive/Negative Index 2012 (Jan 2013). Data sourced from Manufacturing Monthly Newsletter & News Archive. Some stories have been verified against primary resources.

The four most dominant Workforce Planning stories for January were Employ (47.4%), Engagement (13.2%), IR and WH&S (both of which finished on 10.5%). Engagement (+3) and L&D/R&D (+2) were the most positive while Employ (-12) and WH&S (-4) were the most negative.

The Employ category which tracks employment gains, losses and general sentiment overshadowed the news this month. At 47.4% this category made up almost half of the stories and as Table 1 shows there were 13-negative stories with a total loss 1304 jobs for only one gain of 200-jobs. The high negativity this month was also the worst that I have currently recorded although my data only goes back to July 2012. In terms of sentiment there does seem to be linkages to a slowing construction sector, evident by the largest job loss recorded for the month when Boral axed at least 700-employees after a 100-day review. On a positive note the Indigenous Footy Business hopes to train 200 indigenous Australian’s and take back at least half of the football business which has been dominated by cheaper imports.

Engagement, which includes items such as exhibitions and staff awards, came in as the second most discussed workforce planning item for January. Unsurprisingly it was also the most positive recording three stories, two of which originated from Victoria where the economy is heavily reliant on its manufacturing base and suffering as the sector atrophies.

Equal third most reported for January were IR which tracks industrial actions and WH&S (Work Health and Safety). Industrial relations can be a very dominant story and in August of last year recorded a high of one third of all workforce planning stories. In January IR only reached 10.5% mainly around commentary by union officials including the Australian Workers Union Paul Howes criticism of the Boral redundancy decision. WH&S tracks everything from safety innovations to workplace accidents. Although no major injuries were recorded for January there was at least one work related fatality when a 40-year old man was struck by lifting equipment at a Newcastle based manufacturing plant.

Here is a closer look at the January data.

Table 1: Data for Australian Manufacturing Workforce Planning Scan 2012 (Jan 2013). Data sourced from Manufacturing Monthly Newsletter & News Archive. Some stories have been verified against primary resources.

Finally, here is a look at the Employment Gains/Losses tracker for 2013.

Table 2: Employment losses and gains 2013. Data sourced from Manufacturing Monthly Newsletter & News Archive. Some stories have been verified against primary resources.

In summary, the opening month of manufacturing news has been a continuation on last years theme of a sector still in decline, impacted by many factors but also an Australian dollar which remains stubbornly high (averaging around $1.04 – $1.05 for the month). What will be interesting will be how manufacturing positions itself now that an election has just been called (to be held later this year on the 14^th September) and what impact further weakening of this sector might do to the unfolding story.

Update 1 (11/02/2013): During a data validation exercise I found that the stories being released via the Manufacturing Monthly eNewsletter, which I utilised as my primary source of data linkage, did not reflect the complete manufacturing coverage, thus Table 1 has been updated with an additional ‘Other’ article that was missed. As the Manufacturing Monthly news archive captures all the stories I will now be using that as my primary data source, although this will mean a 24-hour delay on Workforce Planning scan updates from February onwards.

The two sectors of the Australian economy that will shape the nation in 2013 are mining and manufacturing. Although mining has come under intense pressure in the latter half of 2012 it still has an enormous foreign direct investment (FDI) pipeline and is the envy of the world, especially the US and the European countries that have been battered by the Global Financial Crisis (or the North Atlantic Financial Crisis as I prefer to call it). On the other side of the coin is manufacturing which according to the ABS employed 935,897 people (correct as at end June 2011), although that number has been in decline for some years and it would be lower today and if you believe the data I’m about to present. The US Bureau of Labour Statistics (BLS) recently reported we have the worst manufacturing productivity amongst the most developed nations.

Australia has significant challenges ahead of it this year and these two sectors, so crucial to the economy but at opposite ends of the spectrum are worth close attention and scrutiny.

Since September 2012 I have been publishing Workforce Planning scans of the Mining industry which has assisted me in thinking ‘Big Picture’ about that sector, with all of its opportunities and liabilities. Over the Christmas break I have been busy looking at Manufacturing Monthly stories between July and December 2012 to get a sense about that sector and its Workforce Planning issues. Given more time I would like to add a second source of qualitative data to create more robust quantitative information but time doesn’t permit at this stage.

Building on my 2012 Mining scans I’ve created two new graphs and added a positive/negative column in the raw data. The first additional graph is a simple Positive/Negative index to show the relevant subject by its ratio of good and bad news stories. The second is a table which outlines job losses and job gains. Unlike most work in this area I’ve detailed the jobs gained by the year they are expected to occur. For manufacturing I’ve added two sector specific categories, that of ImportSub (Import Substitution) to capture employment gained or lost through CAPEX, factors of production and dumping then included AusMade where the Australian brand helps or hinders Workforce Planning issues.

So, here is the first Australian Manufacturing Workforce Planning Scan looking at the period July to December 2012.

Figure 1: Australian Manufacturing Workforce Planning Scan 2012 (Jul-Dec). Data sourced from Manufacturing Monthly Newsletter & News Archive. Some stories have been verified against primary resources.

Like Mining the weight of stories was predominately employment (and most of it negative but more on that later). Unlike Mining there was one month where Industrial Relations dominated the discussion, although you get a sense looking at the stories that the union movement is limited in their capacity to take more direct action, thus they make up the numbers by increased debate.

The other really interesting data that came out of this research is the lack of softer HR stories which permeate through the last half of 2012. In fact there were NO STORIES on Work-Life Fit (aka Work Life Balance) and Skills Shortages and only one story on Diversity! You just know a sector is in trouble when there is little or no talk around the ‘touchy-feely’ HR subjects.

Figure 2: Australian Manufacturing Workforce Planning Positive/Negative Index 2012 (Jul-Dec). Data sourced from Manufacturing Monthly Newsletter & News Archive. Some stories have been verified against primary resources.

For every month the weight of negative employment stories was depressingly high. July was the only month where it seemed that factories closing down or going into administration might not feature but the loss of 440-jobs at Ford after the Australian government gave the company $103M AUD in an attempt to keep people employed.

On a more positive note Learning & Development/Research & Development stories averaged 10.3% for the six months and were generally positive or at worst (October) at least neutral. Although the sector might be in decline both the Australian and Victorian governments (where a lot of Australia’s manufacturing base is located) are not about to give up on it. Of the two negative L&D/R&D stories one was linked to MYEFO budget cuts to funding and the other, ominously was RMIT pulling out of its manufacturing program, when it seems all universities want to add mining related courses (traditionally a very low employer).

Here is a look at the data breakdowns.

Table 1: Data for Australian Manufacturing Workforce Planning Scan 2012 (Jul-Dec). Data sourced from Australian Mining Newsletter & News Archive. Some stories have been verified against primary resources.

As noted previously the lack of softer HR data stories was very interesting and something to keep following through 2013. Also of interest was the decrease in overall Workforce Planning stories as compared to mining which averaged 55.3% for 2012.

Last graph, looking at the employment losses and gains through to 2016 and beyond (although this will be more relevant to analysis of the Mining sector).

Table 2: Employment losses and gains 2012 (Jul – Dec). Data sourced from Australian Mining Newsletter & News Archive. Some stories have been verified against primary resources.

Although on the face of it the jobs lost to those gained is 2.2:1 if you take out the projected gain of 1800 jobs in Gladstone Boulder Steel from 2014 the ratio increases to 7.1:1. Even worse, if you consider the jobs lost in the last half of 2012 to the jobs gained the ratio is an appalling 64.6:1! Obviously the data used here is not comprehensive but it does act as a good guide to how the industry is faring.

I’ll leave on a depressing note. As I finalise this piece Stephen Koukoulas, an Australian economist and former advisor to Prime Minister Julia Gillard just tweeted:

“I have changed my view on AUD. 1.20 or even 1.25 possible based on improving global news. Likely to be my Business Spectator column tomorrow”

He is not the first to mention an increased Australian dollar but he is now at least 5-cents higher than others discussing the subject. If manufacturing was suffering with the AUD at $1.05 then an even stronger dollar will mean very interesting times ahead.

Update 1 (10/01/2013): Stephen Koukoulas full 8^th January 2013 Business Spectator article on the rise and rise of the Australian dollar (linked with his kind permission).