Outlook for Australian Business Markets

24 May 2022

I haven’t shared a briefing in a while and with the change in the federal government over the weekend, I thought it would be a good time to put some thoughts together for you, our clients, and update you on some of the factors that may impact your business over the coming year.

In this briefing:
1. Immigration impact on labour supply
2. Inflation and Interest Rates
3. Supply and Pricing
4. Demand
5. Government Wage Support Subsidy
6. Change of Federal Government

The purpose of this briefing is not to repeat the media headlines, but to dig deeper and explain the underlying factors and what they mean for your business. My intention is always to provide information exclusively to Tenfold clients that you can use in your business now and for planning ahead.

1. Immigration impact on labour supply

Immigration is one of the underlying causes of the shortage of labour in Australia, making recruitment very tough. This is impacting every client we work with, across all business sectors. If you’re struggling to find staff, you’re not alone. Immigration will bounce back, but the challenge is that it takes time, and we may never fill the shortfall experienced during the 2020 to 2022 year.

This graph shows the decline in immigration, and also the rebound. Note that the rebound would have to reach annual immigration levels of 300,000 (Australia has never reached the level of 300,000) for 6 years to simply maintain Australia at its long-term immigration average that saw an ample supply of workers for us to employ.

Australia has been in election mode for most of this year and as such has avoided the topic of immigration policies, but other countries such as New Zealand have changed their migration process to enable more skilled workers to enter the country more easily. There is now global competition to attract skilled workers and Australia is playing catch up.

Sources:
https://www.afr.com/politics/federal/open-borders-to-trigger-net-migration-of-235-000-a-year-by-2025-20220329-p5a91h

https://www.abs.gov.au/statistics/people/population/overseas-migration/latest-release

Perspective for Tenfold clients: The challenges with recruitment won’t go away quickly, so expect competition for resources to stay high for the next 2 years. Continue to do more than your competitors (see my briefing on recruitment strategies here: Prepare Your Business For Labour Shortages in 2022 and my briefing on retention strategies here: Best Practices for Retaining Your Team)

Recent results of Tenfold clients: Despite the challenges, we’re still getting good results for clients with the recruitment strategies we’ve been telling you about. In the past month, Tenfold has helped clients recruit 35 new employees in roles such as: IT technicians x2, fully qualified plumbers x3, electrical operations manager, trainees x2, technical service manager, landscapers x2, apprentices x10 (mix of trades), project manager, contract administrator, a plumbing leading hand, office manager, a plumbing service manager, manufacturing technician, A-grade electricians x3, carpenters x3 and a project manager.

2. Inflation and Interest Rates

Earlier this year on 24th January, I wrote about how Tenfold clients could use inflation to initiate price increases (see my briefing here: Maximise your Scarce Labour Workforce to your Advantage in 2022). While Australia’s inflation rate for the first quarter of 2022 was 5.1%, it is still significantly lower than the inflation rate for the same period in the United States at 8.5%, New Zealand at 6.9% and the United Kingdom at 7%. For this reason, Australia may not have to raise interest rates as much as they do in other countries.

The CEO of CBA gave a speech the other day and in it he mentioned that many media commentators were predicting official interest rates up to 3%, but he said the CBA’s view is that an additional 1% rise in 2022 – to get to an official interest rate of 1.35% – will be enough to ensure inflation doesn’t get out of hand.

As the head of Australia’s biggest lender, CEO Matt Comyn said, “The CBA view is the four quarter-percentage-point rate rises – so 100 basis points rather than the 200 basis points many economists predict will do their job to actually cool demand in the domestic economy. Our view is that we won’t need as much tightening,”

Perspective for Tenfold clients (with personal and business borrowing): Beware the media hype about inflation and interest rates. Instead, listen to those whose business depends on the figures. Continue to be prudent with your business expansion plans and borrowing levels.

3. Supply and Price Pressures

Across the board, we’re seeing increasing prices caused by a range of factors including:

• Oil price rises due to the war in Ukraine
• Overseas freight costs and delays in part due to the COVID lockdowns in China
• Supply shortages for products produced in Ukraine due to the war
• Supply shortages and higher costs for products produced in Russia due to the economic sanctions, for example engineered wood products
• Labour shortages across all industries in Australia and other western countries

Uncertainty in the speed of rising prices presents a significant risk for businesses as you can find yourself stuck with unprofitable contracts.

I’m sure you’ve heard that Metricon is currently experiencing such problems with fixed building contracts at prices that are well below current market rates. With insufficient labour, their contracted dates have been pushed out and in the meantime prices of supplies have gone up. It’s been reported that Metricon have been paying clients to cancel their contracts. (See: https://www.theurbandeveloper.com/articles/metricon-confirms-contract-renegotiations). This tactic is unachievable for many businesses and appears to be unsustainable even for Metricon.

When I assess the underlying factors causing these price pressures, my expectation is that they will remain a challenge for some time.

Perspective for Tenfold clients: Review your pricing models before submitting quotes for work with further out start dates. Be selective with your clients. Learn from the cautionary tale of Metricon: don’t bid for work that if you win now will cost you in the future.

Also be aware that the temporary discount of 22c excise on fuel will be end on 28 September, so fuel prices will go up even further then.

4. Increasing Demand

The federal and state governments continue to spend big. As shown in a previous briefing (3 Graphs Explain why Recruitment and Retention are so Important in the Next 3 Years), infrastructure spending nationally is going to continue to increase for the next two years. This increase in spending is also occurring in health, education and other areas on the economy.

There is a lot of government work out there that is trickling down through the economy into many of your businesses. Our goal as coaches is the ensure that you are positioned in the right niche for your business, that means you get the sales with the best clients and the best margins.

Perspective for Tenfold clients: Now is the time to align your business with those ideal clients you’ve coveted. The opportunity to enter a niche market has never been better.

5. Government Wage Support Subsidy

Many Tenfold clients continue to benefit from the multiple government subsidies on offer. Several of these subsidies aren’t well known and or advertised, which means that many businesses that could easily be getting them are missing out.

We’ve bought them to your attention in previous briefings. As a team we’re continuing to research and discuss innovative ways to ensure you benefit from them now and over the coming 12 months.

Please note the Boosting Apprenticeships Commencement scheme will end on 30/6/22. If you allow 2 weeks to finalise an application, that means you’ve only got 3 ½ weeks to recruit and commence someone on the scheme.

Perspective for Tenfold clients: Continue to discuss and act on the wage support subsidies Tenfold has been bringing to your attention.

6. Change of Federal Government

One of the things that characterised this federal election campaign was that neither of the major parties released much in the way of policy on their plans for the country. Anthony Albanese has said that labour productivity is his priority, but there have been no announcements on any initiatives that specifically relate to small business.

Perspective for Tenfold clients: Wait and see.

Wrapping it up

I know there are some messages in this briefing that could come across as doom and gloom – that’s not my view at all. To the contrary, in fact. I genuinely believe that this is a great time to be in business if you use your insights and knowledge to make informed decisions. Speak to you Tenfold Business Coach about how to use these insights to advance your business.

Smart strategies = real results.