Demand for employees in Australia is expected to reach a seven-year high this year with many businesses expecting to increase staff in 2011, a survey shows.
Employment expectations are up two points with 21% of executives saying that they will take on new staff, according to the National Business Expectations Survey from business management company Dun and Bradstreet.
Policy makers will need to ensure the supply of skilled labour can keep up with demand in order to avoid wages growth adding to the inflationary pressure, said D&B chief executive Christine Christian.
Competition for labour and the potential impact on wages are the issues most likely to affect business conditions heading into the middle of the year as executives report an overall easing in expectations for sales, profits, inventories and capital investment after recent highs.
With unemployment levels already down to 4.98% from the peak of 5.83% in June 2009 firms are expecting that the competition for labour, particularly skilled labour, will drive up wages. This in turn is contributing to declining profits expectations.
Some 27% of executives identify wages growth as their primary concern for the June quarter with these higher costs flowing through to profit expectations, which have declined 7 points to a net index of 23.
Overall, the survey suggests a robust economic outlook. While there is clearly a general easing in sentiment most indices are at five-year highs. However, a tight labour market and events such as the Queensland floods are likely to impact performance.
Christian believes that while the results are robust there are signs of capacity constraints in the economy. ‘Overall, the signs are positive for the economy. However, the increasing demand for labour and the expected impact on wages does point to some capacity constraints and if this continues it is likely to eventually show up in inflation’ she said.
‘Business executives must be attuned to these emerging constraints and seek to limit the impact on margins. Policy makers will need to ensure the supply of skilled labour can keep up with demand in order to avoid wages growth adding to the inflationary pressure that is already likely to emerge as a result of the Queensland floods and cyclone,’ she added.
According to Duncan Ironmonger, Dun & Bradstreet’s economic consultant, the outlook for the Australian economy is for strong growth in employment through the first half of 2011.
‘Although consumers are saving a higher proportion of disposable income, strong employment and income growth is continuing with only modest inflation pressure,’ he said.
‘The Reserve Bank’s latest monetary policy meeting found the recent moderate inflation outcome was assisted by the high level of the exchange rate, a decline in wages growth and strong competition. Hence interest rate policy was unchanged,’ he explained.
‘The D&B survey reveals that businesses are maintaining relatively high growth expectations for growth in profits and inventories on top of high expectations for growth in employment for the second quarter of 2011. It also shows that Australian executives are expecting a relatively low level of growth in selling prices,’ he added.