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The government’s response to the pandemic has highlighted the central role of manufacturing in recovering from this event and its importance in bolstering Australia’s economic resilience. What are the long-term trends in manufacturing and the impact of COVID-19 on the industry?
Manufacturing employment: long-term trends in Australia
Australian manufacturing employment peaked at 1.46 million in 1973. It accounted for a quarter of the workforce throughout the 1950s and the 1960s. Since the 1970s, changes in manufacturing technologies, products, regulatory environments, and global supply chains – together with the rise of various services sectors as key drivers of local employment growth – have seen manufacturing’s share of Australia’s workforce decline. This long-term evolution has been part of a global trend that has been evident across all “advanced” manufacturing economies, as technologies have changed and as more of the ‘developing’ world has become involved in global manufacturing supply chains.
Despite the declining number and share of Australian workers employed in manufacturing since the 1970s, the sector’s output volumes have continued to grow, as local manufacturing technologies and businesses have become progressively more advanced and capital-intensive. Since the 1970s, the decline in local manufacturing employment has tended to happen in waves, with particularly large declines in textiles, clothing, and footwear employment during the last recession from 1991 and then smaller declines in other manufacturing sectors after the Global Financial Crisis (GFC) from 2008 and the subsequent period of exchange rate disruptions, in which the Australian dollar rose above parity against the US dollar over a very extended period (roughly 2010 to 2013).
Between 1990 and 2010, the decline in Australian manufacturing employment was mainly felt in New South Wales, Victoria, and South Australia. These states were home to Australia’s textile clothing and footwear industries (that declined steeply in the 1990s) and passenger car assembly, which declined over this period and ended in 2017. In contrast, manufacturing in Western Australia and Queensland has always been more closely aligned with food and beverages, machinery and equipment, and other manufacturing and so manufacturing employment in these states held relatively steady over this period. Manufacturers in these two states also benefited from a rise in demand from their local construction, mining, and agricultural industries.
The Impact of COVID-19
The Australian Bureau of Statistics (ABS) Labour Account data series and the Ai Group Australian Performance of Manufacturing Index both indicate that the total number of manufacturing jobs in Australia stabilised and then began to rebuild between 2015 and early 2020, despite the loss of local passenger car assembly as a major anchor of local manufacturing activity during this period. In 2020 however, this recovery is being severely disrupted by the COVID‑19 pandemic.
Manufacturing lost 56,600 jobs in the second quarter of 2020. Despite this sudden decline, timelier payroll jobs data from the ABS and the Australian Taxation Office (ATO) suggest that as of October of 2020, the manufacturing industry is faring better than most industries during 2020. This experience is different from previous Australian recessions and reflects the very unusual circumstances of the current COVID-19 recession. In previous Australian recessions, employment in industrial sectors such as manufacturing and construction have fallen the hardest. In contrast, the COVID-19 recession has impacted the service industries such as travel, hospitality, and the arts the earliest and the hardest due to rapid activity restrictions. As of October 2020, however, there are signs that the COVID-19 recession may be transitioning into a more traditional recession, with construction jobs declining in recent months and the initial recovery in manufacturing jobs stalling.
The ABS-ATO payroll data suggest that from 14 March to 19 September, the hardest-hit manufacturing sectors in terms of job losses were “beverage products”, in which payroll jobs fell by 10.2 per cent, followed by “pulp, paper and converted paper products”, in which payroll jobs fell by 8.1 per cent. The fall in beverage manufacturing jobs probably reflects large declines in consumption due to restaurants and hospitality venues closing nation-wide in Q2, while the drop-in paper manufacturing jobs might reflect a decline in demand for paper-based office products due to fewer people working in offices.
In contrast, chemicals production was the only manufacturing sector that increased the number of jobs over this period, reflecting the continuing strong demand for personal care items (e.g., hand sanitizer), pharmaceuticals, cleaning products, toiletries, and health supplements, much of which is made locally by this sector.
Many Australian manufacturers in this sector (and others) have reported to Ai Group a stronger interest in Australian-made products due to overseas stock shortages, freight delays, and disruptions. Some manufacturers, wholesalers, and distributors say their suppliers are thinking about ‘reshoring’ their production activities back to Australia due to ongoing disruptions to global supply chains and freight services. This is particularly evident in traditional ‘heavy industrial’ manufacturing sectors such as metal products and machinery manufacturing, but also in chemicals, building materials, wood, furniture and other sectors.
Growing Australia’s manufacturing jobs for the future
Australia’s economic and social strength go hand in hand. The fundamental requirements include building a more dynamic and higher productivity economy; achieving a more inclusive economy and society; and ensuring that Australia moves decisively to net zero emissions by 2050. Australian manufacturing will play a central role in securing all these objectives.