Townsville’s double digit unemployment rate signifies major downturn in region

Townsville_unemployment_rate

Yesterday afternoon I had a good chat with Pat Hession on Townsville ABC Radio about the latest discouraging unemployment data for my old home town of Townsville. Readers will be familiar with the vastly different economic conditions across Queensland (see my post on the June ABS labour force data), and the latest detailed regional labour force data from the ABS confirm just how bad economic conditions are in Townsville (see chart above), as the region struggles at the end of the mining boom, and after it has suffered large cuts to public service jobs in recent years. The Townsville Bulletin reports today that:

“TOWNSVILLE has recorded its worst unemployment rate in at least 20 years as the business community pleads for government investment in major projects to create jobs.

Australian Bureau of Statistics figures released yesterday revealed a 14.8 per cent unemployment rate for June.

The jobless rate is the worst in ABS records going back to 1998. The next worst was 14.2 per cent in February 2003.”

The Bulletin is reporting raw, seasonally un-adjusted data from the ABS and it is important to recognise that, due to the relatively small number of households sampled by the ABS in the Townsville region, there is a large degree of sampling error in the unemployment rate estimate. So a smoothed “trend” estimate is likely to give a better reading of the unemployment rate. Using a twelve-month moving average, the Queensland Treasury estimates the current Townsville unemployment rate at 9.7 percent (and rising), while Cairns region economist and former London investment banker Pete Faulkner from Conus estimates the trend rate at 12.6 percent using a more sophisticated statistical technique (see Pete’s latest post Regional jobs data; improving for Cairns, worsening for Townsville). I suspect Pete’s estimate is closer to where the real Townsville unemployment rate is, as it is not as backward-looking as the Treasury trend estimate.

I doubt that major projects can come quickly enough and absorb enough local unemployed workers to make a major impact on the regional unemployment rate, so I have not called for major projects as a solution to Townsville’s unemployment problem. (Also we need to consider whether major projects pass the cost-benefit analysis test and are good value for money, of course.)

A summary of my conversation on Townsville ABC Radio yesterday with Pat Hession by the Insentia media monitoring company which was forwarded to me by a contact gives a reasonably accurate summary of the points I made, including the need to cut taxes and charges on business that are holding back job creation (e.g. payroll tax):

Hession says there is plenty of interest in the employment market. He says there are not enough jobs to go around. He says Tunny is a former Treasury Economist. Tunny shares his thoughts regarding Townsville’s unemployment rate. He mentions the figures are from the ABS. Hession mentions there are significant job losses through the closure of Qld Nickel. Tunny mentions the Townsville Chamber of Commerce stated that they have had significant job losses. He says there must be a substantial flow on. He says it is not just Qld Nickel but the mining downturn itself. He says the drought is affecting the economy too. He mentions there are positive signs in the construction industry. He says the economy is not in a good state. He says the Townsville Bulletin has recently reported an increase in bankruptcies. He makes suggestions on what governments can do to improve the situation. He says he suggested the relocation of something like Work Cover in the Courier Mail a few months ago. He says it would be great if a significant government agency can be moved to Townsville. He says governments could look at cutting the cost to businesses hiring people. He says they could look at cutting stamp duty. He says there is a limit to what the government can do. He says people in Townsville need to accept that things will be tough for a while. He says it may take some time for things to get better. He mentions JCU has been doing great.

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17 Responses to Townsville’s double digit unemployment rate signifies major downturn in region

  1. Jim says:

    Gene

    Great post. I am always worried that “the business community pleads for government investment in major projects to create jobs.” I suspect this call is misguided at best, and just plain dumb at worst.

    I’m not aware of any major public projects proposed for either Townsville or Cairns that actually pass a benefit-cost test (particularly a credible one), so why would Government deliberately waste taxpayers’ money?

    Furthermore, large projects don’t create a lot of jobs per $ spent because of the capital nature of the spend and the fact much of the inputs (often including labour) are imported from other regions.

    So the bottom line is that large projects aren’t even an inefficient way to waste taxpayers’ money!

  2. Glen says:

    Gene, I totally agree with you in dismissing govt projects to lift investment in Townsville, if you consider spending in Defence, Road projects, Hospitals and JCU are actually running at above averages here there is no justification for any extra spending. QCU have just started construction on a new CBD campus in a sign of confidence in that sector along with 2 new public schools and 2 new catholic schools that will start construction in the new year.
    What has completely collapsed in Townsville is private investment, particularly high density residential dwellings. After many rejections from Townsville council on many applications over the last few years developers have abandoned Townsville in droves, proposed new multi storey unit and hotel developments have been abandoned as a result of outright rejection from council or requested modifications that make the projects commercially unviable.
    Why should taxpayers be asked to compensate for poor decisions made locally, I would suggest that before the people and businesses of Townsville start looking for federal and state govt funding for projects they should first turn their attention to council chambers in Walker St Townsville.

    • Gene Tunny says:

      Thanks, Glen. Very interesting comments. I’ll have a closer look at what’s happened with apartment construction in Townsville. I saw the report in the Bulletin recently about some positive news on building approvals, but that may just be regarding detached houses.

  3. Alistair Robson says:

    Gene are you seriously saying Queensland Treasury is backward? I was under the impression it was the pinnacle of economics in Queensland…

    Lots of road upgrades going on in Sydney – M1, M4, etc. seemingly creating lots of jobs (gross at least, nett is another issue, either temporal or taxation displacement). Then again Townsville isn’t Sydney and doesn’t have the congestion to justify such investment (as Jim alluded to in the CBA discussion – although I have strong reservations about very long term projects such as rail and major roads having a CBA applied to them).

    Perhaps a good question to ask is why other medium sized cities such as Newcastle and Lake Macquarie (U.R. of 5.3% in June 2016 – unadjusted) and Geelong (U.R. of 5.4%) are not suffering the similar fates? Admittedly these cities are nearer large metropolitan areas, but perhaps the answer is their more diversified economy. But even if we look at the Hunter Valley (ex Newcastle) the unemployed rate was much lower at 5.2% in June 2016. Now that area has a lot of coal mining going on, you just need to look at all the mining vehicles on the M15 and open pit mines on Google Maps.

    I suspect there’s something about Townsville or FNQ that’s not evident in other Australian regions. Perhaps the city just can’t generate enough jobs to support it’s population for a city that size and it naturally needs to become smaller. Or at least a breather in terms of population growth.

    • cairnseconomy says:

      Alastair, what you have said is interesting and am aware of your recent post but not sure I can fully agree. Proximity matters and also both Newcastle and Illawarra are substantially larger areas very close to Sydney which even allow commuter travel. More similar in Queensland comparison to the Gold and Sunshine Coasts. As a Novocastrian some peripheral areas around Newcastle ie Port Stephens etc have gone nowhere since the 2003 Sydney property boom period and have followed a trajectory not dissimilar to Queensland regions. Also both Newcastle and Wollongong cities have successfully transitioned away from industrial activity. In Cairns there has been a policy to quarantine slabs of waterfront land for potential (?) industrial port activity which frankly I doubt will ever eventuate. In Newcastle the entire old city waterfront has been transformed away from industrial to residential and leisure.

      • Alistair Robson says:

        If you read my post carefully you will see that I did say “Admittedly these cities are nearer large metropolitan areas” which covers the proximity aspect you mentioned. Yes I agree proximity matters. It matters to such an extent that it does raise an existential element to the discussion. What other Australian mainland state has centres as large as Cairns or Townsville so far away from the capital city? Queensland it not unique, as much as it may like to be, in the Australian Federation as Western Australia is also a large state in area. Yet you don’t see a Cairns or Townsville a similar distance from Perth. Newcastle’s transformation is nothing short of a miracle given the large industrial closures over the past decades. Incidentally I went for a drive up the Pacific Highway from Gosford up the Western side of Lake Macquarie and was amazed at all the new housing estates being built. If you add the population of the Central Coast up to Port Stephens and out to Maitland/Cessnock you get about 850k as at 30 June 2014, and was more than Gold Coast’s 560k. I suspect as Sydney gets more crowded and expensive the population in these areas will boom in the coming few years, particularly those near a train station. It’s all about boundaries and conceptualising urban regions really. All this reinforces the question, what is it about Townsville and Cairns that they can’t support and create employment to the extent that other medium sized cities seem to be able to? Is it solely due to distance from a large metropolitan area? Are those cities too large to generate enough employment to sustain their population?

  4. cairnseconomy says:

    Re above comments from Glen where we have previously exchanged comments. If you look at the building approval numbers Townsville stands out as quite extraordinary in a regional comparison on value of non-residential approvals. Approvals don’t necessarily translate into actual commencements. However it should be up to Townsville to convince given the extraordinary conga line of pork swivelling their way.

  5. Glen says:

    Alastair if you look at Townsville over the last 20 years except for a couple of bumps it has essentially been about average for unemployment, whilst mining has been here for many years and provided a big boost for a decade or so and a large injection of wealth into the city it is still very much driven by public sector, in particular defence, agriculture, education, retail and hospitality, the Townsville port is also expanding at a considerable rate and diversifying its business as well to include cars, containers, chilled exports and direct links to China.
    The govt at all levels should just get out the way, ignore the hysteria and let the market adjust back to its core business. As is happening now when things downturn suddenly questions are being asked about how to attract investment and what changes need to occur for that to happen, for Townsville that has to start with private investment and an end to the perpetual beg of federal and state govts.
    In regards to Cairns I believe a real lack of wealth is starting to create long term systemic issues for the economy, not only has a lot of wealth left the town but much of the population growth has been driven at the lower end of the social spectrum, the Cairns South SA2 numbers are as bad as any from some of the worst areas in Australia, it has a very high level of indigenous people that drift down from the cape communities, if you take this into account the numbers Cairns would actually look very different, it could be that 6% unemployment is the bottom for these areas and the current 9.7% needs to be benchmarked against that.
    As you point out though none of the cities of the North will get a spillover from nearby as is the case in Woollongong the Hunter, Gold Coast, Toowoomba, Geelong etc, in fact if you drew a 150km circle around our 5 main capitals it represents 90% of the population, the rest of the country as a whole is going backwards and is something that needs to be addressed, I believe it will be detrimental to Australia in the long term from both an economic and security perspective to have 90% of our land mass effectively barren.

  6. Alistair Robson says:

    So the question would be whether Townsville and Cairns would be the size they are if the public sector had been as prominent as other parts of Queensland or Australia? Where has the money come from for that? I don’t know the answer to either.

    I’ve always wondered why there are two cities the size of Townsville and Cairns in the place they are. Why isn’t there a similar sized city in WA? WA’s geographically roughly equivalent major centres are Broome which has about 13,000 people, Karratha about 16,000 and Port Headland about 15,000. Using your logic Isn’t it equally detrimental for there not to be a city the size of Cairns or Townsville in Northern WA? Wouldn’t it be closer to a security threat in Asia than Cairns or Townsville?

    From a global perspective there are huge disparities in human settlement around the earth and so Australia is far from unique. Only 3% of the earths surface is urbanised – https://wattsupwiththat.com/2010/12/23/3-of-earths-landmass-is-now-urbanized/

    • Glen says:

      Government spending has been a large part of the population growth in northern centres, certainly for Townsville anyway, to a lesser degree Cairns who have had a lot of lifetsyle and tourism growth. A long run of National Party govt who disproportionally spent money in regions as a way of maintaining a grip on government also contributed to the growth. In Townsvilles case a decision by Defence to locate Lavarack Barracks in Townvsille for a variety of strategic and personnel reasons in 1965 would be the largest single contributor, it is now the largest defence base in Australia and the defence personnel now number over 7000 uniformed plus public servants across the tri services. Interesting to note though that all the permanent defence personnel and their households are excluded from the ABS stats and not allowed to take part in the sample survey, I believe this would add between 10,000 -12,000 to the actual total employed persons column if they were included, this is something overlooked too often, a comprehensive total employed number of 108,000 out of a population of 190,000 against the 96,000 currently recorded by ABS, this creates a total different perspective. Thanks to Pete at Conus for the numbers on his website..

      • Glen, you’re quite right that there would be an impact from this “ignored” defence force employed. However, even if we do assume an additional 10,000 employed in the Trend figures the unemployment rate still comes it at 11.5% (rather than 12.6%) and would remain the second highest in the state behind the Outback.
        Just as a matter of interest, I’d be interested if you are able to confirm that the survey actually ignores members of defence households or just the defence member themselves. My reading of the info on the ABS website suggests that it is only the actual member excluded (not the household) which would knock the “ignored” down to 7,000 and the revised unemployment rate to 11.8%. Quote from the ABS website…”The Labour Force Survey includes all persons aged 15 years and over except members of the permanent defence forces, certain diplomatic personnel of overseas governments customarily excluded from census and estimated population counts, overseas residents in Australia, and members of non-Australian defence forces (and their dependants) stationed in Australia.”
        We need to also bear in mind that, on a comparison basis, this same effect of the ignored defence force would be a factor (although to a lesser degree) in many other regions.
        Cheers, Pete

  7. Glen says:

    Pete, I was part of the survey a few years ago and I think I had more questions for them than they had for me which they found rather frustrating, but they were polite and happy to answer most of them. They go thorough a variety of questions before you are accepted as part of the survey, are you a member of the permanent defence force is one of them. You are correct in the fact that it is only the defence member who is exempt from the survey, however I was advised by staff they seldom include households with defence members residing in them because the survey is limited in numbers anyway and not doing these households allows for the survey to cover the highest amount of people and provides a more stable figure. Second many of the households actually have more than one defence member residing there, couples get posted together etc.
    Overall I found the process a little flawed, they take a one week snapshot each month of your household and run through each person residing there over 15, did they undertake any work that week, how many hours did they work, how many hours they normally work, if they didn’t work why, etc. I think this one week snapshot in regional areas in particular only increases the volatility of the numbers and as you always say the trend is the most important.

    • Glen, thanks for that clarification..interesting to get the thoughts of someone who was actually in the survey! I’ve had a number of questions for the ABS about the youth labour force data for Cairns since the switch to ASGS in 2013 and they’ve been more than helpful and very open to discussion (although we still haven’t got to the bottom of the reason for the apparent step-up in the unemployment rate that coincided with the switch to ASGS). Cheers, Pete

      • Alistair Robson says:

        The step up in the unemployment rate could be a co-incidence or it could highlight a general problem in economic geography. That problem is where to draw the lines for a region. And as you say that may be the reason behind the step up in the unemployment rate. A classic example is how do you define Sydney? Do you include Central Coast? Would you include Newcastle and Wollongong? Closer to home do you include Tweed Heads and Kingscliff as part of the “South East Queensland” region? One method is to use in delimiting regions is labour travel containment, but I doubt that’s the only method to use.

  8. Alistair. Yes. it certainly appears the issue is related to the whole issue of definition of a “region”, and then realigning historical data, which had previously been based on a (very) differently defined area, with that definition. The official best-response from the ABS to date is…”In 2013, we began a process to implement the ASGS Boundary for Cairns. The sample size for Cairns was specially designed from August 2013 onwards and previously collected data was tailored instead towards the output of far-north-Queensland as a whole.
    Evidently it seems that when disseminating to what used to be a non-stratified sample down to the level that you have you encounter the fallacies of the conversion between the geographical stratification.”

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