Capex

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GUEST OBSERVER
Based on current indicators, Australia appears to be about 30% of the way through the mining capex decline. The remaining downturn in mining investment will make a significant detraction from the economy, from a GDP perspective, but also from the impact on the labour market. The labour‑intensive nature of the mining investment upturn means that a major risk from declining investment resides in the potential job losses.
To date, the labour market has held up reasonably well.  While the unemployment rate has increased by 0.1ppts over the past year (as the participation rate has increased by 0.3ppts), annual employment growth is running at a solid 2.1% (or 220K).  This outcome is a noticeable step up from the 1%pa employment growth a year ago.  Job gains in construction areas (related to the residential construction upturn) along with parts of the services industry (health, professional services, tourism) are more than offsetting mining‑related job losses. 
<a href="/images/2015/08/13/Screen%20Shot%202015-08-13%20at%2012.47.46%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/08/13/Screen%20Shot%202015-08-13%20at%2012.47.46%20PM.png" alt="">
The questions now are how many more mining‑related job losses will flow through the labour market? And will the labour market be strong enough to absorb these potential job losses?
Resource construction versus resource production employment
One of the offsets to declining resource construction jobs is the pick up in production/extraction jobs created as the mining boom enters the final (or third and operational) phase of the mining boom cycle.  But, the operational stage of the mining process requires much fewer jobs compared to the workforce required in the construction phase.  
<a href="/images/2015/08/13/Screen%20Shot%202015-08-13%20at%2012.49.18%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/08/13/Screen%20Shot%202015-08-13%20at%2012.49.18%20PM.png" alt="">
RBA research indicates that the ratio of construction to operational workers is:
·         2‑3:1 for coal and iron ore mines (8% of capex);
·         10:1 for WA LNG projects (around 51% of capex) and;
·         5:1 for QLD LNG (as per our research).  QLD LNG accounts for around 32% of capex.  
QLD LNG is based on coal seam gas and requires an ongoing investment in drilling wells and pipeline construction, therefore requiring an ongoing construction‑related upstream workforce.
<a href="/images/2015/08/13/Screen%20Shot%202015-08-13%20at%2012.50.51%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/08/13/Screen%20Shot%202015-08-13%20at%2012.50.51%20PM.png" alt="">
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Diana Mousina is economist for CommonWealth Bank of Australia. You can follow her on Twitter <a href="https://twitter.com/dianamousina" target="_blank">here</a>.
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