Which industry is really driving the economy?

Focusing Your Business on the growth areas of the economy.

A review of industry growth in Australia since 2007.

One of the fundamental principles of growing a business is to understand the economy’s fundamental growth trends by industry. Most organisations sell a core range of products and or services to one or more industries. For example providing engineering services to the mining and construction sectors or selling products through retail and wholesale.

This data can be useful in considering which industries have proven strong growth in the past using a range of measurements, are resilient and continue to be a major employer. Whether your business is supplying a product or service to one or a number of industry divisions, this data may be useful in deciding where else you could or should offer your product or service.

Which market sectors drive the core Australian economic activity? Mining? Health? I argue that the market sectors with the largest proportion of revenue (as measured by earnings before tax) and employed persons are key indicators of economic dominance. Even more so, trends indicating continued increases in the revenue of dominant market sectors have to be key indicators of the key elements which are shaping Australia’s future economy. These sectors will offer the most business opportunities, employment, taxes for governments and investment opportunities.

Trends over time are important. The continued growth or decline of an industry over a few years can be a sound predictor of future trends that may continue. If a trend continues in the same upward/downward direction for the past 3 to 5 years, one could probably assume that unless something significant changes, such as war breaking out between two countries, that the past set trend will most likely continue into the future.

Employment statistics are important for a number of reasons. Continued growth in an industry will attract the brightest talent, this is where the most recruitment activity will be, and the most sought after knowledge workers are working. I have used this data to review economic activity in Australia. Similar data should be available for most other countries.  

For the purpose of this analysis I have combined various services together, to provide a new insight into existing data. Specifically I wanted to see what impact it would have if the various service industries were grouped together.

The following services have been grouped together: Electricity, gas, water and waste services, Accommodation and food services, Transport, postal and warehousing, Information Media and Telecommunications, Rental, hiring and real estate services, Professional, scientific and technical services, Administrative and support services, Public administration and safety (private), Education and training (private), Health care and social assistance (private), Arts and recreation services and Other services. No data was provided or available on financial or insurance services.

The chart below shows the operating profit before tax for Australia’s market sectors. From this chart it is clear that more EBIT is generated from the various services in the economy than from the mining, manufacturing and construction industries combined.  It is clear that the provision of services play an important part in Australia’s economy.

 

 

 

Source: ABS 81550DO002_201011 Australian Industry, 2010-11 (Reworked)
Let’s look at some other indicators. What about employment by market sector?

Source: ABS 81550DO002_201011 Australian Industry, 2010-11 (Reworked)

When we combine the various service industries, more people are employed in various service industres than the rest of the economy combined. Mining is the smallest employer as a market sector in Australia. Contrary to popular belief, Australia’s economy when assessed by employment numbers is driven by a range of services.

At this point you may wonder which services are driving the economy. The next chart illustrates the EBIT by service type. If you are considering adding a service element to your offer to market, focus on the dominant service industries may be less risky with a higher chance of being accepted.

 
 Source: ABS 81550DO002_201011 Australian Industry, 2010-11 (Reworked)

The table clearly shows that professional and technical services make up almost a third of all services in Australia, followed by rental, hiring and real estate services. At this point your business has two options: to provide products or services to these industries per se or to add service elements as reflected by the various service industries to your offering. Can you further add value to your market offering by adding specialised technical and professional services? Can you sub-lease a part of your building?  It’s time to get creative and think how this data can help you grow your business.