Business Hunter says "sagging" workforce participation is affecting business confidence in the region as the federal government launches its national Jobs and Skills Summit on Thursday.
Business NSW's July survey shows business confidence across the state at its lowest point since the first months of the pandemic.
Businesses in the Hunter, outside Newcastle, were the most pessimistic among all NSW districts in the survey.
Seventy-seven per cent expected a deterioration in trading conditions in the September quarter.
Newcastle and Hunter were two of only five areas predicting conditions would get worse.
The Newcastle Herald reported on Wednesday that the workforce participation rate in the Hunter outside Newcastle was 58.9 per cent in July, down more than five points on pre-pandemic levels, but job vacancies were at a record 6545 in the region.
Business Hunter chief executive officer Bob Hawes said the region's workforce had shrunk despite significant population growth during the pandemic.
"It's absolutely staggering to note the Hunter [outside Newcastle] employed workforce stood at 140,500 pre-COVID and has recovered to just 130,200 in July 2022, a decrease over around 10,000," he said.
"The figures for Newcastle and Lake Macquarie are more encouraging with that workforce now 5000 workers larger than it was in February 2020."
The workforce participation rate, a measure of people either in work or looking for it, was at a two-year high of 65.4 per cent in Newcastle in July, but Mr Hawes said many workers elsewhere in the Hunter had not returned to the labour market.
"Of concern is the continuing trend of sagging workforce participation despite the deafening cries from employers seeking out additional workers right across the region in just about every section of business," he said.
"We know this is impacting business confidence in the region, which is now lagging other regions."
Mr Hawes said "many things are not adding up" in the labour market, a likely topic of discussion at the jobs summit in Canberra on Thursday and Friday.
He said the challenge for the Hunter was staffing existing businesses and also finding employees to populate emerging industries in green energy, port diversification and airport expansion.
"Policy makers need to bear in mind the Hunter region stands out in the nation by virtue of the ambitious growth spotlight it has in several sectors.
"The region needs to maintain jobs growth not only for the business-as-usual case but also provide for the growth potential in new and existing sectors which could be a factor of two times more than what our growth has been historically."
"To do this effectively, the region will need support, and plenty of ideas have been floated such as supercharging training and skills development and regional immigration programs.
"These will hopefully build on state government intentions to do something about housing affordability, which continues to stymie the plans of some businesses to attract staff to the region."
Youth unemployment was a relatively low 5.2 per cent in Newcastle and 7.9 per cent in the rest of the Hunter in July.
"This is reflective of the strong take-up across the region in funded training and apprenticeship programs which we understand are close to full to the brim, putting stress on parts of the TAFE system," Mr Hawes said.
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