Blog

Mon, 22 Aug 2016  |  

I was delighted to be involved in the preparation of the research report by the Chifley Research Centre – “Inequality: The Facts and the Future

The report is at this link: http://www.chifley.org.au/Inequality-the-facts-and-the-future 

It was released today and it outlines a range of critical issues relating to income and wealth inequality, but the key issues for me related to how reductions in inequality can be positive for economic growth.

Fri, 19 Aug 2016  |  

This article first appeared on the Yahoo 7 Finance web site at this address: https://au.finance.yahoo.com/news/poor-economic-data-is-bad-news-for-australia-024034705.html 

----------------------------------------

Poor economic data is bad news for Australia

Entrenched low wages growth and on-going softness in the labour market are fundamental reasons why the retail sector is struggling to grow.

This week has seen data showing wages growth plummeting to record lows and the pace of employment growth continues to muddle along, with a huge skewing to part-time jobs as full-time jobs languish. It also means that the unemployment rate remains closer to 6 per cent than 5 per cent.

It is not good news.

A basic economic principle is that it is hard for consumers to spend extra money if they are not getting much of a pay rise or worse, if they are unemployed. On those measures, the average weekly earnings data, which measure the actual dollars and cents that go into people’s pay packets, rose just 2.1 per cent over the past year. At the same time, the economy has been stuck in the mud, with the unemployment rate remaining between 5.6 and 6.3 per cent for the last three years.

As a result, it is not surprising at all so see that over the past 7 months, retail sales have risen by a paltry 1.2 per cent or an average of less than 0.2 per cent a month.

Thu, 18 Aug 2016  |  

This article first appeared on the Yahoo 7 Fiannce website at this link: https://au.finance.yahoo.com/news/here-s-why-the-banks-aren-t-passing-on-the-full-cash-rate-cut-233725403.html 

-------------------------------------------

Here's why the banks aren't passing on the full cash rate cut

The banks are being blasted for not passing on in full the 25 basis point interest rate cut from the RBA earlier this month.

The government is so annoyed and outraged that it will be insisting the CEO’s of the Big Four banks will appear each year before a Parliamentary committee where they will have to explain their business operations, including how they determine their retail interest rate settings. The Opposition Labor Party is ramping up its push for a Royal Commission into banking to determine whether or not banks are ripping off their customers.

Making matters uncomfortable for the banks is that fact that they are reporting their half-yearly profits at the moment. Those profits are big. So far it’s over $9.4 billion for the Commonwealth Bank and $5.2 billion for the ANZ.

The interesting issue with these spectacular headline results is the realisation that banks profits are not growing much and their cost of doing business, which clearly feeds into the interest rates they charge their customers, has not been falling to the same extent as the cuts in official interest rates.

Wed, 17 Aug 2016  |  

I recorded a podcast with the team at Business Insider:  Here is the link for what was a good fun chat. 

http://www.businessinsider.com.au/podcast-with-stephen-koukoulas-on-the-reputation-of-the-abs-fiscal-policy-and-twitter-2016-8 

From BI's Paul Colgan:

On the Devils and Details economics and markets podcast this week we’re joined by Stephen Koukoulas, one of Australia’s best-known economists. “The Kouk” is a former chief economist at Citi and he also once led global research for TD Securities in London. 

He was also a senior economic adviser to the Gillard government, so he has a particular expertise on fiscal policy. The fiasco of the national census on Tuesday kicks off our conversation but we also took the opportunity to tap Stephen for his insights on the state of national economic policy.

Wed, 10 Aug 2016  |  

The annual Breakfast with the Economist series is just a few weeks away.

It's in Auckland on Tuesday 30 August; Sydney on Wednesday 31 August and then Melbourne on Friday 2 September. It's free (other than your time) to attend. 

To register, click on this link:  http://www.financialpublications.com.au/events/abf-breakfast-with-the-economists-series-2016/ 

Standard & Poors Chief Economist, Paul Sheard will open each breakfast with a view on global conditions. Like previous years, he'll give terrific insights into things like negative interest rates, QE and why growth and inflation are so low.

In Auckland, the panel members will be Michael Gordon, Sharon Zollner, Nick Tuffley and Chris Green.

In Sydney there will be Bill Evans, Su-Lin Ong, Shane Oliver and Jo Masters.

Melbourne will have Bill Evans, Alan Oster, Alan Kohler and Callam Pickering.

I will be moderating all of the discussions. So for the best economics event of the year, register now and turn up, rain, hail or shine.   

Fri, 05 Aug 2016  |  

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/the-real-reason-home-ownership-is-so-unachievable-004146758.html 

----------------------------------------

The real reason home-ownership is so unachievable

Home ownerships rates have fallen in Australia over the last 15 years. The recent report on Household, Income and Labour Dynamics showed that home ownership rates have dropped from 68.8 per cent of households in 2001 to 64.9 per cent in 2014. The fall among younger age cohorts has been more acute than for older people.

Almost all of the focus of the falling home ownership rates has been on rising house prices as the key factor forcing younger age groups, in particular, to rent rather than buy. Home ownership rates among older generations remain relatively high.

There is no doubt that high house prices in parts of Australia – Sydney and Melbourne in particular – have played a role deterring younger people from entering the housing market. Saving a 20 per cent deposit for an average house is, for example, roughly twice as burdensome now as it was two decades ago.

Even though record low interest rates have offset the financial burden of servicing a larger mortgage that results from higher borrowings, a 20 per cent deposit on an average loan takes around 100 per cent of average annual household income today compared with 50 to 60 per cent of income in the 1990s.

These issues are very real but they explain only a part of the story for declining home ownership rates. They have been over-emphasised in their importance as reasons behind the fall in home ownership rates. In the middle of last year, the Reserve Bank of Australia examined the causes of the decline in home ownership rates, especially for younger people and its findings are enlightening.

Thu, 04 Aug 2016  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/commentisfree/2016/aug/02/interest-rate-cut-too-little-too-late-by-an-rba-with-flawed-glass-half-full-attitude?CMP=share_btn_tw 

---------------------------------------------

Interest rate cut too little, too late by an RBA with flawed glass half full attitude

In the dismal science of economics, the Reserve Bank of Australia has failed dismally when it comes to its inflation target and managing demand in the Australian economy.

On Tuesday it cut official interest rates to 1.5%, but in doing so it leaves the Australian economy condemned to some of the highest interest rates in the industrialised world. The RBA has not looked all that closely for overseas guidance – this latest cut comes years after the US, the eurozone, Britain and Canada set interest rates at 0.5% or less.

This harsh assessment of the RBA’s slow and cumbersome approach to interest rate cuts is backed up by several vital macroeconomic indicators. The annual increase in the consumer price index has been below 2% – the bottom of the RBA target band – since late 2014. There is no evidence in recent data that inflation will pick up any time soon.

The unemployment rate in Australia is the same as it was at the depths of the global financial crisis. This extraordinary lethargy in the labour market has occurred simply because the economy has been too weak to create enough jobs to lower it.

Tue, 02 Aug 2016  |  

This article first appeared on the Adelaide Review web site at this address: http://adelaidereview.com.au/opinion/business-finance-opinion/government-needs-change-economic-policy-tack/ 

--------------------------------

Government Needs To Change Economic Policy Tack

The Turnbull Government starts its second term with a dilemma and a mental block on policy.

With the economy muddling along and growing at a weak pace – with unemployment rising and inflation dead in the water – the government needs to change policy tack to help deliver a stronger rate of growth in the years ahead and to stem any unwelcome rise in the unemployment rate.

There is a mistaken notion that such pro-growth policies will cost the budget money at a time when the budget deficit is uncomfortably wide. Making the government uneasy in the post-election climate is the fact that the budget deficit problems are at a point where the credit rating agencies are threatening to take away Australia’s important triple-A credit rating.

Fri, 29 Jul 2016  |  

This article first appeared at the Adelaide Review website at this address: http://adelaidereview.com.au/opinion/business-finance-opinion/dangers-sluggish-household-spending-rate/#.V5k-QyDuwq8.twitter 

---------------------------------------------- 

The Dangers Of A Sluggish Household Spending Rate

One of the disappointing aspects of the performance of the economy over the past few years has been the moderate and frankly unimpressive rate of growth in household spending.

To be sure, households are continuing to increase their purchases of goods and services, but the growth rate of that extra spending has been mediocre and is one reason why the overall economy is muddling along rather than registering stronger job-creating growth. The reasons for this sluggishness in spending have several causes all of which are important.

Recall that households need funds or access to money to be able to spend. In its most simple form, they can use their income, run down savings or they can increase their borrowing to fund extra spending. Indeed, there are no other sources of funds by which to lift spending.

Thu, 28 Jul 2016  |  

This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/why-is-australia-s-inflation-rate-so-stunningly-low-021727792.html 

------------------------------------------------------

Why is Australia's inflation rate so stunningly low?

Australia’s inflation rate is stunningly low. At just 1.0 per cent in annual terms, it is well below the bottom of the RBA target band of 2 to 3 per cent and it is low for reasons that are not all that favourable. In simple terms, the economy is too weak and the unemployment rate is too high.

There is a simple and well established link between the strength of an economy and the rate of inflation. It suggests that when an economy is strong with people spending at a rapid pace, businesses ramping up their investment and the unemployment rate falling, inflation is high or rising.

It is high because in these sorts of strong and optimistic economic times, businesses feel that they can edge up their selling prices without driving away customers. This is, by definition, inflation. The optimistic customers are willing to pay the higher prices because their financial circumstances are favourable.

What usually happens in these circumstances is interest rates go up. In lifting interest rates, the Reserve Bank wants to discourage borrowings and encourage savings and those people with debt will have to allocate more of their otherwise disposable cash to pay interest on that debt. This means they have less spare cash for elsewhere in the economy and as a result, the economy slows and with a lag, inflation falls back.

THE LATEST FROM THE KOUK

Inequality: The Facts and the Future

Mon, 22 Aug 2016

I was delighted to be involved in the preparation of the research report by the Chifley Research Centre – “Inequality: The Facts and the Future

The report is at this link: http://www.chifley.org.au/Inequality-the-facts-and-the-future 

It was released today and it outlines a range of critical issues relating to income and wealth inequality, but the key issues for me related to how reductions in inequality can be positive for economic growth.

Poor economic data is bad news for Australia

Fri, 19 Aug 2016

This article first appeared on the Yahoo 7 Finance web site at this address: https://au.finance.yahoo.com/news/poor-economic-data-is-bad-news-for-australia-024034705.html 

----------------------------------------

Poor economic data is bad news for Australia

Entrenched low wages growth and on-going softness in the labour market are fundamental reasons why the retail sector is struggling to grow.

This week has seen data showing wages growth plummeting to record lows and the pace of employment growth continues to muddle along, with a huge skewing to part-time jobs as full-time jobs languish. It also means that the unemployment rate remains closer to 6 per cent than 5 per cent.

It is not good news.

A basic economic principle is that it is hard for consumers to spend extra money if they are not getting much of a pay rise or worse, if they are unemployed. On those measures, the average weekly earnings data, which measure the actual dollars and cents that go into people’s pay packets, rose just 2.1 per cent over the past year. At the same time, the economy has been stuck in the mud, with the unemployment rate remaining between 5.6 and 6.3 per cent for the last three years.

As a result, it is not surprising at all so see that over the past 7 months, retail sales have risen by a paltry 1.2 per cent or an average of less than 0.2 per cent a month.