Tue, 15 Jul 2014  |  

One of the most basic economic issues overlooked when it comes to the extra cost for businesses from the carbon price is that those costs have been passed on the consumers.

It was actually how the carbon pricing scheme was meant to work as the Treasury modeling from a couple of years ago made clear.

This is why electricity prices rose – the electricity generators passed on the extra cost from the carbon price to their customers. It is the same story with the airlines and no doubt fish wholesalers and other businesses with big refrigeration units and a high proportion of their business input costs in the form of energy.

The direct impact on the net profit margin of businesses from the carbon price was so trivial it probably rounded to zero as those costs were recouped from an increase in selling prices.

Sat, 12 Jul 2014  |  

Since the election in September 2013, the Abbott government borrowing levels have exploded, as it has issued $87.05 billion worth of government bonds and T-Notes. On average, this new government borrowing has been around $2 billion a week.

The borrowing has been necessary as it needs to fund or cover the budget deficit plus maturities of debt (bonds and T-Notes) that were issued in the past. Netting this out means that the level of gross government debt has reached a record $322.687 billion which is $49.5 billion higher than when the Abbott government was elected.

As the government flounders with its budget in terms of the misguided measures that were designed to help the budget return to surplus and, linked to that, getting its policy agenda through parliament, it seems likely that the budget deficit will be wider than assumed at budget time and worse still, even at the time of MYEFO which saw Treasury fudge a range of estimates to make the budget bottom line look as bad as possible.

Thu, 10 Jul 2014  |  

The less than robust news on the Australian economy continues to roll out – this time it is the labour force release which confirmed a moderate 15,900 rise in employment in June with the unemployment rate ticking back up to 6.0 per cent - this is equal to the highest unemployment rate in over a decade.

The employment data are a little disconcerting – the net change in employment in the last three months is just 20,100, well below the growth in the labour force which neatly explains why the unemployment rate has ticked up. Jobs growth needs to average close to 20,000 a month for there to be meaningful and lasting inroads into the unemployment rate.

Tue, 08 Jul 2014  |  

This article first appeared in the Melbourne Review on 6 June 2014.

It is rare in Australia to see falls in real wages but in the last six months the annual rate of inflation has been higher than the rate at which wages are increasing.

This loss of purchasing power for households, plus a hopelessly mismanaged and poorly framed budget, is driving consumer confidence sharply lower, towards levels not seen since the Global Financial Crisis was threatening to plunge the world economy into an economic depression.

Falling real wages are a sign of slack in the labour market. In other words, real wages are weak or actually fall when there is a sufficiently large pool of unemployed workers for potential employers to trim wage levels to entice people into a job. This wage moderation then filters through to those in employment and the path to real wage weakness in entrenched at least until the economy grows more rapidly and demand for labour increases with it.

Mon, 07 Jul 2014  |  

It is crunch time for monetary policy in Australia with the data flow between now and the 5 August meeting of the RBA Board to largely determine whether it will cut interest rates or not.

This Thursday, the labour force data are published and another weak month for job creation (note employment is up a tiny 5,500 in the last two months) and / or a tick back up in the unemployment rate towards 6 per cent would suggest the nice spurt to economic growth and jobs in the March quarter was more a blip than a trend.

On 23 July, the June quarter inflation data are released and after a low reading for the March quarter, a further gain of around 0.5 per cent would be hinting strongly that inflation is likely to ease back to within the 2 to 3 per cent band by the end of 2014. The outlook for lower inflation is enhanced by the still strong Australian dollar and the fact that wages growth is meandering at record low levels. Softer economic growth is also a disinflationary factor.

Thu, 03 Jul 2014  |  

The recent run of data continues to point to a stalling of economic growth after the stellar start to 2014 which saw annual GDP growth hit 3.5 per cent.

Indeed, the odds are rapidly building that June quarter GDP will be negative, driven by falling retail sales, a stalling in housing construction, a moderation in net exports and of course a further fall away in mining investment.

Mon, 30 Jun 2014  |  

In December last year, I outlined my forecasts for parts of the economy and financial markets. As the first half of 2014 draws to a close, it is worth having a look at how those forecasts are travelling, notwithstanding the fact that over the past six months, my views on a range of factors have changed as news and events have unfolded.

The 10 points from December 2013 are reproduced below, with comments in italics after each item.

Sun, 29 Jun 2014  |  

So the smart people like Louis Christopher from SQM Research and Pete Wargent from AllenWargent property buyers were right – the dip in house prices in the 6 week people around May was seasonal. The housing market was still strong and prices were still robust even though the RPData was showing what at face value were notable price falls.

The RPData house price series now shows that prices are up 1.3 per cent so far in June (just one day to go) to largely reverse the 1.9 per cent price drop in May. In recent weeks, the price rises have been solid which suggests further seasonal increases are likely in the near term, especially with interest rates remaining near record lows.

Even the RBA was caught up, a little, with the house price fall discussion, when it noted after the June Board meeting that "dwelling prices have increased significantly over the past year, though there have been some signs of a moderation in the pace of increase recently".

Thu, 26 Jun 2014  |  

The chances that the next move in interest rates will be a cut have increased with a raft of news pointing to a moderation in the pace of economic growth, a renewed decline in commodity prices and a clear abatement in inflation pressures from the record low pace of wage growth and the stubbornly high Australian dollar.

While the most likely outcome for monetary policy in the next little while is the RBA holding interest rates steady, another lowish inflation result next month (low being 0.5 per cent or less) would signal a moderation in inflation from the quite worrisome lift evident through to the end of 2013. Indeed, a 0.5 per cent rise in the CPI would see inflation on track to fall to the bottom half of the RBA's 2 to 3 per cent band by the end of 2014.

Such an inflation pull-back fits with very recent news of less robust economic growth since the stellar 3.5 per cent annual GDP result in the March quarter. While it is early days yet, the partial indicators for retail spending, building approvals, employment, job advertisements and business investment have all taken a step lower.

Tue, 24 Jun 2014  |  

Former greyhound follower and now the economic dwarf at News Ltd's The Herald Sun, Terry McCrann, has been wheeled out of the loonie bin to jump on the tobacco fact denier train.

In an extraordinary error ridden piece of work, McCrann's column today perfectly reinforces his ineptitude and ignorance on most matters to do with the economy.

While Terry is obviously still feeling humiliated over the budget surplus discussion he and I had a couple of years ago (Treasurer Hockey's recent budget confirming my presentation of the facts), in a further lack of self awareness, he trots out the line that down is up and the earth is flat when it comes to the issue of tobacco consumption.

Terry noted that "in the usual cocktail of stupidity and dishonesty, the Kouk cited official statistics".


As house prices fall across Australia, should we be worried for our economy?

Tue, 13 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


As house prices fall across Australia, should we be worried for our economy?

Are you a home owner?

If you are in Sydney, Perth and Darwin, you are losing money at a rapid rate.

In Melbourne and Canberra, prices are topping out and there is a growing risk that prices will fall through the course of this year. If your dwelling is in Brisbane or Adelaide, you are experiencing only gentle price increases, whilst the only city of strength is Hobart, where house prices are up over 13 per cent in the past year.

The house price data, which are compiled by Corelogic, are flashing something of a warning light on the health of the housing market and therefore the overall economy. For the moment, the drop in house prices has not been sufficient to unsettle the economy, even though consumer spending has been moderate over the past year.

The importance of house prices on the health of the economy is shown in the broad trend where the cities that have the weakest housing markets tend to have the slowest growth in consumer spending and are the worst performance for employment and the unemployment rate. The cities with the strongest house prices have strong labour markets and more robust consumer spending.

Trump could cause the next global recession: here's how

Wed, 07 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


Trump could cause the next global recession: here's how

The Trump trade wars threaten the global economy. This is not an exaggeration or headline grabbing claim, but an economic slump based on a US inspired global trade war is a distinct and growing possibility as it would dislocate global trade flows, production chains and bottom line economic growth.

Up until a few weeks ago, there was a strong enthusiasm for the economic policies of US President Donald Trump. Tax cuts and planned infrastructure spending were seen to be good for the US and world economies. US stocks and many around the rest of the world rose strongly, to a series of record highs. At the same time, bond yields (market interest rates) surged as the market priced in interest rate hikes and inflation risks from the ‘pro-growth’ policies. It was seen to be good news.

Very few, it seems, were worried about the consequences for US government debt and the budget deficit from this cash splash, especially when the US Federal Reserve was already on a well publicised path to hiking interest rates.

About a month or two ago, a few of the more enlightened and inquisitive analysts started to focus on the fact that the annual budget deficit under Trump was poised to explode above US$1 trillion with US government set to exceed 100 per cent of annual GDP.

A debt binge fuelled by tax cuts was a threat to the economy after the temporary sugar hit.