The household sector remains a weak link in the Australian economy. The Westpac-Melbourne Institute of consumer sentiment remained below 100 index points for the ninth straight month, even though it ticked up slightly to 96.6 points in November.
Consumers remain pessimistic, on average, and while ever this remains the case, household spending is likely to remain soggy and certainly not strong enough to sustain real GDP growth at 3 per cent or more.
Of more concern is the ongoing weakness in wages growth. The Wage Price Index rose a tepid 2.6 per cent in the year to the September quarter, equal to the lowest since the series began and probably the lowest increase in Australian wages since at least the 1960s (the data on wages are complicated by breaks in data collection and methodological changes).
The weak wages growth is set to continue with the Commonwealth public service likely to get wage increases of 1.25 per cent or so for the next three years and this wage recession is likely to have implications for private sector wages over that time.
House prices are off the boil according to both the Australian Bureau of Statistics and RPData.
For the ABS, house prices rose just 1.5 per cent in the September quarter, with the annual rise of 9.1 per cent the lowest in a year and down from the 10.8 per cent peak in the March quarter 2014. With a very large 4.0 per cent increase dropping out of the annual data next quarter and given what we know about house prices so far in the December quarter, annual house price growth looks set to slip below 7 per cent when those data are released in 3 months.
The bottom line is that house prices are still rising, but not at a particularly alarming pace.
A final word, for now, on the economic record of the Whitlam government.
Below is a very simple comparison on a number of key data and policy dynamics in the early 1970s. Gough Whitlam was Australia's Prime Minister from late 1972 to late 1975, while Richard Nixon and Gerald Ford were Presidents of the US over that time.
Who got better economic outcome - Australia or the US? You be the judge.
The statement from the RBA that accompanied this week's 'rates on hold' decision had the flavour of a stock broking spiv – "don't worry mate, things will be ok"; "it's just a bit of a blip in the unemployment rate and maaate – don't worry about wages growth at all time lows."
"Inflation? Ha it's right on target. Whoa!"
"And commodity prices – well buster, they are still higher than there were when Jesus played half back for Jerusalem, so chill."
And so it went.
Today's labour force data are a rocket for the RBA and its misreading of the economy. Some stark facts show how the sub-optimal performance of the economy in recent months has hit the labour market.
The article first appeared in August 2012 on the Business Spectator web site – here: https://www.businessspectator.com.au/article/2012/8/7/australian-news/rba-recipe-aussie-dollar-relief
An RBA recipe for Aussie dollar relief
The Australian dollar is overvalued. This morning, ahead of the RBA board meeting, it is hovering around $US1.0560 and on the RBA's trade weighted index, it is around 79.4 points.
The last time the Australian dollar was at this lofty level on the TWI was back in February 1985, a bit over a year after the start of the float and a time when foreign exchange markets were still adolescent.
The current Australian dollar bubble, which it increasingly seems to be, is inflicting damage on the Australian economy. Exporters are being undermined due to a loss of competitiveness and those local industries competing with imports are under even greater stress as prices for many imported goods and services fall. The high Australian dollar will see inflation remain very low, both directly through lower import prices but also via its dampening effects on the domestic economy.
The RBA is surprisingly blind to economic trends, domestically, globally and in commodity markets. Well, that is, if they actually believe the material in the statement today that accompanied the decision to leave official interest rates unchanged at 2.5 per cent. It has failed to see clear trends in the data and has missed a chance to use further interest rate reductions to underpin economic growth.
Let look at a few trends and what the RBA said.
This article first appeared on The Drum on 28 October 2014, at this link:
Why is Abbott considering a GST hike?
Tony Abbott's recent consideration of GST hikes is more about covering his costly policy priorities than plugging a revenue hole in the budget over the next decade, writes Stephen Koukoulas.
It is not altogether clear why Prime Minister Tony Abbott is giving consideration to hiking the rate of the goods and services tax.
This is especially the case when the budget his Government brought down in May confirmed that government revenue would be rising to a healthy 24.9 per cent of GDP in 2017-18, to be well above the historical average and some 2 to 3 per cent of GDP higher than the revenue take under the previous Labor government.
Increasing the rate of the GST is, at face value, a simple and very effective way to boost government revenue. Based on 2014-15 data, each 1 per cent extra on the GST would raise about $5.4 billion (increasing to $6.4 billion in 2017-18), meaning a hike in the GST rate from the current 10 per cent to, say, 15 per cent would add more than $25 billion per year to government revenue, escalating to more than $30 billion per annum within three years - if nothing else changed.
The RPData house price series shows that for the five major cities, prices rose 1.1 per cent in October. At face value, this seems a strong rise, but allowing for seasonal factors it reflects a further cooling from what was runaway house price growth late in 2013 and early in 2014.
Here is some context.
In the seven months since the end of March, house prices have risen a moderate 3.8 per cent in total. This translates to average monthly gains of 0.5 percent for an annualised pace of around 6.25 per cent which, clearly, is nothing to be too worried about. Even the year over year rise reported by RPData has fallen to 9.1%, down from the peak levels around 12 per cent earlier this year. It seems likely, if not certain, that the rate of increase will ease further, especially if – or when- macroprudential rules come into place to dampen the sector.
As noted, the real heat in house prices was in 2013 and the early part of 2014 when, arguably, the RBA could have and should have hiked interest rates. Alas, it didn't take my advise and it failed to do so but thankfully, with the momentum in house prices is now off the boil, it can sit tight a little longer on interest rates and judge what happens globally, to the unemployment rate and inflation before changing.
For now, the RBA can rest easy knowing house prices are no longer rising at a pace that is all that concerning. A macroprudential tweak, if delivered, would likely see house prices soften further or even fall and this is when the RBA can move to cut official interest rates as it deals with disinflation pressures domestically and from around the globe.
Joe Hockey is right! There is soooo much petty red tape in this great country of ours.
For our Treasurer, it was a pizza shop in Sydney. Thick-crust Joe went for a pizza a few weeks ago and as he arrived he saw a few friends. When he saw a couple of tables outside with three chairs on one table, four on the other, Pepperoni Joe went to put the two tables together so that the two families could be together. What could be nicer than sitting outside on a sunny spring evening, nibbling away at a Quattro Stagioni and a Hawaiian (extra pineapple)?
But there was a problem. The pizza shop owner came out and said "I'm sorry Mr Hockey, you're not allowed to do that, the council regulation prevents you putting the two tables together."
According to Meat Lovers Joe, "There were eight of us, so I went inside to get another chair and they said, 'Sorry Mr Hockey, they've said you can only have seven chairs [outside], not eight". This is when anchovy Joe "exploded."
Arrgghh. RED TAPE!
This article appeared in the October edition of The Adelaide Review at this link. It is reproduced in full below.
The risks of falling house prices
House prices in Australia are high. Having risen by around 9.5 percent over the past year, the Reserve Bank of Australia is giving consideration to implementing radical policies that would not only slow this house price growth but would risk seeing absolute falls in prices.
Before the RBA and the anti-house price growth clique get too excited about the prospect of a policy suite that stops house prices rising or engineers a house price fall, it is worth thinking about the consequences for the macro economy from both strong house prices and the alternative – price weakness.