This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2138618-050543271.html
Oz economy: The good, the bad and the ugly
The Australian economy continues to grow, but the pace of expansion remains moderate, being constrained by ongoing weakness in household spending and a slide in housing construction. The good news is further evidence of an upturn in private business investment and stronger growth in public sector infrastructure spending which is providing support for the economy.
At face value, 2.8 per cent annual GDP growth rate is quite good, but the devil in the detail on how that growth has been registered is why there are some concerns about the sustainability of the expansion as 2018 looms.
Household spending remains mired with growth of just 0.1 per cent in the September quarter. It seems the very low wage growth evident in recent years, plus data showing a small rise in the household saving rate, is keeping consumer spending in check.
Making up well over half of GDP, household spending will be the vital element of the economy into 2018. If wages growth remains weak, there seems little prospect of a pick up in household spending. And if household spending remains weak, bottom line GDP growth will be relying on a strong expansion in business investment and public sector demand.
The changing nature of work is causing significant disruption within the economy and for workers confronting an erosion of their take home pay and basic workplace conditions.
The precise nature of these changes is still unfolding in line with the spread of technology, the move to a more casualised workforce, globalisation and the steady decline of union influence.
The recent Per Capita round table discussion of these issues was particularly enlightening, not least because the participants helped to articulate how widespread these trends in the labour market are becoming, but they also covered what these changes might mean for the economy and the policy settings needed to ensure strong growth and a decent society.
One of the most potent manifestations of the workplace changes in the past decade or so has been the hit to wages. After several decades of annual wages growth around 3.5 per cent (which equates to an increase of around 1 per cent per annum in real terms), wages growth has slumped in recent years.
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/2073035-004930587.html
Watch out below! The Aussie dollar is about to sink
Watch out below! The Australian dollar is on the cusp of a significant fall. Already in recent weeks it has slumped from about 81 US cents to around 76 US cents at present and the factors that generally hold sway over the direction of the Aussie dollar suggest more falls are in store.
Commodity prices are going nowhere. The days of US$150 a tonne iron ore and massive prices for coal are well past. While the week-to- week changes in commodity prices can appear extreme, they are in a range a good 40 to 60 per cent lower than the peak levels around 5 years ago when the dollar traded as high as 1.10 against the US dollar.
Also keeping commodity prices lower is the fact that miners have slashed the cost of digging these commodities out of the ground. They can sell their output at a lower price and still have a healthy profit, because of this cost cutting. At the same time, the tens of billions of dollars invested by the mining sector over the past decade have build what are now fully functioning mines, adding to the supply of bulk commodities in the world market. While demand is still strong, the fact that output (supply) has run faster and cost of production has fallen, it means the overall level of commodity prices is broadly flat.
The big issue rapidly unfolding for the Aussie dollar is the erosion of the gap between global interest rates and those prevailing in Australia.
Late payment times down nearly 10 percent
According to the latest analysis by illion, the average late payment time for an Australian business was 12.6 days during the September quarter, down 9.1 percent from 13.9 days during the prior corresponding period. In addition to reducing the length of time for overdue bills, the data shows more businesses are also settling their invoices on time, demonstrating a broad shift in payment behaviour.
“If a company’s annual report is like the yearly medical check-up, then payment data is like Fitbit data. Timely payments are a crucial sign of business health. They are critical to small businesses running on slim margins, reducing the risk of job cuts and business failures.”
Simon Bligh, illion CEO
"In line with the pickup in business expectations and a more positive tone in other parts of the business sector, the sharp fall in late payments reflects better economic conditions and a clear improvement in cash flows. Business cash flows have also been boosted by higher profits, as seen in illion’s latest Business Expectations survey, which means firms are able to make their payments to suppliers in a timelier manner."
Stephen Koukoulas illion Economic Adviser
The full report is at this link: https://dnb.com.au/_media/documents/AU%20Late%20Payments%20Q32017%20Full.pdf
This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2024247-032933611.html
Why the RBA is wrong, wrong, wrong
The latest Statement on Monetary Policy has confirmed the failure of the Reserve Bank of Australia to implement monetary policy settings that are consistent with its inflation target and objective of full employment.
It used to be the case that the RBA could never have a medium term forecast for inflation other than 2.5 per cent – the middle of its target range. The thinking was that if the RBA had a forecast an inflation rate of say, 1.5 or 3.5 per cent, that was based on current policy settings, it would adjust interest rates to ensure inflation would not reach those levels, and instead would return to the middle of the target.
The middle of the target range is an important goal for policy because it means the risks to the forecast are symmetrical. A forecast of, say 2 per cent, means that a 0.5 percentage point error could see inflation fall to a troublesome 1.5 per cent as much as it could rise to a perfectly acceptable 2.5 per cent, while a forecast of 2.5 per cent that turns out to be wrong by 0.5 per cent would still mean the RBA meets its target.
And even if the 2.5 per cent forecast turns out to be wrong as economic events unfold in ways not fully anticipated, it would adjust policy again to keep the focus on the 2.5 per cent. The RBA did this well until the global crisis came along and changed the growth, wage, inflation dynamics.
Which is where the recent RBA policy settings have been so wrong.
It has been well over a year since the last interest rate cut.
Getting out of property and into stocks
That seems to be a theme developing in the Australian market at the moment, with further evidence of a cooling in the housing market and a coincident lift in the value of the ASX hinting that those with money to invest are avoiding the ultra-expensive, low yielding housing market and instead are looking to the stock market for opportunities.
The Australia stock market is moving higher to the point where the ASX200 index is poised to break above 6,000 points for the first time since 2008. The past decade has been a rocky one for the Australian stock market. There has been the GFC, a commodity price boom and bust, speculators have jumped into and out of bank stocks based on extreme calls on the housing market and many local firms have been dealing with an unrelenting threat from foreign competition.
Some of these issues remain, but a combination of factors appear to be at play in the new found interest in the share market.
The spring carnival is in full swing and it’s time to turn on the lights and examine the political and economic form guide.
My tip is Uncertainty, which seems to have the best track record in politics and economics. So here we go.
Turnbull: Looked promising early in career but only fell across the line last start. Lost all form and hard to have.
Shorten: Difficult to fault recent form, although task made easier in recent starts with inferior opposition. The testing material.
Government Debt: A stayer which is going from strength to strength. Being helped by a lack of tax reform and will be thereabouts.
Reserve Bank: Has done nothing in over a year despite the urgings of the 1.8 million people either unemployed or under employed. Needs to improve.
I am reluctant to bag and slag the employment data, because it is all we have when looking at the health of the labour market. But there are a few quirky bits and bobs in the news of the wonderful run of job creation over the past year.
Employment rose by a remarkably strong 3.1 per cent in the year to September, a fabulous result.
But, and it is a big but, the results are at odds with just about every other indicator in the economy. EIther they are misleading or the employment data are misleading.
One way to check it to have a look at the economy the last time annual growth in employment was above 3 per cent. This takes us to the period around 2007 and into early 2008.
In 2007, annual real GDP growth was generally around 4 to 5 per cent, as you would expect with such jobs growth. The economy was on fire! In 2008, the CPI surged by over 4 per cent which is again as you would expect given the boom in employment. The RBA was hiking rates at an agressive pace, with the official cash rate hitting a stonking 7.25 per cent in 2008. Wow!
This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/1897318-045821149.html
What bubble? The financial sector is fighting fit
Australia’s banking sector is in peak health and the household sector is having few if any problems managing its debt.
This is the good news from the Reserve Bank of Australia Financial Stability Report which effectively put the kybosh on the fear-mongers who continue to forecast a crisis in household debt, a crash in house prices and turmoil in the financial system and more specifically, the banks.
The key conclusion from the RBA was that “the financial system is in a strong position and its resilience to adverse shocks has increased over recent years.”
These are strong and direct words from the normally cautious RBA.
It also noted that the bank’s non-performing loans (bad debts in other words) “remain low” and bank profitability “is high”, which are the key indicators of financial stability and strength. The RBA went as far to say that “the banks also have ample access to a range of funding sources at a lower cost than a decade ago” which is fundamental to the functioning of the financial system. Nothing was presented that indicated current problems in the financial sector.
The RBA assessment can be tested from the markets, specifically bank share prices. Most evidently, bank share prices remain strong as the investment community continues to place its money where its mouth is when determining actual performance and even risks when allocating investment funds.
This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/1870680-024951753.html
The truth about our debt
Much is being made of the record level of household debt in Australia. The media is full of stories screaming about the risks of debt for the economy.
Household debt has risen from levels equivalent to around 75 per cent of annual household disposable income in the mid 1990s to close to 200 per cent today and it is an issue that sparks fears of a crash, the next recession or something equally frightening. Debt is high, for sure, but for anyone who undertakes sober and factual analysis of the household debt issue and judges the overall financial position of the household sector and not just debt, there is little to be worried about.
It is vitally important to realise that households do not take on that debt and throw the cash away. On the contrary.
Debt is used to buy assets which includes things like housing, commercial property and shares. For the bulk of the population with little or no debt, they are coincidently squirrelling away their savings and are accumulating wealth.