Sat, 10 Jun 2017  |  

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


The RBA is like a rabbit in headlights


There is no other way to describe the March quarter GDP result which showed annual growth of just 1.7 per cent, which is one of the weakest results in the last 25 years.

Little wonder consumers are feeling under the pump, with real wages falling, savings being run down to fund their meager spending growth and unemployment / underemployment adding to insecurity.

The genuinely odd thing about the current economic malaise is the policy complacency that prevails. Neither the government or the Reserve Bank seem to be in the least bit concerned about the disinflationary funk being felt in Australia.

A month ago, the government delivered a budget that took away any extra spending in the economy via tax hikes on banks and a rise in the Medicare levy. Not an iota of policy stimulus was unveiled to deal with the chronic sluggishness in the economy.

Thu, 08 Jun 2017  |  

This article first appeared on The Crikey website at this link: 


Don't celebrate, ScoMo: job ad stats mask ugly truth about the labour market

In the aftermath of the release of the ANZ Bank job advertisement series on Monday, Treasurer Scott Morrison proudly tweeted that the figures showed: “almost 170,000 jobs advertised in May. Job ads now at the highest level since August 2011.”

Morrison is not a prolific tweeter and rarely does he comment on the monthly job advertisement series. One can only assume he was pleased to see a data point heading in the right direction.

To be sure, the news of rising job ads is a welcome respite from the general gloom in the recent set of economic news. Most now agree that the economy is sluggish, rolling along without much evidence of a much needed or wanted acceleration in activity.
But in tweeting the fact that there are almost 170,000 jobs advertised in May, Morrison indirectly exposed the current difficulties in the economy more broadly and the labour market in particular.

Thu, 08 Jun 2017  |  

The recent Dun & Bradstreet Business Expectations survey confirmed a softening in business expectations for the economy into the second half of 2017.

The link to the full survey results is here: 

A summary of the survey findings are here:

As Australia grabs the world record for uninterrupted economic growth, the signs are mainly pointing downwards. Business performance for the first quarter has hit a four–year low, resulting in lower expectations for the second half of the year. Dun & Bradstreet's May Business Expectations Survey shows a generally muted outlook for the September quarter of 2017 despite employment expectations reaching a two-year high.

The official GDP data, which confirmed a clear slowing in the rate of economic growth, was fully anticipated by the Dun & Bradstreet Business survey. Business expectations have dropped off for the September quarter 2017 following a softer-than-expected March quarter on the back of lower actual sales, profits, employment, selling prices and investment in the first quarter. This continues to highlight the importance of the Business Expectations Survey as an early indicator in turning points in key aspects of the economy – in this instance overall economic growth. The survey also has a solid record in anticipating turning points in other variables such as selling prices, employment and profits.

Sun, 04 Jun 2017  |  

The absurd situation occurs again this week where the RBA Board meeting will be deliberating the appropriate monetary policy stance with the last data on GDP three months old.

Well, it actually relates to the economy in the December quarter 2016 so it is up to 8 months old!

If the RBA meeting was held just two days later, the day after the national accounts and GDP are released, it would have this vital information before it when determining whether or not to adjust the current monetary policy stance.

It might be the case that one quarter of extra data from the national accounts, should not have that much influence on the RBA thinking. To a point that is true. There are other snippets of more up to date news which are helpful in giving guidance to current economic conditions. But given that employment and inflation are vitally determined by how strong GDP growth is, the case for having the data feed into the RBA forecasting round seems compelling.

Fri, 02 Jun 2017  |  

It might be slow in coming, but the market is starting to price in the possibility of lower official interest rates in the months ahead.

At this stage, there is about a 25 per cent chance of an interest rate cut by year end priced into the market which means there is still a long way to go for one, let alone the likely two or three, cuts that need to be delivered if Australia is ever to see 3 per cent GDP growth and unemployment anywhere near 5 per cent.

Reflecting this slow mood change, 3 year bond yields have fallen to 1.70 per cent, just 30 basis points from historical lows. The Australian dollar is losing friends to the point where it is clinging to 0.7375 and is seemingly vulnerable to a sharp decline.

Of course, the ones that need to change their view are the upper levels of the RBA. They seem to be strongly of the view that Sydney and Melbourne house prices are more important to the economy that the persistent missing of its inflation target, the near 750,000 people unemployed, the 1.1 million underemployed, the record low wages growth and what appears to be a troubling slide in commodity prices.

Wed, 31 May 2017  |  

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


The RBA needs to play catch up - and slash rates

The pressure is building for the Reserve Bank to cut interest rates. And not just once, but several times in the months ahead.

The pick up in economic activity that the RBA has been looking for appears to have faltered. Next week’s data for GDP are almost certain to show annual GDP growth below 2 per cent and it will be lucky to be zero in per capita terms. This severe weakness in the economy is clearly why the labour market continues to operate below full capacity with record low wages growth and very high levels of unemployment and underemployment. It is not only next week’s GDP data that are causing the market to fret – recent economic news is disconcerting, to say the least.

New building approvals have been trending lower for the past year and Westpac are now suggesting that the slump in new dwelling investment will become “a material drag on growth”.

Fri, 26 May 2017  |  

This article first appeared on The Adelaide Review website at this link: 


Scouring the Budget for Enlightenment

Every Federal Budget contains many thousands of numbers, graphs and words about the economy, the finances of the government and the impact of the decisions taken during the budget process.

It is impossible to digest every aspect of this myriad of information but it is fun, and somewhat enlightening, to scour through the budget papers for interesting facts and issues that the budget throws up after it has been delivered.

Some of those issues that captured my attention, as I sat by the fire the weekend after budget day, are outlined below. They help to illustrate how detailed and complex the budget process is and how much work is undertaken to get the budget finished, signed off and delivered on time each year.

Here are some Budget snippets:

Iron Ore
Each US$1 a tonne move in the iron ore price in 2018-19, away from the US$55 a tonne assumed in the budget, impacts government tax receipts by $420 million per annum. If, for example, the iron ore price were to jump US$20 / tonne, to the level it was two months ago, the budget bottom line would improve by $8.4 billion each year.

Wed, 24 May 2017  |  

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


House prices slump: Straw that breaks the economy’s back?

Will a slump in house prices be the straw that breaks the economy’s back and be the trigger for an economic hard landing in Australia?

Probably no, but it is a question that will likely dominate the news over the remainder of 2017 and into 2018.

Australia has gone 25 glorious years without a recession, but the risks are building that late 2017 and 2018 will be glum ones for the economy. The extent to which the economy is stuck in the mud will depend on the extent of the housing slowdown, the impact this has on already fragile consumer demand and the policy response of the RBA and possibly the government.

A slump in house prices will damage consumer wealth and with that consumer spending, investment and employment. Wages growth, which is already at a record low, will stay low which will further compound the lack of traction in the economy and feed into the fragile growth outlook. Already retail sales are flat or falling and consumer sentiment shows more people are pessimistic than optimistic.

This is not good news.

Mon, 22 May 2017  |  

This article first appeared on The Adelaide Review website at this link: 


It’s the Economy, Stupid

Those in power, who are able to pull the economic policy levers, are unable or unwilling or simply unaware of what is happening in the economy and what needs to be done to get the economy back on track to stronger job creating growth.

At every opportunity, the Turnbull government is sweeping economics under the rug while it focuses on terror, laws on racial vilification, rhetoric about ‘hard working Australians’, a blip in energy prices and anything else that means the economy is not discussed. The ‘jobs and growth’ mantra is as sincere and meaningful as a US shop assistant saying ‘you’re welcome and have a nice day’ just after they serve you a miserable coffee.

The other economic policy heavyweight, the RBA, is fixated about house prices in Sydney and Melbourne and continues to leave Australia with some of the highest interest rates in the industrialised world and an over-valued exchange rate. It does this while inflation is entrenched below the bottom of its own target range, real wages growth stalls and the spare capacity in the labour market balloons.

To be fair, there is one economic policy issue that has a substantive proposal behind it – the cut to company tax rates. But the plan to reduce company tax rates is more like a Chinese Politburo 10-year plan and it is of such a scale that it will fracture an already vulnerable budget outlook. And, in any event, it looks like hitting the rocks in the senate as it is expensive, ineffective and unpopular. The key elements of the company tax issue will no doubt slowly but surely sink in the not too distant future.

Fri, 19 May 2017  |  

The Australian Office of Financial Management has updated the data on gross government debt level. Today, it hit a new record at $493.8 billion. See  

Having inherited $273 billion from the Labor government in September 2013, the Coalition’s policies have added a rib-cracking $220 billion in just 3 years and 8 months, and all of this in a climate of decent global economic growth, a lower Aussie dollar and record low interest rates.

Having watched the dust settle from the recent budget, it is clear that the levels of government debt will keep rising, probably at a more rapid rate than Treasurer Scott Morrison projected simply because wages growth is so weak, company profits are fragile and the commodity price outlook has become more fragile on the back of extra global output and huge inventories.


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.