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Has the economy stalled?

The good news on the economy towards the end of 2015 and the very early days of 2016 may be fading.

I say “may” because a month or two of data can be misleading or even an anomaly and there might be a rebound in these indicators over the next few months. That said, the run of news pointing to a cooling in activity is getting a bit too consistent to ignore.

While we may be comforted by the fact that Australia is not heading for a recession, or frankly anything near that, the news is a little disconcerting. Importantly, retail sales have recorded almost no growth over the last three months, a trend that has also been evident in employment creation. At the same time, the number of ANZ job ads has been broadly flat over the past few months, suggesting the demand for labour has stopped growing.

The housing market is also cooling. New dwelling approvals have been trending down for around half and year which will almost certainly spill over to weaker dwelling investment in the second half of 2016. House prices are also recording much weaker growth, which is actually one of the good aspects of the recent data flow even if it means household wealth will be capped over the next year or two.

Next there are the truly horrible international trade data which shows the monthly deficit entrenched around $3.5 billion. Export receipts are falling while imports remain firm. This is not good news for the likely net export contribution to GDP for the March quarter.

Business confidence has also taken a hit. The Dun & Bradstreet business expectations survey released earlier this week showed a sharp fall in the business outlook for profits, sales, employment and capital expenditure. Each component was is at a two year low.

This is usually a precursor to softer GDP growth. It appears the economic policy indecision from the government is undermining the business outlook.

Finally, the Australian stock market remains in the doldrums which is not only a reflection of uninspired future corporate profitability, it is eroding investor and household wealth and thus is inhibiting the ability of consumer demand to pick up momentum in a sustained fashion.

This all sounds a little gloomy and in isolation, it would be something of a concern. But it needs to be put in context of the economy growing at 3.0 per cent at the end of 2015, the unemployment rate is still reasonable at 5.8 per cent and the global economy is still growing, albeit at a moderate pace. That positive backdrop for the current soft path is helped by the fact the RBA has left interest rates at record lows for a year and commodity prices are well above the low point reach in January which if sustained, will help support the economy.

Hopefully the recent data flow is just an air-pocket along a path of a good growth performance. I think it will be. But the steady flow of less than rosy news cannot be ignored and if that flow of weakness turns into a torrent, it will be all bets off on the outlook for interest rates, the Australian dollar, the budget and the stock market.