Is the Aussie economy on the rocks?

Fri, 01 Jun 2018  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/aussie-economy-rocks-050403466.html 

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Is the Aussie economy on the rocks?

I often wonder why people who analyse and comment on the economy don’t keep up to date with unfolding events.

Economics is a wonderful thing. It is vibrant, it changes every week, every month and every quarter as fresh news on inflation, employment, consumer spending, housing, business investment and a whole host of other variables are released. The reason this is important is that the recent, up to date information on the Australian economy is, all of a sudden, disconcerting.

While 2017 did see the strongest growth in employment on record, with an average increase in employment of 34,600 a month, in the three months to April 2018, the averAge monthly increase WAs just 4,800. This has seen the unemployment rate rise from what was a 5 year low of 5.4 per cent to 5.6 per cent.

The labour market has moved on from 2017.

What’s more, the ANZ job advertisement series, which provides a good guide to future trends in the labour market, has fallen for the last three months.

It is not just the labour market where there is some concern.

House prices are still falling. From the peak in October 2017, the Corelogic measure of house prices has dropped by around 2 per cent and there are no signs of the decline being arrested. While a 2 per cent fall after such strength is not yet a concern and the falls are not precipitous, there seems little doubt that further price weakness is on the cards. Housing auction clearance rates are low and banks are continuing to tighten their lending standards for new customers. There is little to suggest a reversal in the house price falls any time soon.

Retail sales are also losing momentum. Having risen 0.8 per cent in real terms in the December quarter 2017, they rose a paltry 0.2 per cent in the March quarter. Consumers are feeling the pinch from a weaker jobs market, low wages growth and high debt levels.

Areas of the economy where they have been positive signs, namely non-mining investment and public sector infrastructure spending, are not strong enough to overcome the weakness in these other areas to ensure bottom line growth in the economy is on track to reach let alone exceed 3 per cent. Unless there is a surprising and major upswing in business investment, the economy will likely remain soggy for a while longer.

For now, most economists including those at the Reserve Bank, are judging the economy to be doing well, with growth strong enough to engineer lower unemployment, raise wages growth and higher inflation. The recent facts suggest they are either looking at the hard news through rose coloured glasses or are paying little attention to run of recent facts.

Over the next 10 days or so, there will be a deluge of data which will provide the basis for a reassessment of economic conditions. By the end of next week, the market and the RBA will have before it updated and fresh news on GDP growth, retail spending, house prices, capital expenditure, credit growth, inflation, public sector spending, exports and international trade. There will, of course, be additional news from around the world.

This stock take on the economy will allow for a recasting of views on the economy. The bulk of these data will need to be surprisingly strong for there to be optimism about the economy into the second half of 2018.

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This article first appeared on the Business Insider website at this link: https://www.businessinsider.com.au/rba-rate-cut-2018-6

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The remarkably simple case for an RBA rate cut

The performance of the Australian economy is a bit like my old report cards at school: “Doing reasonably well, but could do better”.

Unlike my approach to school work, which only impacted me, the current policy complacency is seeing unemployment rise, wages growth remain in the doldrums and our $1.8 trillion economy underperform. In the latest test of economic growth, the 3.1 per cent annual GDP growth rate for the March quarter was reasonably good.

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