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 

 ------------------------------------------------

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.

comments powered by Disqus

THE LATEST FROM THE KOUK

Change of view on interest rates

Fri, 24 May 2019

Having been the only economist to correctly anticipate an interest rate cut from the RBA when close to 50bps of interest rate hikes were priced in to the market last year (See Bloomberg 17 August 2018), I have agonised over the exact months the cuts would be delivered and then how many rate cuts would be needed to reflate the economy.

Recently, I was of the view that the RBA would need to cut 100bps from now, to a level of 0.5%, but I did so with relatively low confidence. This is why I recommended all clients to close their long interest rate positions on 17 April 2019 (when the implied yields were 1.10% for the mid 2020 OIS; 1.35% on 3 year yields and the Aussie dollar was just over 0.7000 at the time).

Like in most good trades that were massively in the money, I left a little money on the table while I reassessed the outlook.

Since calling for interest rate cuts from the RBA, a lot of water has passed under the bridge, especially in the last few weeks.

Events mean I am changing my view on interest rates and have been placing / will be looking to implement new trades.

Watch out Australia: There's a flood of dismal economic news on the horizon

Wed, 01 May 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/watch-out-australia-theres-a-flood-of-dismal-economic-news-on-the-horizon-211110783.html

--------------------------------------------

Watch out Australia: There's a flood of dismal economic news on the horizon

The Australian economy is in trouble and Scott Morrison and the Liberal Party government need to come clean and acknowledge this and outline a framework how this period of economic funk is to be addressed if they win the 18 May election.

The Liberal Party is campaigning in the election on a “strong economy” and being “good economic managers”, bold claims that fly in the face of the latest score card for the economy.

That scorecard shows a flood of what is, frankly, disappointing or even dismal economic news. Australia is going through a very rare recession in per capita GDP terms and last week saw data showing zero inflation in the March quarter. Contribution to these indictors of economic funk is the fact that well over half a trillion dollars of householder wealth has been destroyed as house prices have tumbled.

Add to that the fact reported by the Australian Office of Financial management last week that gross government debt is $543 billion, almost double the level that the Coalition government inherited in September 2013, and the scorecard is looking very ratty indeed.

As the ad man used to say, “but wait, there’s more”.