By Leith van Onselen I wrote on Wednesday how both sides of politics plan to sell Victoria's last major state-owned asset - the Port of Melbourne - in order to fund infrastructure to support Melbourne's rapidly growing economy. One of the proposed new infrastructure projects - the $8 billion East West tunnel - is reportedly set to reach peak capacity just 12 years after completion, slowing speeds to just 30km per hour. From The Age: The East West Link is forecast to carry 80,000 vehicles a day on opening in 2019, increasing to between 100,000 and 120,000 a day by 2031, modelling...

Gina Rinehart has made the curious claim today that Australia should follow the example of Britain's Thatcher Government: ‘’Thatcher steered through a lack of courage in her own political party, which had become riddled with lefties or ‘non-courageous wets’ and self-interested power mongrels, who didn’t grasp or didn’t want to grasp what was needed for their own country,’’ Rinehart said. ‘’What Thatcher did for Britain our own leaders should do for us – cut spending, cut waste, cut the shackles and back hard work.’’ Rinehart's admiration for Thatcher's Britain...

By Leith van Onselen The FIRE that is Australia's Finance, Insurance  and Rental, Hiring & Real Estate Services has just gotten a little bit bigger, now matching the towering inferno reached just prior to the Global Financial Crisis. This week’s national accounts data for the December quarter, released by the Australian Bureau of Statistics (ABS), showed the FIRE sectors’ share of the Australian economy rising to an equal record high of 10.8% of GDP (see next chart): And since financial markets were first deregulated in the mid-1980s, the FIRE sectors have grown at nearly...

The AIG Performance of Construction Index is out and  has failed to complete a hat-trick with the PMI and PSI: The national construction industry contracted at a steeper rate in February as activity returned to negative territory for the first time in five months, after a sharper fall in new orders. Reflecting this deterioration, both employment and deliveries from suppliers continued to decline. The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI®) fell by 4.0 points to 44.2 points in February. This was...

By Leith van Onselen The Australian's Adam Creighton has written a good article today questioning economist's infatuation with Gross Domestic Product (GDP), which Creighton argues is next to useless as a measure of economic progress: At best, gross domestic product is a harmless, if increasingly muddled, artefact of a bygone era; at worst it is a ruse underpinning the fallacy that bureaucrats can measure and politicians can control economic activity... A higher divorce rate boosts payments for childcare, lawyers and paid housekeeping, so it helps GDP, as do heatwaves and wars because of...

So the reserved and mild-mannered American Canadian law Professor James Allan, who works at an under performing Australian university, has recently written a long tirade against the bureaucratisation of higher education in Australia. While it contains a few home truths which need public acknowledgement - like the centralisation of decision-making and the power of university executives to make inappropriate rules, and also set their own pay - it also misses important context, and offers personal biases and anecdotes instead evidence and constructive suggestions for improvements. I want to respond here...

By Leith van Onselen Commsec has today produced an interesting note on Australia's changing spending patterns, and the outlook for the future: While consumer spending picked up late in 2013 – especially once the election was out of the road – over the year as a whole, growth in spending was tepid. Real (inflation-adjusted) growth of spending was just 2 per cent, the slowest growth since the GFC-affected year of 2009. While the good news is that consumers are spending again, the bad news for many businesses is that spending habits continue to change. Over 2013, real spending on...

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released trade data for the month of January, with Australia recording a seasonally-adjusted trade surplus of $1,433 million. The result surprised analysts, which had expected a trade deficit of $100 million. It was the 3rd monthly trade surplus in a row and followed the $591 million surplus recorded in December (revised up from $468 million) and the $168 million surplus recorded in November (revised up from $83 million). The next chart shows the monthly breakdown: In seasonally adjusted terms, exports rose $1,068...

A decent theory for the blowout number in retail sales from the SMH blog: Retail spending may have jumped sharply in January, but economists warn it is too early to say if the good times are back for retailers. JPMorgan economist Ben Jarman says the figures are impressive but are surprising given the relativity weak jobs market and soft consumer sentiment. He says they may have been boosted by the timing of federal government payments, including the Schoolkids Bonus. Certainly the anecdotes we’ve heard from retailers have been that things were reasonable in January after a good Boxing...

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released retail sales figures for the month of January, which registered a 1.2% seasonally-adjusted increase in sales over the month, which met economist’s expectations. Annual sales growth clocked in at a solid 6.2% - the highest rate of growth since late-2009: Monthly retail sales rose in six jurisdictions and fell in two: The increase in retail sales was also broad-based across segments, will all six categories recording rises in January: You can see from the next chart that the pick-up in recent...

By Leith van Onselen Of all the expenditure cuts by the Federal Government, cutting employment in the Australian Bureau of Statistics (ABS) has to be among the most reckless. As reported in the SMH overnight, 100 jobs are to be axed as the ABS tackles a $50 million budget black hole and an increased efficiency dividend. At this stage, the ABS has not announced which programs and surveys will be cut. When the former Labor Government cut funding to the ABS by $20 million during the GFC, it reduced the scope and sample size of the both the Labour Force and Retail Trade surveys, significantly...

Education is Australia's only real non-mining export industry of the future (as a subset of tourism), but that hasn't helped it survive Budget rigors in the past few years and the cost is showing. The 2013-2014 Times Higher Education World University Rankings see Australian unis sliding alarmingly. From the AFR: Australia’s most highly ranked institution, the University of Melbourne, fell from 39 last year to 43. The Australian National University fell from 42 into the 61 to 70 band and the University of­ ­Sydney fell from 49 to the same band. The University of Queensland fell from the...

By Leith van Onselen Following on from yesterday's national accounts release by the Australian Bureau of Statistics (ABS), I have once again benchmarked Australia’s economic recovery since the Global Financial Crisis (GFC) against the recessions of the 1970s, 1980s and the 1990s. For the purpose of the analysis, I have chosen to use real GDP per capita as the measure, since it removes growth distortions from population growth and inflation, and better reflects economic welfare than the headline real GDP figure typically quoted by economists. As shown by the above chart, which measures...

The RBA's John Edwards reckons: “There’s a debate about whether the place is picking up or tipping into a very serious downturn, and this certainly argues against the serious downturn point of view,” he said. “I think we are getting a bit of strength and making the transition and continue to grow not too far below trend.” If the improvement continues, pressure will grow on policymakers such as Dr Edwards to increase official interest rates before inflation and house prices get out of hand. While house price rises appeared to have moderated, Dr Edwards said it “would certainly...

These people have no shame. From the AFR this morning: The Australian Financial Review has also learned that a statement Qantas issued late on Monday rejecting claims by Treasurer Joe Hockey that the carbon tax was contributing to its plight backfired on the airline. Mr Hockey read the statement to cabinet and said that if the airline was unfazed by a $106 million carbon tax bill, it could not be in serious trouble. The bailout was pulled. And this afternoon from The Australian: QANTAS has urged parliament to support the Coalition’s efforts to support the national airline, revealing its...

From Bloxo today comes another happy take: Today's GDP numbers were positive. They showed that growth has picked up and that Australia's great rebalancing act is underway. GDP rose by +0.8% in Q4 to be +2.8% higher y-o-y (market had +2.5%). Mining investment fell in the quarter, but this was more than offset by a rise in household consumption and exports. Overall domestic demand picked up and the household saving rate has started to fall. More timely indicators suggest this rebalancing of growth has continued into Q1 2014, with business conditions and housing activity rising further. We expect the...

This seems to me to be a solid take from Stephen Walters at JP Morgan on today's GDP figures: Australia’s economy expanded 0.8%q/q last quarter, slightly firmer than expectations, and a welcome improvement on the previous quarter’s sluggish gain of 0.6%. That’s the good news. The less encouraging revelation in today’s National Accounts is that the lion’s share of growth in the economy came from one source – net exports, which contributed 0.6% points to the headline GDP rise. Domestic spending (GNE) at least avoided another contraction but, as rotations in the sources of growth go,...

By Leith van Onselen As summarised by Houses & Holes earlier, the Australian Bureau of Statistics (ABS) today released the national accounts for the December quarter, which registered a 0.8% increase in real GDP over the quarter and a 2.8% rise over the year. The result beat market expectations for 0.7% growth over the quarter and 2.5% growth over the year. On a per capita basis, however, real GDP increased by 0.4% and by 1.0% over the year. Further, real national disposable income per capital rose by only 0.2% over the quarter and was flat over the year. According to the ABS,...

Via the SMH blog: UBS interest rate strategist Matthew Johnson: GDP was a bit better than what the RBA and the market were expecting but not really good enough to bring rate hikes into focus. There was a good increase in private consumption up 0.8 percent and that combined with exports is the driver of growth. Overall, it's good quality result but not great. What you want to see is more domestic activity and that should come through in terms of house building and possibly consumption. We still think rates are on hold this year. CBA chief economist Michael Blythe It's a bigger increase...

Here come the bulls: There seems to be at least a little irony in there. And from The Kouk: Better hope he's wrong,...

The Australian Bureau of Statistics has released December quarter National Accounts the news is decent with 0.8 growth in the qurter and year on year of 2.8%: DECEMBER KEY FIGURES % change Sep qtr 13 to Dec qtr 13 % change Dec qtr 12 to Dec qtr 13 GDP (Chain volume measure) Trend 0.7 2.7 Seasonally adjusted 0.8 2.8 Final consumption expenditure (Chain volume measure) Trend 0.7 2.4 Seasonally adjusted 0.7 2.6 Gross fixed capital formation (Chain volume...

The AIG Performance of Services (PSI) is out this morning and will give the cyclically-focused more to crow about: The latest seasonally adjusted Australian Industry Group Australian Performance of Services Index (Australian PSI®) jumped by 5.8 points to 55.2 points in February. This was the first expansion for the Australian PSI® (a reading above 50 points) since January 2012 and the highest reading since March 2008. Despite the strong result in the Australian PSI® this month, growth was concentrated in just a few services sectors, primarily health and community services (67.7 points)...

It appears MB has finally beaten some sense into Ross Gittins: When people hear news reports about redundancies at this factory and that, many conclude we must be heading for recession. This time it ain't that simple. After a record 21 years since the severe recession of the early 1990s, we're overdue for another one and, with the economy quite weak at present, it wouldn't be impossible for us to slide into recession this year. But the explanation for the planned job losses we're hearing so much about isn't a downturn in the economy - it's continuing change in the structure of the economy -...

By Leith van Onselen Roy Morgan Research (RMR) last night released its unemployment estimate for the month of February, which registered a large jump in the unemployment rate to 12.3% from 11.3% in January (see next chart). It was the highest unemployment rate recorded by RMR since February 1994. According to Gary Morgan: “Australian unemployment has increased to a record high 1.561 million Australians (12.3%, up 1.0%) in February. This is the highest rate of unemployment in 20 years – since February 1994 (12.3%, 1,075,000). An additional 1.080 million Australians (8.5%, down...

From the AFR: The federal government rejected ­Qantas Airways’ bid for direct assistance based on advice from two investment banks, the federal Treasury, the Department of Infrastructure and accounting firm PwC, sources said. The company had asked for a guarantee on all new debt or a $3 billion unsecured loan facility. The loan would have been for one year or until the ­foreign ownership and other restrictions in the Qantas Sale Act could be repealed. The government was considering Qantas’s request right up until cabinet met on Monday by having an investment bank scrutinise the...

From Callam Pickering at locked-BS: The continued growth in building approvals will be a welcome sight for the Reserve Bank of Australia, which is relying on the housing sector to fill in some of the hole left by the impending decline in mining investment. Residential investment will certainly pick up over 2014, but how strong are building approvals? Are we facing a residential construction boom? Probably not. ...much of the recent growth has been in higher density living. The construction of units is generally cheaper than for the same number of houses -- think economies-of-scale -- and...

Also from the RBA: Preliminary estimates for February indicate that the index declined by 1.3 per cent (on a monthly average basis) in SDR terms, after declining by 1.6 per cent in January (revised). The largest contributors to the fall in February were declines in the prices of iron ore and coking coal, which was partially offset by an increase in the price of gold. The prices of many rural commodities rose, while the base metals subindex fell in the month. In Australian dollar terms, the index declined by 2.2 per cent in February. Over the past year, the index has declined by around 12 per...

From Sky News: The jobless rate could soar to 6.5 per cent this year, and prompt another interest rate cut by the central bank, as the mining investment boom unwinds. National Australia Bank chief economist Alan Oster expects mining investment to halve - from eight per cent of gross domestic product to four per cent - and result in the loss of 100,000 jobs lost over the next 12 to 18 months. He also expects non-mining investment to struggle to fill the void left by the boom. NAB sees unemployment tracking up from its current level of six per cent, to about 6.5 per cent, before coming down...

The Kouk is back today with another back flip. He writes: The economy in a nutshell • Job ads up • House prices up • Home building approvals up near record highs • Retail spending strong • Company profits growth up over 10 per cent • Government tax revenue stronger than expected • Business conditions lifting • ASX near 6 year high • Exports booming • Interest rates at record low • Government demand no longer restrictive • Aussie dollar low • Non-residential construction up • Inflation lifting to upper part of RBA target band VERSUS • Mining...

Forgive the spelling, the original does not respond well to spam filters for some reason! From Bernard Keane at Crikey today: Way back when, I suggested that game theory provided a good guide as to how Labor should respond to Abbott's extraordinary cynicism when in opposition in blocking at every turn Labor's efforts to govern responsibly. In short, once in opposition, Labor should behave exactly as Abbott had behaved, in order to provide a disincentive for the Coalition to repeat such behaviour when next in opposition. That was the most sensible political course, and perhaps the most...

From Westpac today: Q4 net exports: +0.6ppts Net exports made a sizeable contribution to growth in Q4 of 0.65ppts (rounding down to 0.6ppts). This outcome was a fraction below expectations (market median 0.7ppt, Westpac 0.8ppts.) Exports advanced in Q4 by +2.4%qtr, +6.5%yr, a positive result underpinned by the resources sector. That said, the Q4 figure fell short of our estimated (Westpac f/c +3.5%qtr). Imports declined further in Q4, -0.6%qtr, -4.6%yr, meeting expectations (Westpac f/ -0.5%). Q4 public demand Public demand surprised to the high, up 1.2%, on a bounce in the...

The ANZ-Roy Morgan weekly consumer confidence survey has fallen another 0.8 points to 109.6 points. We are now very comfortably below the long term average and swiftly approaching the lows 2011. I expect Westpac's monthly index will...

By Leith van Onselen NIB chief, Mark Fitzgibbon, has reportedly written to Health Minister, Peter Dutton, calling for an end to "risk equalisation" - a policy that forces health funds to subsidise the costs of other insurers’ most expensive members, claiming that the current system disadvantages young people. From The AFR: Mr Fitzgibbon wants a “sensible ­discussion” on risk equalisation, which partially compensates health funds for the hospital costs of high risk patients... Equalisation shares a proportion of costs for members aged 55 years and older on a sliding scale with the...

Who said the universe was a wasteland of indifference? Yesterday, after reading the Morgan Stanley report on the capex cliff  I opined for the return of Gerard Minack. Today, poof, from out of the ether comes Mr Minack's take on the capex cliff titled The Carnival is Over. The universe cares about MB readers, apparently... Australia faces the end of a once-in-a-century commodity boom. The outlook is for lower (non-mining) growth, weak income growth, and pressure on public finances. For investors this points to a still-lower A$, under-performance of Australian equities, and a structurally lower...

For the past few months I've noted that it was likely that we'd see a firming in the labour market in the first of half of 2014 following decent Christmas sales and the bounce in housing construction and before the capex cliff kicks in hard in the second half. That appears to be upon us. From Westpac: • Job advertisements rose 5.1% in Feb, the strongest monthly rise since the 11.1%mth print in Feb 2010. The robust Feb rise breaks a long down trend with job ads falling in 21 of the 23 months leading up to Feb. Job ads are now down just 4.8%yr (troughed at –18.8%yr in Jun 2013). Ads are, however,...