And now for an economic Botox Boom

We’ve lived the housing and mining booms. They’re over. Now it’s time for the Botox Boom.

Yes, Australia is getting work done and it’s beginning to show. The recent run of economic data has unmistakably improved, from commodity prices, through the labour market and onto business investment.

However, there is one difference between the Botox Boom and those that came before. It is by and large fake, produced by force-feeding mass immigration and government spending into broken economic structure. It is thus a profitless boom, as the crucial underpinnings to boost income for both capital and labour are missing.

Consider the drivers of the Botox Boom.

The first is population-led construction. The dwelling construction boom is steadily turning bust and as it shrinks through 2018 it will take away some 0.5% of GDP per annum for several years at least. But the tail-end of that boom has now been crossed over by another in infrastructure. This will add 0.4% to GDP this year then keep adding 0.2% through to 2020. Some are saying it will last ten years. It’ll be more like two as NBN investment winds down, via ANZ:

Remember that building-led growth is ponzi-growth. If you’re not building more than last year then you’re shrinking. It’s the rate of change that matters not the absolute level.

There will be some productivity improvement from the boom but given many of the new roads, rail, airports and broadband are crush-loaded before launch, as well as poorly planned and selected to boot, the impact will be minimal.

The second driver of the Botox Boom is rebounding business investment. The ABS capex outlook is now suggesting that next year will be the bottom for the “capex cliff”. That’s good news but, again, the big improvements are in sectors that benefit from mass immigration. Service sectors of this nature tend not to improve productivity, either. They are people-to-people operations that expand capacity not efficiency. At least until automation moves up the value chain but we’re not there yet. Tradables like manufacturing and mining are still falling.

The third driver is the “fourth phase” of the mining boom. It is that big miners are cutting production to boost international prices. That is economically irrational for a low cost producer but it works short term. Moreover, with the capacity shrinkage, the fourth phase is productivity destructive given it delivers lower output for the same sunk costs. Nor is there any flow through to wages without investment and because the sector is radically under-taxed most of the income windfall flows straight back out again to foreign shareholders.

The fourth driver is energy, the most fake of all. LNG mega-projects continue to come online, adding to growth via volumes in net exports. But these are profitless as well. Built with sunk capital that keeps disappearing in asset write downs. The only profits that are flowing to the sector come entirely from the local cost of gas that has skyrocketed on shortages. These are economic rents ripped straight out of the wider economy, destroying profitability wherever energy is used. Next year’s corporate profits growth outlook is for modest growth of 4% in the wider economy while it is 28% for the great energy gouger.

The Achilles heal of the Botox Boom is households. The poor debt-sodden fools will get a few modest pay rises as activity increases over the next six months (before decreasing again through 2018) but wages are going nowhere as cheap foreign imports inhabit every crack and crevice in the labour market and there is no productivity growth to deliver income. Household stress will rise with every incremental stall and fall in the housing market.

The Botox Boom will thus deliver the appearance of growth. I suspect we will see 3% plus by year end now (before fading again next year). We’re going to see some short term Budget improvement too, nearly all thanks to mining:

But don’t mistake that for real beauty, rising living standards or progress. For that we needed to take a different path when the mining boom aged into bust. That was our chance for productivity and competitiveness reform, to send ourselves to the fat farm, and come out a few years later fighting fit to take on the world via tradables.

Instead we’ve gone under the knife, stuffed the economy with immigration collagen, rentier Botox and fiscal deficit implants, under which we’ve aged all the more.

Comments

  1. While Japan gets a genuine boom:

    “A labor shortage could fuel the nation’s next innovation boom.”

    https://www.bloomberg.com/view/articles/2017-08-22/aging-japan-wants-automation-not-immigration

    AUS gets 457 visa staff on $2/hour:

    http://www.theage.com.au/federal-politics/political-news/a-new-frontier-the-littleknown-alternative-to-the-457-foreign-worker-visa-20170901-gy8p0j.html

    Portugal has a shrinking population too!

    Thanks for nothing, Bill Shorten. 2 frigging dollars per hour.

    • They work hard for their $2 and hour, though.

      Next to where I work in Sydney, they are building a whole lot of medium-rise appartment blocks. 90% of the labour on these sites are Chinese workers. They work long hours, too. Unlike Ozzie tradies who knock off at 3, these hard working Chinese are still building away under floodlights at 6 or 7 at night when I leave work.

      • Janes point is that they will work as long as their master is whipping them, I see it at work, the master will give them all forms of abuse, but they will just accept it, working long hours, less productive, but must work till late. They are all accountants, get paid crap, and complain when their pay increases <2% every year. But easily replaced with well over 1,000 more capable of doing the exact same role. Work hard, but don't expect an easy life in this country

      • Yes, I hear slaves are massively productive and cheap. Just no good if you want a rise in living standards.

      • @ChinaJim: The point is this statement in the post: “The Achilles heal of the Botox boom is households.” Importing temporary cheap workers, increases labour supply, keeping labour costs down. This is the reason that households are the “Achilles heal” – they have no extra cash to spend and are deeply indebted.

      • Honestly, if the quality of the work is similar to what I see in HKG construction, they could work till midnight and still turn out inferior outcomes.

      • Work quality from workers who barely had any sleep can not be good. That is another reason to stay away from high rise apartments.

    • If Bill Shorten becomes PM I will join PHON as an active member ! The enemy of my enemy is my friend !

    • Yep. Foreigners with unrecognised qualifications come here and work on the tourist visa anyway. Why allow them in on the 457 visa too! Jesus Christ!

    • I thought that was fabulous. Chinese owner of beauty clinic employs unlicensed Chinese tourist to conduct surgical procedures and is killed by that employee. Or in other words, she was killed by her own grifting. How fucking sad. Hahahahaha.

      • TailorTrashMEMBER

        ….tough titties !

        ….she must have thought that the laws covering medical procedures are not applicable to Chinese too just like the laws
        governing real estate . I think she is destined for a little time
        in the clink …….else we might have illegal surgeries opening up in all those houses that were bought illegally ……laws who needs laws ,they are only for local sucker taxpayers ……….garn Straya

  2. It’s really interesting to see how different kinds of projects are regarded as the same in stimulating economy. Think of big infrastructure roads like Westconnex. How may jobs does that $20b project create? few thousands directly and not very many indirectly, since none of the machines or equipment is made here. Large chunks of design are also made overseas by overseas companies that move profit overseas.
    Similar project in 1930s was creating 100000 jobs.
    The only capex that is stimulation economy at the moment is building construction because it’s much more labour intensive, once this boom is over unemployment is going to skyrocket.

    • The RBA recently released estimates that for every $1M spent in the building sector 17 Australians are employed, at the time I also wondered how many jobs each $1M spent in other areas generated. I’m sure the ABS has the relevant statistics so one can only assume that they’re not as pretty as 17 jobs per Million dollars spent.
      Think about the retail sector, say JB-HI the numbers must be closer to 4 or maybe 5 jobs per $1M spent.
      What about the service sector, say Aged care, I’d guess all up we’re looking at less than 10 jobs per $1M spent (with so many 457’s in the sector the number might be closer to 5 than 10 jobs.
      As someone pointed out even “surgical procedures” using general anesthetic are being preformed by unlicensed FiFO doctors and nurses in unlicensed clinics, I wonder how many Aussie jobs per $1M spend, answer is probably closer to one (namely the owners, oops I forgot she’s dead and also not an Aussie)…isn’t that an apt metaphor for the Aussie economy!

      • And on the other end of the scale is the submarine project in Pyne’s marginal Adelaide seat: roughly $4.5 million per job.

      • Asian with fake tits lol Yeah I guess Lee Kuan Yew really did have our measure.
        Most people forget that LKY’s “White trash of Asia” comment was primarily Economic rather than Social or Political and was leveled at our hugely protected economy. As it happened we proved we were able to change the direction of our economy and within a decade Australia was reaping the benefits of the reform policies of the 80’s and 90’s. yet when this once in a lifetime China thing happened to Australia we went right back to being the Privileged white trash of Asia…complete with fake tits and a double-folded eyelid job.
        Read the comments on this site, 9 out of 10 comments call for some form of protectionism, protect us from cheap labour, protect us from “illegal” foreign money, protect us from foreign RE buyers, protect us from ourselves…..Honestly is this some new form of prayer we’re addressing to the great gods of Economics… John Maynard here my prayer, I know I have sinned and it has been 4 years since my last confession …..Where’s the prayer that simply asks for an environment and opportunity where hard work can translate into success, we’re back in precisely the same privileged white trash corner that LKY warned us about….only know we look a little more Asian and we’ve got fake titties…big improvement!

      • Relevant StakeholderMEMBER

        Hey fisho, what are China and Singapore’s policies on foreign property buyers, protectionism, & foreign workers again?

    • The problem with all these government funded projects Doc, is when the proponents say they “create jobs” they are actually talking out of their arseholes. What they do is create jobs temporarily, not on an ongoing basis. This is the main fallacy of the whole stimulus spending meme. Most mainstream economists surmise, incorrectly, that once the project finishes all the workers who found jobs, as a direct result of said project, will miraculously remain employed somehow. Or perhaps they will — perhaps the government will provide further money to build a road …. or a bridge to somewhere … or a ditch to dig etc.

  3. “Yes, Australia is getting work done and it’s beginning to show.”
    Yeah the number of botox “babes” is on the increase. A pity they often start to look like something out of a freak show.

  4. HnH have been bearish for the past 10 years, and they have been wrong for the past 10 years.
    Australia is booming, no doubt about it.
    Dont underestimate the ability for Australia to find a way to continue the boom.
    Still plenty of bullets left to use.