Australian Economy

The “miracle” Australian economy (with its famous run of 24 years without a recession) is an amalgam of pre-modern and post-modern industries with very little in between.

Most economies run at least partially upon the productivity gains produced out of manufacturing and ‘making things’ but in Australia productive investment is supplanted with commodity exports (which make up half of exports) and the recycling of the resultant income is deployed as cash flow for borrowings offshore to pump house prices.

The former step is basically the selling of dirt, a pre-modern activity. The second step is managed via the sophisticated use of derivative markets and is essentially a post-modern activity.

Not that GDP cares given it is only the mindless measure of whirring widgets.

However, both of these activities systematically reduce economic competitiveness by inflating both input costs and the currency. “Dutch disease” by another name. This continuous “hollowing out” of productive activity means the broader economy relies heavily upon the non-stop import of capital, either in the form of debt or in the form of assets sold to foreigners, to generate ongoing income growth.

So long as the underlying income from dirt keeps flowing then the leveraging into house prices that supports consumption can continue, supported by both tax distortions and government spending.

If, however, the dirt income flow halts the hollowing out of modern industry will leave the Australian economy very exposed to a current account adjustment. We saw this in the global financial crisis but the flow of dirt income was restored sufficiently quickly to prevent any deep adjustment.

A second risk is that the debt accumulation simply becomes overly onerous for the underlying economy to service, also resulting in a current account adjustment. Well north of $1trillion of the debt is owned externally and household debt is a world-beating 186% of GDP so this is a real risk.

It is offset by a relatively clean public balance sheet that deploys fiscal stimulus in times of economic stress. However, in recent years, as both of the two above risks have increased, the public balance sheet has deteriorated as well, setting Australia up for a famous adjustment to end its famous bull run.

MacroBusiness covers all apposite data and wider analysis of these issues daily.


Pascometer redlines on 457s

Weeoo, weeoo, weeoo. The Pascometer is signaling something on 457 visas. It’s not entirely clear what: The 457 visa for temporary workers won’t be officially abolished until March 1, but the number granted has already fallen by more than a third – heralding a squeeze on foreign workers by the coalition. Australian National University researcher


Weak not strong wages are forcing women back to work

Via Westpac: December sealed a solid year for the labour market Total employment rose by 34.7k in December, well above both the market’s (+15k) and Westpac’s (–10k) expectations with a small upward revision to November (to 63.6k from 61.6k). But most notably, despite the solid gains in employment, the unemployment rate rose to 5.5% as


Bad Santa appears in some data

The CBA Business Sales Index Report:  The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.4 per cent in trend terms in December after similar increases in both October and November.  But as previously highlighted, sales at combined retail and clothing stores remain soft, down by


Gottiboff: Global rate hikes to trash Australian households

From Gottiboff today: Despite a few interruptions, US bond interest rates have been falling since the early 1980s as US bond prices rose, forcing yields lower. That bond boom is over. American interest rates in 2018 are now set to rise sending shockwaves around the world. Here in Australia the US directional change will edge


Coalition can lay claim to strong jobs (and weak wages)

Do-nothing Malcolm is cock-a-hoop about his jobs boom: Prime Minister Malcolm Turnbull joined economists in hailing a booming labour market after data released Thursday showed the economy recorded its strongest year of jobs growth since the global financial crisis. “What a great jobs number today,” an ecstatic Mr Turnbull said, adding it was the “equal-longest run of


Applause: Aussie households pass debt-to-income double ton

Be upstanding for the double ton, via UBS: Household debt restated upwards With the release of the National Accounts the Australian Bureau of Statistics (ABS) has been undertaking ‘quality assurance work’ and making a number of revisions to historical estimates. One of the more significant changes was to incorporate new data from APRA for Responsible


ABS employment in detail: Botox Boom continues

By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for December, which registered a strong 34,700 increase in total employment but an increase in the headline unemployment rate (from 5.4% to 5.5%). In trend terms, the unemployment rate fell marginally from 5.45% to 5.44% –


Consumer sentiment firms

Via Westpac: Sentiment has continued to recover from the weakness seen in the September quarter last year, bolstered by a less threatening outlook for interest rates and improving confidence around the economy and jobs. While the mood is ‘cautiously optimistic’ rather than buoyant, this is the best monthly index read since late 2013 and the


457 update moves to smash health, realty wages

Boofhead Dutton has released a 457 skilled visa update: Psychotherapists are about to see serious new competition despite this: The Department of Health had made a submission ahead of the 2016-17 review of the Skilled Occupation List, as it was then known, calling for psychotherapist to be removed and no longer open to foreign workers.


Dick Smith attacks Chinese water at the Oz Open

Via Herald Sun: DICK Smith has criticised the Australian Open’s decision to sell bottled water from China, as a local brewery offered to supply water to the tournament in 2019. The Australian business entrepreneur described the move to sell water from overseas at an international tournament which is hosted in Melbourne as “bizarre”. He said


Coalition liars comprehensively shamed on negative gearing

By Leith van Onselen The Coalition’s strident defence of negative gearing, and the lies used to support the policy, is looking increasingly toxic for the Turnbull Government. Last week, the ABC’s FOI release from the Australian Treasury showed that Labor’s policy to restrict negative gearing to new builds and halve the capital gains tax (CGT) discount


Jobs market still weak for uni graduates

By Leith van Onselen The Productivity Commission’s recent productivity review showed that employment outcomes for full-time graduates “have been getting worse”, whereas a quarter of recent graduates believed their degrees added no value: For those who do complete their degrees, post graduation outcomes have been getting worse. Full-time employment rates for recent graduates have been declining, even


Roy Morgan: “nearly 20% of the workforce either out of work or under-employed”

By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for December registered no change in the unemployment rate over the month (still 9.8%), but the key figure is a 0.6% increase over the year, with underemployment also rising: Below are the key points from the release: The workforce is 13,410,000 comprised of


iPhone X drives bounce in retail sales

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released retail sales figures for the month of November, which registered a 1.2% seasonally-adjusted jump in sales over the month, with annual sales growth bouncing back to 2.9%: However, in trend terms, annual retail sales growth fell to just 1.7% – the lowest level


If you want stronger wages growth, cut immigration

By Leith van Onselen Back in November, Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University, penned an excellent article in Project Syndicate which, among other things, explained why never-ending mass immigration pushes down wages growth: Standard economic theory tells us that net inward migration, like free trade, benefits the native population only after


Turnbull Government to outsource immigration ponzi

By Leith van Onselen The Turnbull Government clearly has no interest in managing Australia’s borders, nor reining-in Australia’s brake-neck population growth, with the Department of Immigration set to hand over administration of Australia’s visa system to private operators. From Proud to be Public, which is running a petition against the outsourcing: The Turnbull Government wants


#SardineSydney’s trains buckle again

By Leith van Onselen Last month, I reported how Sydney’s crippling immigration-fuelled population growth had pushed the rail network to breaking point, with one early morning incident causing mayhem well into the evening across the metropolitan train system. Responding to this incident, Sydney Trains boss, Howard Collins, admitted that soaring passenger demand meant the train


Mass immigration ‘Big Australia’ policy is destroying the West

By Leith van Onselen Ceridwen Spark, a vice-chancellor’s senior research fellow in global, urban and social studies at RMIT University, has penned an article in Fairfax lamenting the destruction of Melbourne’s West as rapid immigration-fueled population growth overruns the area’s economic and social infrastructure: So how are we to understand all this rabble-rousing in the


ANZ job ads retrace in December

From ANZ: Key Points: In seasonally adjusted terms, ANZ Job Advertisements fell 2.3% in December largely unwinding the increase over the previous two months. On an annual basis job ads are up 11.4%, a slight moderation from 12.0% y/y growth the previous month. In trend terms, job ads were up 0.1% m/m in December. The


Household financial confidence continues to fall

By Martin North, cross-posted from the Digital Finance Analytics Blog: The latest edition of the Digital Finance Analytics Household Financial Security Confidence Index, to December 2017 shows another fall, down from 96.1 last month to 95.7 this time, and remains below the neutral measure of 100. The trend continues to drift south as flat incomes,


Mass immigration policy means cripplingly expensive infrastructure projects

By Leith van Onselen William McDougall, a transport planner with 40 years’ experience, is the latest to bemoan the crippling cost of Melbourne’s infrastructure projects. From The Age: Victoria’s politicians have thrown away the benefits of the state’s stamp duty bonanza and the proceeds from the Port of Melbourne sale over recent years by investing


Australia’s increasingly useless university degrees

By Leith van Onselen This site has argued repeatedly that a university degree has lost its value as graduate numbers have exploded, despite the significant cost to both students and the Budget. Thanks to the uncapping of university places, allowing universities to recruit as many students as they can fit in order to accumulate HELP/HECS funding,


AIG: Construction momentum slowed at end of 2017

From the Australian Industry Group (AIG): The seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) registered 52.8 points in December (readings above 50 points indicate expansion). This was down by 4.7 points from November indicating a slowing in the industry’s overall growth momentum in the final month of 2017.