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.
Via Bill Evans at Westpac: The minutes of the May monetary policy meeting of the Reserve Bank Board repeated the assertion that first appeared in the April minutes. That is that “members agreed that it was more likely that the next move in the cash rate would be up rather than down”. This observation is
From Greg Jericho to Michael Pascoe: If there’s one key assumption in Treasurer Scott Morrison’s 2018 budget, one thing crucial to his brave new world of income tax revolution and debt reduction, it’s that wages growth is about to jump well above the inflation rate. Bad news, Scott: outside one or maybe two industries, it’s
By Leith van Onselen Yesterday’s ABS labour force release for April revealed a weakening Australian youth labour market – i.e. those aged 15 to 24 years old. The trend headline unemployment rate rose from 12.53% in March to 12.63% in April: Total employment growth for those aged 15-24 years of age has also begun to
Via Damien Boey at Credit Suisse: The April labour market report was mixed. Employment came in broadly in line with expectations, rising by 22.6K over the month. Full-time employment rose by 32.7K, while part-time employment fell by 10K. The unemployment rate rose to 5.6% from 5.5%, with the labour force participation rate rising to 65.6%
By Leith van Onselen Australians hoping for a significant wage increase may be left disappointed, according to a survey of more than 3000 workplaces by recruitment firm Hays: Two-thirds (65 per cent) of employers will give skilled professionals a pay rise of less than 3 per cent in their next review and 11 per cent will
By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for April, which registered a 22,600 increase in total employment but an increase in the headline unemployment rate to 5.6% from 5.5%. In trend terms, the unemployment rate rose marginally from 5.53% to 5.54%: Again, total
Labour Force for April is out and unemployment is lifting again: Employment increased 22,600 to 12,501,000. Full-time employment increased 32,700 to 8,543,400 and part-time employment decreased 10,000 to 3,957,700. Unemployment increased 10,600 to 741,000. The number of unemployed persons looking for full-time work decreased 17,100 to 506,100 and the number of unemployed persons only looking
By Leith van Onselen The Australian is reporting today that some 12,140 businesses received subsidies in 2017 for hiring older workers under a Federal Government scheme that was launched in 2015. The May 2018 Budget also allocated funding for an additional 30,000 places in the scheme, which provides employers with a subsidy for up to $10,000
By Leith van Onselen The Reserve Bank of Australia (RBA) has released research suggesting that an increase in the minimum wage will not result in job cuts or a reduction in hours worked. The RBA’s economic research department found that people who received a higher award wage increase between 1998 and 2008 generally had a
Australia’s great worker class pretender is at it again today. Greg Jericho, card-carrying fake leftie who only looks after his own skin: Have you heard the joke about the treasurer who walks into parliament and says that wages within two years will grow faster than 3%? OK, it’s not exactly a side splitter, but the latest
There’s good chance that the long awaited wages boom is over before it even started. The Botox Boom of infrastructure and dwelling construction is peaking plus and house price and consumption sectors are being shocked a credit crunch as I write. Add in that China is slowing and bulk commodities are headed for deep corrections
By Leith van Onselen Yesterday’s wages price index released by the ABS revealed continued weak wages growth, with ongoing divergence between the private and public sectors: When adjusted for underlying inflation, real wages increased by a measly 0.1% in the year to March: However, there is a big disconnect between the private and public sectors.
By Leith van Onselen The Australian Industry Group (AIG) has penned a flimsy attack on increasing the minimum wage, arguing that many low-income workers would be pushed into higher tax brackets, therefore would lose some of the benefits from any increase. From The AFR: Up to 200,000 of Australia’s lowest paid employees will be bumped
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released its Labor Price Index for the March quarter of 2018, which revealed a weakening in wages growth from already anaemic levels: According to the ABS, wages grew by just 0.47% (both s.a. and trend) in the March quarter. Private sector wages grew
The wage price index is out and missed consensus for 0.6% March quarter growth at 0.5%. Year on year was on target at 2.1%: TOTAL HOURLY RATES OF PAY EXCLUDING BONUSES QUARTERLY CHANGE (DEC QTR 2017 TO MAR QTR 2018) The trend and seasonally adjusted indexes for Australia both rose 0.5% in the March quarter
The RBA’s booming consumer is really cranking up, not: • The Westpac Melbourne Institute Index of Consumer Sentiment declined 0.6% to 101.8 in May from 102.4 in April. This is a disappointing update. Despite what appears to have been a well-received Federal Budget, consumer sentiment has continued to drift lower. The survey detail points to
Yesterday the hapless RBA claimed victory on household consumption. Today Myer gives the truth of it: Absolutely cooking at same store sales down only -3%! As cheap as discretionary retail is it ain’t worth owning as house prices fall, via Credit Suisse: We’ll have to get into major chain bankruptcies and rationalisations before the
By Leith van Onselen The Australian Financial Security Authority (FSA) has released personal insolvency statistics for the March quarter, which reveals that total personal insolvencies hit a record quarterly high in WA (1,020) and the highest level since the September quarter if 2014 in NSW (2,372). Debt agreements also hit a record quarterly high in
By Leith van Onselen From The Guardian comes news that poverty rates in Australia are surging on the back of skyrocketing housing costs: Housing costs alone are responsible for pushing a further 229,000 Australian children below the poverty line, a new analysis shows. Researchers on Tuesday released the first longitudinal analysis of homelessness in Australia,
By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for March, which continued to show a trend rise in the number of inbound visitors, with Chinese arrivals continuing to boom. The number of short-term visitor arrivals fell a seasonal 4.6% in March in original terms, whereas
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of March, which again posted turbo-charged net annual permanent and long-term arrivals. In the year to March 2018, there were 796,500 permanent and long-term arrivals into Australia – up 4% from March 2017 and an
By Leith van Onselen After Scott Morrison last week spun a disgraceful web of lies about Australia’s immigration intake on Neil Mitchell’s 3AW Radio Program, Prime Minister Malcolm Turnbull tried to repeat the lies this morning only to be destroyed by Mitchell: Malcolm Turnbull: “Permanent migration is a smaller percentage of the total movements in
Via Bloomie: “The U.S. Federal Reserve doesn’t typically manage to engineer a soft landing once the unemployment rate has fallen through full employment,” Deutsche said in a research report Monday, noting the U.S. is likely past that point with a jobless rate at just 3.9 percent. “So the next global downturn is more likely to
By Leith van Onselen CoreLogic has released its Cordell Construction Monthly report, which reveals that both the number and value of projects moving into construction, as well as the total number of new projects collected, rose in April. Specifically, the overall value of construction of new projects captured over the month was $14.8 billion, up
By Leith van Onselen I have previously labelled RMIT planning professor, Michael Buxton, a housing BANANA (“Build Absolutely Nothing Anywhere Near Anything”) because he has spent much of the past decade simultaneously opposing moves to expand Melbourne’s urban growth boundary (UGB), while also opposing high rise development across the CBD and inner areas, as well as voicing
By Leith van Onselen The Minerals Council of Australia (MCA) has released the results of modelling suggesting that the Trans-Pacific Partnership (TPP) will boost Australia’s GDP by about 0.54% a year, which equates to a $15 billion increase in economic activity. CEO, David Byers, claims the 11-nation trade deal will bolster jobs, wages, economic growth
By Leith van Onselen Following his stellar effort last week destroying Australia’s “just add people dogma” of mass immigration and a ‘Big Australia’, The Saturday Paper’s National Correspondent, Mike Seccombe, returned with another handy article shaming the Turnbull Government’s “jobs and growth” mantra: The treasurer’s No. 1 boast related to job creation. “The Australian Bureau of
From the excellent Damien Boey at Credit Suisse: Sharp fall in loan approvals Housing finance approvals data came in well below expectations in March. Owner-occupier loans fell by 1.9% over the month, while investor loans fell by 9%. We do not yet have detailed data on business and personal loan approvals. But if we assume
By Leith van Onselen In March, The ABC reported that Western Sydney residents were being cooked alive as the urban ‘heat island effect’ – via the loss of green space from urban infill – sent temperatures soaring well above coastal areas of the city. This report came as Western Sydney has experienced the lion’s share
Via Martin North: The latest edition of our Household Finance Confidence Index, to the end of April 2018, released today, shows that households remain concerned about their financial situation. This is consistent with rising levels of mortgage stress, as we reported recently. The index fell to 91.7, down from 92.3 in March. This remains below the neutral 100
