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.


Luke warm employment

By Leith van Onselen As reported by the Houses & Holes earlier, the Australian Bureau of Statistics (ABS) has released labour force data for the month of October, which reported a -0.8% decrease in the headline unemployment rate to 5.36% from 5.44% in September, but an increase in the total number of jobs across the


Unemployment flat

October unemployment is out and the headline number continues to defy expectations, staying flat at 5.4% no change on last month, expected was 5.5%: Full time jobs were up 18.7K, last month was 32.1K revised up to 34.5K. Part time jobs were down was -8K, last was -17.7K, revised down to -19K The participation rate is


Fitch: Bank exposure to a mining bust

Fitch is out with a report this morning examining the extent of Australian bank exposure to a mining downturn. Here is the summary: Direct Mining Exposure Limited: Australian banks have minimal direct exposure to the mining sector despite mining accounting for about 10% of the Australian economy in the year to 30 June 2012. Larger mining companies


DEEWR leading employment index rises for fourth straight month

By Leith van Onselen The Department of Education, Employment & Workplace Relations (DEEWR) today released its leading indicator of employment (release below), which registered its fourth consecutive monthly rise (see below chart). In its explanation of the result, DEEWR seems fairly cautious in declaring that the employment market is improving: DEEWR’s Monthly Leading Indicator of


PCI plunge slows

Some good news this morning (or, at least, less bad) with the October Performance of Construction Index slowing its decline in October up 4.9 points to an astonishingly bad 35.8%: The main drive of the improvement was a lift in new orders, mostly in engineering (read mining) but improvement more broadly as well: Here is


Green shoots for Australian tourism?

By Leith van Onselen News continued to improve for Australia’s tourism industry yesterday, with the release of the overseas short-term arrivals and departures figures for September showing a second consecutive monthly lift in the number of inbound tourists and a big increase over the year. Although the number of short-term visitor arrivals increased by only


Bouris and MacBank planning mortgage assault?

Update: Yellow Brick Road (ASX:YBR) has just been placed in a trading halt, pending an announcement From the SMH: AUSTRALIA could soon have a powerful new player in the world of retail banking, with Macquarie Group believed to be in talks with Mark Bouris’ listed Yellow Brick Road Group over a distribution deal that could


Retail sales in perspective

By Leith van Onselen Yesterday, my esteemed and learned colleague, Houses and Holes, questioned whether retail sales are accelerating based on the recent improvement of sales growth over the past year. Certainly, retail sales have climbed off the canvass, as illustrated by the below chart showing annual sales growth since 1998. A clear uptrend has


Roy Morgan unemployment eases

Roy Morgan has released its October unemployment figures and registered a small fall, though the rate remains much more elevated than that of the ABS: In October 2012 an estimated 1.163 million Australians (9.7% of the workforce, down 0.3% in a month) were unemployed, and the Australian workforce* was 12,009,000, (down 141,000 in a month,


Trade deficit narrows

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released trade data for the month of September, with Australia’s trade deficit narrowing to a seasonally-adjusted -$1,456 million, from -$1,876 million in August. July’s and August’s trade balances were also revised up, from -$1,530 million to -$1,234 million (July), and from -$2,027 million


Retail sales accelerating?

Retail sales for October are out and show a an ongoing subdued trend (historically) in the month up 0.5% from September, against expected of 0.4%, prior was 0.2% revised up to 0.3%: The internals a fairly even mix of flat sales with a bounce in household goods following last month’s plunge. This is a stronger


ANZ job ads tank in October

From ANZ: The number of job advertisements on the internet and in newspapers fell 4.6% in October, following a revised decline of 3.9% in September. This was the seventh consecutive monthly decline. Job advertisements are now 15% below levels seen in October last year. In trend terms, job advertisements declined 2.2% m/m in October. • The number of


PSI still occupying the WC

The AiG Performance of Services Index for October is out this morning and if its to services growth that we are going to turn to offset falling mining growth then there is more work to do. The headline index rose 0.9 points to 42.8 but remains well inside contractionary territory: On the sectors there may


The battle for tax

The unwinding of an era of supercharged growth in tax revenues is proving to be very boring indeed. Here is what the last ten years of total Federal revenues looks like: It was all so happy when the pie just kept on growing. But since 2007, the pie is unchanged (though better this past year)


Abbott on productivity

I know what you need on this tired Friday afternoon. Tony Abbott talking about productivity! Enjoy. DEREGULATING FOR A MORE PRODUCTIVE ECONOMY This is an important and timely conference because it’s not about who is or who isn’t winning the short term political battle but about who has a plan for the long term future


Tradie surplus

The HIA has released its quarterly report into tradie availability and while the result is not bad, the emerging suplus falling slightly, it will only spur on the macro Mandarins looking to reverse yesteryear’s adjustment to a mining-led labour force. The latest HIA Trades Report for the September quarter provides a profile of skilled labour


Producer prices moderate

ABS Q3 Producer Prices is out and shows a moderate level of wholesale inflation on the month up 0.5% but quite subdued year on year at 1.1%. The internals show the dollar still heavily at work in containing prices: Nothing here to influence next Tuesday.


Gloom galore from the greybeards

From the annual Melbourne Institute economic palava comes a couple of sobering views. First from BHP via the AFR: Iron ore prices will drop and BHP will become a producer of middle-income commodities such as shale gas and potash, according to a senior executive of the mining giant, who has also urged Australia to reform


Another car bailout looming?

From the AFR: A strategic car parts maker, Autodom, has indefinitely shut plants in Melbourne and Adelaide that employ about 400 workers, raising the prospect of production halts at the car assembly plants of Ford Australia and GM Holden. …Chief executive Calvin Stead used a statement to express disappointment at the “lack of support” from


NAB online retail index powers on

From NAB: Australian online retail sales up 23% yoy in September, but the level is still modest compared to traditional sales For the year to September 2012, Australia’s online retail sales totalled $12.1 billion. This figure is equivalent to 5.5% of the traditional bricks & mortar retail sales (excluding cafés, restaurants and takeaway food) for


Q3 export prices hit

No surprise of course but Q3 export prices from the ABS have taken a dive on the bulks: -6.4 was bank on consensus while import price were  lower than thought at at -2.4. Here are the charts: An obvious downtrend in place. For import prices it’s sideways to down: Here are the components, for imports:


Expose the MRRT

From The Australian today comes another sad chapter in the history of the MRRT: THE Gillard government faces a new threat to the estimated $2 billion in revenue it expects to raise this year from the mining tax because the biggest iron ore and coal producers are rapidly building up state royalty “credits” to offset


September credit aggregates becalmed

RBA credit aggregates for September are out and it’s flat out boring with private sector credit month on month up 0.3% against expected of 0.2%. Year on year is up 4% against expected at 3.9%: As you can see there is just nothing to say about the segments except they’re going sideways. Household and investor mortgages are


Treasury turns to MB for forecasts

From the AFR this morning comes the news that Treasury forecasts are to be against a MacroBusiness benchmark (well…kinda): The next time you tweet or make a post on Facebook it could help influence the national economy, according to Treasury’s head of technology, Peter Alexander. From the first half of 2013 the department will begin trials


Can mortgages cure cancer?

Apparently the answer is yes. From the AFR: Everyone knows John Kinghorn pocketed $650 million from the controversial 2007 float of Rams Home Loans. What is less known is that he is in the process of giving away almost half the money. Following what was dubbed the worst initial public offering of the decade, the