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.
In case you’ve missed it, the RBA released its Minutes from its most recent board meeting this morning, and as usual, the punditry scoured through the document before opining on “certain” rate cuts. Here’s a selection of comments, analysis and thoughts from the mainstream crowd. First the reaction from CBA Economics, focusing on the jobs
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released new motor vehicle sales data for the month of March: On a seasonally adjusted basis, new motor vehicle sales rose by 4.0% in March to be 4.0% higher over the year. Most of the increase in sales over the month was driven
Here are the full minutes from this month’s interest rate decision – where they held at 4.25% – by the Reserve Bank of Australia (RBA) with a Wordle of the text above: International Economic Conditions Members noted that the growth rate of the world economy was expected to be at a below-trend pace in
Cross posted with permission from Mark the Graph At the risk of being labeled a pedant, I will return to Matt Cowgill’s chart from which he argued that full-time employment growth has been seriously failing to keep pace with population growth. Matt’s chart is as follows: In response to my previous blog, Matt tweeted that his chart
John Howard once famously described himself as “Lazarus with a triple bypass” but there is another political survivor who has shown every bit as impressive political cunning to push his star to new highs despite a series of policy debacles that have brought down those around him. That man is the Treasurer, Wayne Swan. Consider
By Leith van Onselen Earlier this month, Australia’s unofficial provider of labour force data, Roy Morgan Research, released its employment figures for March, whereby it estimated that 9.3% of Australians were unemployed, down -0.4% from February 2012. As explained previously, Roy Morgan Research measures employment differently from the Australian Bureau of Statistics (ABS), which is
On Friday, Saul Eslake released a note condemning Australian manufacturing to its fate, not to mention condemning outright anyone who sees it as not such a good idea to let Dutch disease have its way. The Merrill Lynch note was a near carbon copy of Canberran rhetoric on the issue and as such is worth
By Leith van Onselen The Australian Bureau of Statistics (ABS) this morning released the Lending Finance data for February, which registered a sharp fall in the value of personal and commercial financing commitments; although lease financing commitments registered a solid rise: In seasonally adjusted terms, the value of personal finance commitments fell -3.8% in February
Former TD Securities economist and advisor to Julia Gillard, Stephen Koukoulas, has emerged as an interesting new voice in the blogosphere in the past few months. Today he appears in the AFR to put his stamp of approval on the Swan plan to drive a surplus as soon as possible: There is an almost unlimited
Cross posted with permission from Mark the Graph. The Insolvency and Trustee Service Australia is the government agency responsible for the administration and regulation of the personal insolvency system in Australia. Every quarter it releases data on personal insolvency actions. Yesterday it released data for Q1 2012. That data showed a 10 per cent increase in personal
So, the MRRT truce is broken. From the AFR: A truce in the mining industry’s advertising war against the government – agreed when Julia Gillard became Prime Minister and offered to renegotiate the mining tax – is about to be broken with new print ads set to complain about possible new imposts in the budget.
Today’s (late) chart, given the overwhelming subject throughout the day has been the “surprising” employment figures, is from Matt Cowgill, and is fairly self evident – most job growth has been via part time employment, whereas full time jobs remain static: As Matt tweeted earlier, three points come about from the numbers released today.
ANZ has an interesting note out today asking the suddenly all too real question: HAS THE UNEMPLOYMENT RATE PEAKED? •Employment rose by 44k in March, well above market expectations of +6.5k. The unemployment rate was steady at 5.2% (mkt: 5.3%), and has been broadly stable since July 2011. •In a trend sense, the multi-speed nature
By Leith van Onselen As Houses & Holes reported earlier, the Australian Bureau of Statistics (ABS) this morning released the labour force data for the month of March and it was very good. In seasonally adjusted terms, total employment increased 44,000 (0.4%) to 11,491,200. Full-time employment increased 15,800 (0.2%) to 8,080,400 and part-time employment increased
You could be forgiven for seeing that headline as a contradiction. But really, it makes perfect sense in today’s “adjustment” economy. We’ve got inflation pouring in through the mining boom. And job losses mounting in the old services economy. Anyways, these are the results of today’s Westpac Melbourne Institute Expectations Survey. First up, inflation expectations
The ABS just released its Labour Force Survey for March and the results are another slap in the face for employment bears (including me!): MARCH KEY POINTS TREND ESTIMATES (MONTHLY CHANGE) Employment increased to 11,465,700. Unemployment increased to 626,800. Unemployment rate steady at 5.2%. Participation rate steady at 65.3%. Aggregate monthly hours worked increased to
Roy Morgan’s weekly consumer confidence number is out and strongly backs up the Westpac/Melbourne Institute survey releases earlier today. Here are the two indexes: The different time periods make it difficult to see but both surveys show the same pattern of a bounce from July last year on the expectation of a rate cut and
As you may be aware, this morning the IMF rode to the support of the Australian government’s surplus drive (if resistance hasn’t already been killed by S&P). Here’s a summary of what it said: Saving up during good times for use in bad times—via countercyclical budgetary policies—protects small commodity-exporting countries from swings in commodity prices.
So, rate cut euphoria is rapidly fading with today’s Westpac/Melbourne Institute Consumer Confidence survey registering another 1.6% fall. Although that may seem minor, check out the doom saying from our favourite mainstream economist, Bill Evans: There is a very disturbing message in the movements of the components of the Index. Two components measure respondents’assessments of
Two reports from The Cupboard today put a lot of gloom in the gas Futureboom! The most recent report has Woodside delaying a $40billion LNG plant near Broome, pushing the start date on production back to 2018, albeit because of an “aggressive timetable”: Woodside’s Petroleum’s request to delay a decision on a $40 billion LNG plant at
NAB has released its March Business Survey today and there is little to report. In fact, it looks pretty much a carbon copy of the subdued February survey: As you can see, businesses have reported a second month of good trading conditions. However, forward orders and exports are flat. Labour costs are elevated but contained
ANZ released their monthly Job Advertisement series this morning, and it provides an interesting picture going into Thursday’s official job figures release from the ABS. Does it provide some confirmation that maybe the RBA was right to hold rates for a little longer as they are still cautious regarding a wage spiral? Here are the
The AIG/HIA construciton index for March was released this morning and whilst a small uptick was registered, rising from 35.6 in February to 36.2 points – the nearly two year long trend is quite obvious: From Bloomie: A gauge of Australia’s construction industry held near a four-month low in March as housing and apartment building
The AFR this morning has an interesting survey of how Australian’s perceive the benefits of the mining boom. Here’s the chart of the results: The AFR represented these results as “mining boom benefits go unsung”. I’m not so sure. The one unequivocal general benefit of the mining boom is invisible. That’s because it is the
Cross posted with permission from Mark the Graph: As noted here, the ABS has classified expenditure classes as goods or services based on the majority of products in each class. Sixty out of the 87 expenditure classes been classified as goods. They account for 58 per cent of the All groups CPI by weight. The remaining 27 expenditure classes have
Cross posted with permission from Mark the Graph: There has been a bit of chatter today on the spike in the monthly number of companies entering into external administration. The raw data comes from ASIC. Undertaking a seasonal decomposition of this data shows that things are quite serious. The state where the problem appears the largest
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Engineering Construction Activity data for the December quarter of 2011, which shows a slowing of activity in the quarter after the huge run-up over the year: In seasonally-adjusted terms, the value of total engineering construction work done fell -5.3% in the
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released overseas short-term arrivals and departures figures for February which, despite some improvement over the month, capped-off another poor year for the tourism industry. Short-term resident departures fell by -1.4% in February in seasonally adjusted terms, whereas short-term visitor arrivals rose by 1.1%.
Cross posted from Mark the Graph: It’s been a while since the whole GFC thing. While it was not as deep as the early 1980s and 1990s recessions, it is proving remarkably stubborn and enduring (at least in terms of sub-trend GDP growth). Today’s blog is some comparative charts of the last three Australian downturns.
Market pundits were again surprised by yesterday’s trade deficit. Notes from a number of banks expressed surprise and Peter Martin captures the mood this morning: Unexpectedly bad trade figures for February show income from resource exports down for the second consecutive month. Over the quarter, income from coal exports fell 19 per cent, and income from metal
