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.


Housing completions hit decade low

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released building activity data for the March quarter, the highlight of which is the sharp contraction in dwelling completions. According to the ABS, there were only 32,557 (seasonally-adjusted) dwellings completed in the March quarter, which is a decade low (see below chart). The


Leading Index rises from canvas

The Westpac/Melbourne Institute Leading Index for May is out and accelerated from its recent lows: The annualised growth rate of the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 1.6% in May 2012, below its long term trend of 2.6%. The annualised growth rate of the Coincident


Roy Morgan: consumer confidence remains subdued

Roy Morgan released their Consumer Confidence rating  for the weekend of July 14/15, 2012, which at 109.1 points is only 1.1pts higher than it was a year ago: According to Roy Morgan: The fall in this week’s Consumer Confidence has been driven mainly by less confidence about family financial situations over the next year and


New car sales ease

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released new motor vehicle sales for the month of June, which registered a seasonally adjusted -0.6% fall over the month, led by Queensland, Western Australia and the Northern territory: Despite the monthly dip, the below charts show that the trend in new car sales


More failed arguments for population growth

By Leith van Onselen Yesterday, WAM Capital’s Matthew Kidman wrote a article in Business Day arguing that Australia must increase population growth, in particular immigration, or it risks destroying the economy. Let’s take a look. THE first policy a new federal government should dust off when elected next year is ”Big Australia”… The reality is


Lending finance easing

By Leith van Onselen The ABS this morning released Lending Finance data for the month of May, which delivered a mixed bag: In seasonally-adjusted terms, personal finance rose by 0.4%, but is essentially flat over the year: Commercial finance fell sharply (-12%) in May, reversing last month’s strong rise, and remains -5.7% lower over the


Insolvencies peak?

Courtesy of Mark the Graph. ASIC has released the data for May on companies entering into external administration. The headline series is pretty noisy. So I apply some herbs and seasonal adjustment to look at the underlying trends. The good news is that with the exception of Victoria and Queensland the number of new insovencies per


Edward Glaeser: Mining kills entrepeneurs

By David Llewellyn-Smith Yesterday Bloomberg ran an interesting article by Edward Glaeser, Harvard professor and land-use/city specialist. He used Australia as shining example of why mining is bad for long term prosperity. America became great because it transformed its vast natural resources — Iowa farmland, Mesabi iron, Texas crude — into human capital, equipped with skills to


The gender employment adjustment

Courtesy of Mark the Graph. The gendered story of the post GFC labour market is interesting. The standard narrative is that men benefited more from the boom before the GFC, but were more impacted by the GFC. Since the GFC, it appears that men have benefited from the recovery more than women. Right at the


Unemployment rises

June unemployment is out and is not great. The headline number only rose 10bps to 5.2% but 33.5k full time jobs were lost with a minimal offset in 6.6k gain for part time. The participation rate fell 30bps to 65.2, preventing a larger rise in the headline number. Month to month is volatile of course


DEEWR leading job index falls

The DEEWR leading index of employment fell again this month. I’m not sure how useful this index is now as a leading indicator. As you can see, this last cycle it has lagged changes. I suspect this because, like many other indicators it is overly leveraged to the struggling consumer economy, certainly via the consumer


Why unemployment is really 6.5%

Courtesy of Mark the Graph. We have had two slow downs in employment growth since the GFC. The first spanned the 12 months of financial year 2008-09. The second spanned the 12 months of calandar year 2011. These are the plateaus in the next chart. Interestingly, we have had only one slow down in the


Consumer confidence bounces

July Westpac/Melbourne Institute is out and shows a decent bounce, up 3.7%: Year on year the picture is still subdued, though is up 6.8%: The internals are solid across the board: This is more evidence that the interest rate cuts still have some effect in Australia. This confirms retail sales and the NAB survey which


Gruen on productivity

Find below the full text and charts from David Gruen, Head of Treasury’s Macro Group, on productivity and structural change. This is a good speech with which I agree by and large. I only have one major disagreement with it and that is the happy chart showing the slow decline in Australia’s terms of trade


NAB survey shows retail surge

The NAB Business Survey is out for June and the results are still weak. Here are the internals: Confidence down a bit but a decent bounce in trading conditions. Profitability flat but labour costs easing. Employment still in the toilet and forward orders tanking. Inventories up and exports lousy. Not a great picture. Looking at


Attack of the happy people

I won’t waste too much time on this but I want to make a simple point. There is a phenomenon at large in Australia’s economic and investment commentary; a confusion (or deliberate obfuscation) that mixes up being happy with getting rich. The Pascometer is constantly guilty of this. As is Ross Gittins and others. The


ANZ job ads fall further

ANZ job ads are out for June aaaaaand: The number of job advertisements on the internet and in newspapers fell 1.2% in June after falling 2.6% in May (previously reported as a 2.4% fall). Advertisements were 4.6% below the level in March. In trend terms, total job advertisements have fallen 0.5% m/m in June. • The number


Bogan exodus accelerates

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released overseas short-term arrivals and departures figures for May, which contained more bad news for the tourism industry. Short-term visitor arrivals decreased a seasonally adjusted -1.7% over the month, whereas short-term resident departures rose by more by 1.5%. In the 12 months to


AIG Performance of Construction Index continues to mislead

The AIG Performance of Construction Index is out today with more bad news for the sector: The Australian Industry Group Performance of Construction Index (Australian PCI®) in conjunction with the Housing Industry Association registered 34.8 in June, just 0.1 points above the reading in May. The index has now remained below the critical 50 point level separating expansion from contraction


Unemployment gulf revisited

By Leith van Onselen As reported by Houses & Holes, Roy Morgan Research yesterday recorded a big 1.5% jump in its unemployment rate to 9.7% in the month of June. As explained previously, Roy Morgan measures employment differently from the Australian Bureau of Statistics (ABS), which is Australia’s official provider of labour force data: According


Exports to China hit record high

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released trade data for the month of May, which has recorded a monthly trade deficit of -$285 million, up from -$26 million in April (revised down from a previously reported -$203 million). March’s deficit was also revised down to -$1,004 million from a


Retail sales defy European gloom

By Leith van Onselen The Australian Bureau of Statistics (ABS) this morning released the retail trade data for the month of May, which registered a solid bounce in retail sales that beat analyst’s expectations. In seasonally adjusted terms, retail sales rose by 0.5% in the month of May and by 3.5% year-on-year – just ahead


PSI recovers some more

The AIG Performance of Services Index is out and: …increased by 5.3 points in June to 48.8. It remains  just below the 50 point level separating expansion from contraction. The Australian PSI® shows some encouraging signs that significant  parts of the services sector are starting to stabilise after the sharp  falls in activity seen so far


Melbourne apartment boom goes ballistic (again!)

By Leith van Onselen There’s life in the Melbourne construction boom yet, with the release of the Australian Bureau of Statistics (ABS) building approvals data recording a seasonally-adjusted 27.3% (2,915 unit) rise in dwelling approvals in the month of May, led by Victoria where approvals rose by 32% (1,267 units): Victoria’s currently accounts for 36%


ABS fesses up on employment data

From Peter Martin (h/t edanielsen) today comes a not altogether surprising confession from the ABS about its labour market stats: The Bureau of Statistics has got the official employment figures wrong, and although it is happy to acknowledge the errors, it won’t correct them on the official record because it would cost too much money. Officially,


NAB’s online index slows again

NAB has released its Online Retail Index for May and it shows ongoing deceleration: For the 12 months ending May 2012, Australia’s total online spending was around $11.3 billion. This level is equivalent to 5.2% of traditional bricks & mortar retail spending (excluding cafés, restaurants and takeaway food) for the year ended April 2012. The NAB Online


TD Securities shows deflation in June

TD Securities monthly inflation for June is out and shows deflation on the month of -0.2%: That’s a big move down and goodness only knows how it will play into June quarter GDP results. Could we get another quarter of deflationary boom? Year on year inflation is now 1.6%: Obviously if the CPI follows, there’s


PMI has a decent bounce

The AIG PMI is out this morning and although still contracting shows a decent bounce: Manufacturing activity contracted for a fourth consecutive month in June, but the pace of contraction slowed significantly. The seasonally adjusted Australian Industry Group-PwC Australian PMI® rose 4.8 points to 47.2 (readings below 50 indicate a contraction in activity with the distance from 50 indicative of