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.


DEEWR Skilled Vacancies rise

An hour out from February Labour Force figures and I’ve discovered I forgot to post the DEEWR Skilled Vacancy report. It showed a small rise in seasonally adjusted terms: Seasonally Adjusted Monthly Change Increased by 1.9% to 86.0 (Jan 2006 = 100) Increased in all eight occupational groups Strongest rises recorded for Machinery Operators and


The surplus that never comes

Back in April last year, when the national budget was fresh to the presses, I made a few comments about what I perceived at the time was a misunderstanding by Treasury boffins as to what exactly was happenning in the Australian economy: The government seems to have done a fairly good job of predicting most of the


More on GDP

After yesterday’s hoopla over the December 2011 GDP figures, where I also studied the per capita growth rates, Scotty Barber at Reuters produced this chart of year on year real GDP growth since 1960: For those unsure about the trend, you see that orange line? That’s the average trend growth rate. Take note of the


Australia’s ignorant China bet

I have confessed before that my judgements about China are largely second hand. That is, they are based upon the interpretations of others. Sure, some of those others are very well placed but this circumstance still makes me very uncomfortable. In other areas I consider myself to have expertise – the US and Australian economies,


The Australian economy is not growing at trend

Just before Christmas, I bemoaned the state of economic reporting by the Australian financial media and associated economist punditry, which seemed to be stuck in either “permabull” or “permabear” status. Whenever the quarterly Gross Domestic Product (GDP) figures come along, like they did today, the former status is usually supplied with a “raucous display of


Demand by state

We don’t actually have GDP by state until later but a reasonable proxy is state final demand. The quarter was a different mix to much of last year with QLD leading quarter on quarter growth at 1.2%, NSW next on 0.8%, SA third on 0.2%, VIC entering recession territory on -0.5% and WA making a


Charting the RBA

The Reserve Bank of Australia (RBA) has released its monthly Chart Pack  – “a set of graphs that summarise macroeconomic and financial market trends”. After this mornings quite disappointing GDP results, let’s have a closer look at a select few interesting and relevant charts for MacroBusiness readers. World Economy First, what will likely be our


Big miss in GDP

The Australia Bureau of Statistics (ABS) just released the National Accounts data for the December quarter of 2011, where Gross Domestic Product (GDP) increased by 0.4% seasonally adjusted versus 0.7% consensus, and 2.3% over the year, still below trend compared to the pre-GFC era: Looking through the results, real (adjusted of inflation) net national disposable


Phil Lowe on structural change

Deputy Governor of the Reserve Bank, Phil Lowe, is speaking today at the AIG Economic Forum. Here’s the bitter pill he will deliver: Structural Change in the Australian Economy Structural change is, of course, something that is not new. It is one of the ongoing features of all economies. Over the past half a century,



We’re a bit short handed today so here is a take from NAB on the Balance of Payments and implications for tomorrow’s GDP: Today we saw the last two quarterly partials ahead of tomorrow’s GDP release with the Q4 balance of payments and government spending reports. From the BoP, the net exports contribution to GDP was


Bogan exodus continues

The Australian Bureau of Statistics (ABS) has just released overseas short-term arrivals and departures figures for January, and the macro driver hasn’t changed since our Unconventional Economist, Leith van Onselen, reported on the December and annual figures last month (and just happens to be on a Bogan Exodus himself which is why I’m writing this):


The need for billionaire balance

Courtesy of John Hempton at Bronte Capital (that other great Australian business blog): Wayne Swan the Treasurer of Australia (in UK parlance the Chancellor of the Exchequer, in US parlance the Secretary of the Treasury) has been publicly criticizing the new Australian billionaires and their political influence warning that they are a risk to the Australian ethos of


Swan revs up billionaire bashing

Here’s the transcript of the Treasurer’s Press Club address this afternoon. Pretty clear now where he’s taking his assault upon the billionaires, straight to Tony Abbott’s door and, to be honest, Abbott is going to struggle against this attack. Opposing the carbon tax may be a political winner. Opposing the mining tax isn’t.  This is


Two speed job ads, with a vengeance

ANZ job ads are out and have confirmed the January bounce with more in February: The number of job advertisements on the internet and in newspapers rose 3.3% m/m in February, following an upwardly revised 7.5% rise in January. Total job advertisements were 3.6% higher than in February 2011. The number of seasonally adjusted job


TD inflation low

From TD Securities and the Melbourne Institute this morning: The TD Securities – Melbourne Institute Monthly Inflation Gauge rose by 0.1 per cent in February, following a 0.2 per cent increase in January and a 0.5 per cent increase in December. In the twelve months to February the Inflation Gauge increased by 2.0 per cent,


Business indicators soft

ABS Business Indicators are out this morning and show an economy in the doldrums in the December quarter+ DECEMBER KEY FIGURES Sep Qtr 11 to Dec Qtr 11 Dec Qtr 10 to Dec Qtr 11 % % Sales of goods and services (Chain volume measures) Manufacturing Trend 0.7 1.6 Seasonally Adjusted -0.2 0.9 Wholesale trade


Australian dollar fears grow among SMEs

From today’s Dun and Bradstreet National Business Expectations Survey: Concern over the consistently high Australian dollar has risen significantly among local businesses, particularly those in retail and manufacturing, according to the latestDun & Bradstreet National Business Expectations Survey. More than a third of businesses, up nearly 40 per cent on last month, expect the high exchange rate to have a negative impact on their operations in the June quarter. The survey also finds that while overall sales and profit expectations remain elevated, anticipated employment levels have declined from levels at the start of the year. According to Dun & Bradstreet CEO, Gareth Jones, businesses continue to remain cautious in response to increasingly conservative consumers and the maintenance of a relatively high local currency. “This caution amongst businesses is increasingly being seen through a focus on consolidation rather than growth,” Mr Jones said. “Small businesses in particular appear to be focussed on maintaining profitability and cash flow by improving margins through, for example, parin back operational costs rather than looking to grow operations through greater investment and expansion of their workforce.” “Clearly, the pressure of a sustained high in the Australian dollar is starting to bite for main street businesses.” Concern over the dollar grew noticeably among retailers, rising 12 percentage points to reach 37 per cent during February. Retailers also downgraded profit expectations, with more than half anticipating slowing demand in the year ahead. This comes amid continued gloom over competition from online sellers, with nearly half of all retailers expecting internet competitors will have an adverse effect on their operations. “Consumers are increasingly savvy and adept at seeking out cheaper alternatives. Businesses need to adapt quickly or risk losing customers overseas,” Mr Jones said. There’s not much doubt about manufacturing declining at the hands of the high dollar. However, the retail Dutch disease meme is less certain. The recent NAB study of retail trends did not show online purchases


PSI stumbles in February

As I’ve said before, the Australian Industry Group’s services PMI (Purchaser’s Management Index), known as the PSI (Performance of Services Index), is of questionable use. As the below chart shows, it recorded poor growth in 2010 and better in 2011, which is pretty clearly the opposite of what actually transpired for services. Nonetheless, it is


Beware Australian exceptionalism

We’ve seen in the person of Jeremy Grantham that sometimes it takes an external observer to cut through the local fog and understand the risks facing the nation. Today, in an exclusive interview with the AFR, economist Willem Buiter joins Grantham: “Australia is a small, open economy with a floating exchange rate,” Mr Buiter said.


Roy Morgan unemployment eases

The Roy Morgan February unemployment number is out and has corrected somewhat, not unexpected for February: Unemployment was 9.7% (down 0.6% since January 2012) — an estimated 1,182,000 Australians were unemployed and looking for work. A further 7.9% (up 0.4%) of the workforce* were working part-time looking for more work (underemployed) — 962,000 Australians. In


Arab Bank on downgrade review

From Moody’s late this afternoon: Moody’s reviews Arab Bank Australia for possible downgrade on asset quality pressures Sydney, March 02, 2012 — Moody’s Investors Service has placed the ratings of Arab Bank Australia Limited (“ABAL”) on review for possible downgrade, following weakening asset quality during 2011. Ratings affected are ABAL’s long-term senior unsecured debt rating of Baa2, subordinated debt


Underemployment static (six months ago)

After the ABS employment figure from last month I discussed the notion that Australia had taken on the an informal version of the German kurtzarbeit labour system via labour hoarding. That is, when economic weakness strikes businesses reduce hours rather than workers. Today, the ABS released its annual Underemployment Survey which runs up to the September


Swan bashes the billionaires

Like Kevin Rudd before him, Wayne Swan has penned his defining missive in The Monthly magazine. It is a long essay and much of it is dedicated to establishing a context for Western societies , especially the US, to debate the rise of elite wealth and the decline of the middle class. You can read


The day the earth stood still

Data is the life blood of any economic watcher. Without it we are naked, bereft of meaning. But like life, some days it’s a torrent! Last night I was asleep before my head hit the pillow, exhausted from an extraordinary day of economic data that shook up many presumptions but ultimately left my overall sense of


Capex disappoints

The ABS quarterly capex report was out today and disappointed on current spend as well as expected spend outside of mining. First, the details from the quarter past: Trend estimates(a) Total new capital expenditure 38 737 5.9 32.3 Buildings and structures 22 692 8.1 47.4 Equipment, plant and machinery 15 916 2.1 14.7 Seasonally adjusted(a)


Manufacturing expansion eases

Not that it was big to begin with but at least we’re still positive: Here’s the details: Manufacturing activity increased again in February, albeit at a slightly slower pace than a month ago. The seasonally adjusted Australian Industry Group-PwC Australian PMI® fell 0.3 points to 51.3. (Readings above 50 indicate an expansion in activity,with the


Gina goes off message

Last night, NewYork’s favourite business website, Business Insider, picked up an Australian story that has not gotten that much press here. It was Gina Rinehart’s poem inscribed upon the very earth in the Pilbara: Gina Rinehart, Australia’s richest person, just penned a political poem — and it’s hilarious. Her prose, engraved on a plaque attached to


Abbott should look at QLD Libs

There’s actually some sense emanating from a political candidate at the moment. It’s certainly not at the Federal level. But in the Queensland election, the Queensland Liberal National Party leader Campbell Newman is making noises not too far from reasonable. The AFR has an exclusive interview with Newman in which he outlines his economic plan: As


And now for the good news: mining

The ABS released the December 2011 quarter statistics for Construction Work Done earlier this morning, falling 4.6% seasonally adjusted from the September quarter. This was 4% below consensus but still up over 9% year on year: BUILDING WORK DONE The trend estimate for total building work done fell 1.5% in the December quarter. The trend


New home sales hammered

Please forgive the headline, but the HIA JELD-WEN new home sales report for January is out and the news is so poor despite two rate cuts that I’m sure how else I’m supposed to put it: New home sales began 2012 on a weak note, a disappointing outcome given there was also a fall in