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.

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Charting the RBA

The RBA has released its monthly Chart Pack and like last month’s release, I’m going to have a look at this impressive data set for MacroBusiness readers. A warning, its chart heavy (obviously). The Chart Pack is divided into 16 categories, but let’s concentrate on a few, looking first at the economic “god” of GDP

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ABS Employment Report analysis

The ABS employment report remained volatile in June with the headline increase of 23,400 jobs, which was ahead of market expectation of a rise of 15,000, consisting of a large swing between part time to full time employment. The unemployment rate remained unchanged in both seasonally adjusted and trend terms at 4.9%. while the trend

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Unemployment steady at 4.9%

The ABS has just released the monthly Labour Force Survey results for June. From the media release: The ABS reported the number of people employed increased by 23,400 to 11,455,200 in June. The increase in employment was driven by an increase in full-time employment, which was up by 59,000 people, three quarters of whom were

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Arrivals and Departures for May

The ABS has released the May Overseas Arrivals and Departures data, which comprises a summary of monthly data by category of movement. For visitors arriving and residents departing short term, the intended length of stay, main purpose of journey, principal destination (departures) or country of usual residence (arrivals) and state and territory in which most

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Engineering activity up 3.8% in March quarter

The ABS has released the Engineering Construction Activity data for the March quarter, which contains value of engineering construction work done, commenced and yet to be done, classified by state or territory, commodity (roads, bridges, pipelines etc), sector (public/private) undertaking the work, and sector for whom the work is being done. VALUE OF WORK DONE,

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RBA Statement dissected

The Statement accompanying the announcement of the RBA’s decision not to move rates this month has just been released and from our point of view it is a very dovish insofar as the RBA spends most of its time talking about downside issues with only inflation as a risk to higher rates. I still think they are struggling with

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Trade surplus, Vehicle sales down

Two more data sets released today: First, June motor vehicle sales data released by the Federal Chamber of Automotive Industries (FCAI) show a fall of 11.6% than the prior corresponding period (i.e June last year), although this has been put down to supply constraints from the Japanese earthquake. A highlight was an increase in locally

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RBA leaves rates on hold

The Reserve Bank of Australia (RBA) left the cash rate target on hold at 4.75% The last rate rise was in November 2010. Statement by Glenn Stevens, Governor: Monetary Policy Decision At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent. The global economy is continuing its expansion,

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Building Approvals fall 1.2% for May

The ABS has released its May data for the number and value of dwelling units approved by sector (public/private) and by state, number and value of new other residential dwelling units approved by type of building, and the number and value of non-residential building jobs approved by type of building and value ranges. TOTAL DWELLING

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Retail Trade for May falls 0.6%

The ABS have released its latest monthly estimates of turnover for retail establishments. The trend estimate rose 0.3% in May 2011. This follows a rise of 0.3% in April 2011 and a rise of 0.3% in March 2011. The seasonally adjusted estimate fell 0.6% in May 2011. This follows a rise of 1.2% in April

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Weekend Musing: Ideology revisit, TagCrowding

Another weekend of musing. Ideology revisit Back in April I wrote a piece on economic ideologies and how they can effect the decisions of policy makers and economists alike. Over the last week on MacroBusiness I have also noticed a number of threads that seemed to have swerved into discussions between holders of differing ideologies,

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Data redux – House prices and finance

Today’s piece is inspired by the comment flow that was associated with yesterday’s piece on the RP Data – Rismark release. Specifically a little bit of apparent angst about a claim we made that, we have modelled the relationship between the quarterly moves in the ABS house price data series and the total monthly value

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Credit growth remains subdued

The RBA has just released its Financial Aggregates for May. It is more of the same with credit growth remaining subdued, with housing credit growing at the slowest rate in 35 years of current data and at a three month annualised pace of just 5.2%. Below is a summary of the RBA’s release with charts of

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Skilled vacancy data weak

The latest Department of Employment and Workplace Relations skilled vacancies report provides us with yet another weak leading indicator of employment growth. According to the latest report the trend growth in skilled vacancies fell to 2% from a month earlier where it registered a fall of 1.9%. However if we take a look at the

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Questioning rising insolvencies

Yesterday dissolve released their latest business stress test report ( available below ) and as expected, well at least by macrobusiness , the finding weren’t  good. The quarterly cost of All Bank New Asset Impairment Charges (or “Bad Debts”) for Australian Banks in the Quarter to March 2011 is $5.1 billion. That is a drop from the

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Guy Debelle on Banking

Guy Debelle , the Assistant Governor (Financial Markets) of the RBA gave a speech this morning to the  Conference on Systemic Risk, Basel III, Financial Stability and Regulation. Today I am going to talk about a few interrelated issues concerning the banking system: collateral, funding and liquidity. The financial crisis brought into sharp relief the

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Less economics, more leadership

The climate change proponents are clear on the matter. We need a “price” on carbon so the market can set about fixing the problem. Great. More derivatives. Exactly what we don’t need and yet another excuse to avoid the difficult job of governing. Consider what happened when there was a “price” on risk, perfected in

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RBA debunks immigration boosters

The media’s response to the reported slowing of Australia’s population growth on Thursday summoned the usual hysterical commentary from those concerned about skills shortages and the flow-on impacts to wages growth and inflation. For instance, the usually reliable Tim Colebatch made the following comments in an article published yesterday in Fairfax [my emphasis]: NET migration

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Weekend Musings: Language and $2 million

Since most of the MacroBusiness crew are under the weather, I thought I’d stick my oar in this weekend with some quiet musings. Two things to consider in this post: the notion of sound economic language, and how would you allocate $2 million for your retirement? Language is for the Birds Houses and Holes recently

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Australia’s population growth slowing

The Australian Bureau of Statistics (ABS) has just released its latest population figures, and it shows Australia’s population growth rate for the 2010 calender year slowing to only 1.5%, 0.7% below the peak growth rate of 2.2% reached in the 2008 calender year. Here’s the ABS media release  and summary data relating to the release: MEDIA

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Household pain higher than GFC

The venerable economists of the Melbourne Institute released their quarterly Household Financial Conditions survey yesterday and jeez we are unhappy. In fact, we were happier about our state of financial health in the midst of the greatest global economic crisis since the Great Depression: The press release added that: According to Dr. Edda Claus “the

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Leading indicators point backwards

The Melbourne Institute/Westpac Leading Indicators Index is out today and shows that growth momentum in the economy has slowed. From the release (full report below): 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 2.7% in April 2011 below its long term

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Dutch Disease visualised

After last week’s sectoral chartathon for employment, I thought I’d go back to the first quarter national accounts and see where production is headed sector by sector. The ABS’s Gross Value Added (GVA) is the simplest way to measure the sectoral contribution to GDP.  The result is the above chart, which shows a number of interesting

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Racist FIRB

The Lowy Institute today released a study into Chinese attitudes towards investing in Australia. The research makes for sobering reading. In my view, we have made a complete hash of FIRB, to the point where its secret operations more resemble an arm of ASIS than they do a transparnent foreign investment review panel. The report

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Old economy fights back

Last week, the Unconventional Economist made a fascinating comparison between the rhetoric of the Canadian and Australian central banks on overvalued houses. He noted how much more candid the Canadian central bank has been about the degree of house price overvaluation and the need to mitigate those risks. As we know, neither the government nor

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Weekend Musings: The see-saw, endless spruik

My,  that was a quick week. A couple of things in the thinker this weekend. The see-saw After a very successful muse last weekend about the economics of Futureboom! I have been thinking a little more on the intricacies of what I can see happening in the macro-economy. Glenn Steven’s speech posted by H&H this

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Dutch Disease and jobs

Today the ABS released its quarterly Labour Force Survey – Detailed for May. I’ve broken it up into a series of sectoral charts by full time jobs below. Each says it ends in March but it don’t. Each ends in May, damnit. First up, let’s look at the growing sectors. Top of the pops is,

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Car sales crash

Governor Glenn may still be feeling feisty about the economy but it’s becoming increasingly obvious that he’s flying solo. ABS May car sales are out and can only be described as a crash, down 7.6% month on month and 14.5% year on year. These sales levels were first seen in 2003 and again in December

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Melbourne builds on

ABS March quarter dwelling commencements are out and show an onging decline in housing commencements, which is still a give back following last year’s FHOG. For apartments, however, there’s a big seasonally adjusted jump:         MARCH KEY POINTS           DWELLING UNITS COMMENCED The trend estimate for the total number of dwelling units commenced fell 1.9% in

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Dour mood sweeps consumers

The Westpac/Melbourne Institute Consumer Confidence Survey is out and makes dour reading. Sentiment fell by 2.6% in June from 103.9 in May to 101.2 in June. The commentary is equally gloomy: This is a soft result. It is the lowest print for the Index since June 2009 (100.1). At that time households were relieved that Australia appeared