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.


Unemployment up

ABS Labour Force for November is out and the result is…well…not too good but not awful either with unemployment climbing to 5.3%: NOVEMBER KEY FIGURES Oct 2011 Nov 2011 Oct 11 to Nov 11 Nov 10 to Nov 11 Trend Employed persons (‘000) 11 452.3 11 456.5 4.2 0.6 % Unemployed persons (‘000) 636.2 638.7


How to kill an industry: tourism

As the mining and construction sectors continue to boom, spare a thought for Australia’s tourism sector, which is being badly affected by the high Australian dollar. Monday’s release of the overseas short-term tourist arrivals and departures figures for October showed that the ratio of tourism arrivals to departures has hit a 25-year low: With the


Two speeds out the wazoo

Here’s a couple more charts from the National Accounts. The two speeds of Australian states are starting to become pretty crazy. Victoria and SA are in recession. NSW is growing at 0.5%. Meanwhile, WA grew at 8.4% at QLD at 3.5%. That is, for the quarter.


September QTR GDP strong

  As predicted, Septermber quarter GDP has come in strong at 1%, boosting yoy to 2.5%. Here are the key figures, with more to come later: SEPTEMBER KEY FIGURES % change Jun qtr 11 to Sep qtr 11 % change Sep qtr 10 to Sep qtr 11 GDP (Chain volume measure) Trend 0.8 2.1 Seasonally


Deficit dependent

Find above the master chart for general government finances released yesterday by the ABS. I’ve a few observations. Yesterday the press was filled with gloomy forecasts for today’s national accounts figures on the basis that government spending contracted more than anticipated in the September forecast. And yes, as you can see, there is a minuscule dip


Unintended consequences of childcare policy

With recent childcare reforms, and Labor’s maternity leave program in place, it is worth taking a moment to consider the economic and social effects of such policies. Enabling access to the workforce for both parents through child care subsidies is admirable goal (for brevity I treat maternity leave as a form of subsidised home childcare).


Ridout resigns

So, Heather Ridout has done the right thing and resigned: Australian Industry Group Chief Executive, Heather Ridout, today announced that she would be moving on after 33 years with the organisation and approaching eight years as CEO. Her departure will take effect at the end of April 2012 and until that time she will remain


Roy Morgan unemployment stable

Roy Morgan unemployment for November is out and is unchanged from October: In November Australia’s total unemployment as measured by Roy Morgan was 1,044,000 or 8.6% (unchanged in percentage terms, but up 18,000) from October 2011 and up 229,000 (up 1.7%) since November 2010 — Australia’s equal highest unemployment rate since March 2004 (8.8%). It is also


Revenge of the super profits tax

Peter Martin has a bit of a scoop this morning from a Canberra tax conference where apparently it has been revealed that: A WORKING group set up by the Treasurer, Wayne Swan, is planning a shake-up that would see most companies pay no corporate tax and a smaller number pay a much higher rate of


ANZ job ads stabilise

ANZ job ads is out today and is unchanged from October. It appears this level of ads is equivalent to a slowly rising unemployment rate. For interests sake, I’ve included at the end a second report from Westpac on some of the peculiarities of the ANZ series. Here are the ANZ highlights: The number of


Chart of the Day: GDP on trend – down

With the quarterly GDP figures to be released on Wednesday, today’s chart from Trends Trader, is timely as it examines the trend in GDP in terms of nominal dollar amount and quarterly/annual change, including population growth (click image for full size, as it is very detailed): This is only one chart amongst some very detailed


AIG Services Index contracts further

The AIG Services Index dropped 1.1 points to 47.7 in November, remaining below the 50 point level reflecting continued contracted activity in the services sector. AIG chief executive Heather Ridout said: The slide in services activity in November is further evidence that conditions in non-mining sectors of the economy remain flat and highly sensitive to


TD-MI Inflation falls in November

The TD Securities – Melbourne Institute Monthly Inflation Gauge fell by 0.1 per cent in November, following a 0.1 per cent rise in both October and September. In the twelve months to November, the Inflation Gauge rose by 2.1 per cent, following a 2.6 per cent rise for the twelve months to October. Stephen Koukoulas,


Quarantine overboard

Given the theme of last Wednesday’s post, questioning the validity of economic arguments supporting free trade, and previous discussions on food security, I though it wise to spend a moment considering the use of quarantine as a barrier to trade. Queensland’s banana crop was destroyed by cyclone Yasi last summer and prices at the supermarket


Green shoots for commercial property?

While the residential property market continues its slow melt, property industry experts are seeing the green shoots of a recovery in commercial property markets, especially in Brisbane, the headquarters of Queensland’s CSG and coal investment boom. Yields have stabilised (for CBD and near CBD office) at pre-boom levels, and rents appear to have bottomed for


What’s between now and the RBA meet?

For those of you wondering, above is a list of the data flow between now next Tuesday’s RBA meeting. The only two of any influence will be TD Inflation and ANZ job ads. TD  monthly inflation was benign last month and there is no reason to expect that to change this month. ANZ job ads are unlikely


Roy Morgan consumer confidence slumps

Roy Morgan has released its weekly consumer confidence and confirming today’s lousy October retail sales number, the post June confidence pulse is just about exhausted: Consumer Confidence fell to 109.7pts (down 3.4pts in a week), according to the Roy Morgan Consumer Confidence Rating conducted last weekend (November 26/27, 2011). Consumer Confidence is now 10.9pts lower


Retail pulse fading

Fresh from the dreadful building approvals numbers, the ABS has served up lousy retail sales: That’s 0.2% growth for October and shows a clearly fading pulse from the mid year unleashing of pent up demand triggered by the plateauing of rates. I mooted last month that with the savings rate having plateaued, retail sales may


Chart of the Day: Exponential credit

Today’s chart follows on from yesterday’s RBA release of credit and lending aggregates (find here, with charts) and plots the total private credit (housing, personal, business, but not government) data since 1976: Added to the plot is an exponential trendline, with a superb fit until the GFC, where total credit growth has tapered from the


Lower dollar boosts manufacturing

The Australian PMI is out and shows a sideways movement of continued contraction at 47.8. There’s some good news, however, with new orders growing steadily towards expansion: We can’t tell precisely, but much of the improvement is coming from jumping export orders, the index for which has rocketed since the dollar came under pressure in


Victoria’s budget black hole will deepen

Last week, I showed how the Victorian Government is overly addicted to property taxes and discussed how next year’s State Budget is likely to get hit hard by falling stamp duty receipts, which are likely to send the budget into deficit. Included in this article was the below chart showing the Victorian Government’s heroic forecast


Capex rocket takes off

Capex is out and is the one positive Australian story that just keeps on giving. First the September quarter actual spending estimates: The trend estimate for total new capital expenditure rose 8.2% in the September quarter 2011. By asset type, the trend estimate for buildings and structures rose 11.3% and equipment, plant and machinery rose


Credit growth weak during October

The Reserve Bank of Australia (RBA) released Financial Aggregates data for October today: Total credit provided to the private sector by financial intermediaries rose by 0.2 per cent over October 2011, after rising by 0.5 per cent over September. Over the year to October, total credit rose by 3.5 per cent. Housing credit increased by


Macquarie sees “white collar recession”

Macquarie is predicting a white collar recession in Australia, raising its forecast for unemployment to 6%: Our economics team recently moved its unemployment forecasts to 6% on the view that Australia will experience a “white collar” recession. The team sees upside risk to 7% in the event that retail, manufacturing and tourism sectors also decide


New home sales rise from the floor

New home sales have posted a modest 5.5% bounce in October. They are still languishing, however, as shown in the above chart. As Ross “pull no punches” Gittins would say, off to the Pilbara with you builders. Full release from the HIA below: 2011-10 NHSS National Media Release


Swan’s unpopular razor

From AAP this morning: Deloitte Access Economics director Chris Richardson said the government planned to cut spending when the Reserve Bank of Australia (RBA) had cut its cash rate in early November. The RBA cut the cash rate from 4.75 per cent to 4.5 per cent to provide some stimulus for a slowing economy. “What


Canberra is fighting the last war

In recent days, Ross Gittins delivered a spirited defense of the Australian Treasury’s embrace of Dutch disease. He based his defense on an endorsement of a speech delivered by the Head of Treasury’s Macro Group, David Gruen. I haven’t seen the speech before today but read it this morning and it’s got some fascinating material.