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.
ANZ has released a new note on the capex pipeline. The news is good, according to the bank, with a significant increase in projected investment from over the past six months: The vast majority of this is gas and coal: The second largest category is mining, which includes iron ore. Here are the ANZ’s projections
Courtesy of Mark the Graph: Yesterday, the Barking Cat asked me to have a look at ASIC’s new company registrations. Unsurprisingly, the raw data displays strong seasonality. Applying the standard R seasonal decomposition of time series by loess package, we can derive a seasonally adjusted and trend perspective for each state and nationally.
There was some good material produced yesterday by several bank economists on the Labour Force survey which showed that the headline numbers are hiding a trend towards higher unemployment that is likely to become apparent in the next six months. First, to give you some perspective on what has transpired so far, Westpac made the
By Leith van Onselen As reported by the Prince earlier, the Australian Bureau of Statistics (ABS) has released labour force data for the month of July, which reported a slight reduction in the headline unemployment rate to 5,2% from 5.3% in June (originally reported as 5.2% but revised upwards). The economy added 14,000 jobs (+0.1%)
By Chris Becker The Australian Bureau of Statistics (ABS) has just released Labour Force Survey figures – i.e unemployment – for July – and it’s come in at 5.2% – on expectations of 5.3%, with last month’s print revised up to 5.3%: The Unconventional Economist, Leith van Onselen will follow up with an in-depth
The NAB quarterly Commercial Property Index, which seeks to gauge expected returns for retail, industrial and public house property slumped in May to -16, it’s lowest level since 2009. Full report below. Commercial Property Survey Summary _June-2012
Does the Opposition even understand macro economics? From the AFR today: The federal opposition has signalled it opposes the Reserve Bank of Australia intervening in currency markets to weaken the dollar, preferring to let market forces determine its value. Former RBA board member Warwick McKibbin wrote in yesterday’s Australian Financial Review that the central bank should consider printing
Here’s the July PCI, about which I have previously expressed doubts whether it is correctly measuring engineering work. Anyways, even if biased towards dwelling construction, it kicked downwards in July: And employment sank to its lowest level in the past few years: Binder 1
By Leith van Onselen The contradictory signs coming out of the retail sector have continued, with last week’s release of strong retail trade data by the Australian Bureau of Statistics (ABS) contradicted by reports of falling profitability and sales amongst Australia’s large retailers. Last week’s ABS figures revealed that retail sales grew by 1.0% over
ANZ job ads are out for July the slide continues, down 0.8% in July: The number of job advertisements on the internet and in newspapers fell 0.8% in July after falling 1.1% in June. This was the fourth consecutive monthly fall and advertisements are now 9.1% below year-ago levels. In trend terms, total job advertisements fell 1.1%
By Leith van Onselen TD Securities – Melbourne Institute (TDMI) Monthly Inflation Gauge has been released for the month of July, which confirms the lack of inflationary pressures across the Australian economy. Over the month of July, inflation rose by only 0.2%, which follows June’s -0.2% fall: In the 12 months to July, inflation is
By Leith van Onselen News got worse for Australia’s tourism industry on Friday, with the release of the overseas short-term arrivals and departures figures for June showing a record number of departures over the year, led by the bogan hot spots of Bali and Thailand. Although short-term visitor arrivals increased by 3.3% in June, outweighing
From the AFR: Farmers have rejected a Coalition plan to lower the threshold at which agricultural land investment is subject to scrutiny by Australia’s foreign investment watchdog, as part of a tightening of investment rules. “That’s not the way we would have gone about it,’’ National Farmers Federation (NFF) president Jock Laurie told The Australian Financial
The NAB Business Survey (SME Edition) is out today and it was an unhappy second quarter with indexes falling across the board: Moreover, the pain is widespread across sectors, with some relief in the recent retail bounce: And all states, even WA, struggled: Looks like the mining boom is for the big end of town
The AiG PSI for July is out and shows creeping weakness: The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) fell by 2.3 points in July to 46.5. ■ The decline in the Australian PSI® reflected a fall back in sales and new order levels, after they expanded in June, and
The AFR reports this morning that Abbott’s great gaff of China is to become Coalition policy: Opposition Leader Tony Abbott will today propose tightening Australia’s foreign investment regime in a concession to the Nationals…One of the proposed changes is to reduce the financial threshold for the Foreign Investment Review Board to examine foreign purchases of agricultural
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released trade data for the month of June, with Australia posting a trade small surplus on the back of record exports to China. In seasonally adjusted terms, the trade balance recorded a surplus of $9 million in June, a turnaround of $322m on
The retail renaissance I’ve noted for the past few months powered on in June rising 1%. And the strength appeared to broaden somewhat with more categories experiencing a better month: The trend estimate rose 0.5% in June 2012. This follows a rise of 0.5% in May 2012 and a rise of 0.5% in April 2012. The
Get ready for more of this. Mining project planning has only just begun to soften. Er 20120802 Bull Investment Pipeline q 2
Roy Morgan unemployment for July was just release and shows no easing in its recent spike: In July 2012 an estimated 1.171 million Australians (9.7%, unchanged in a month) were unemployed, and the Australian workforce* was 12,119,000, (up 110,000 in a month) — comprising 7,432,000 full-time workers (up 81,000); 3,516,000 part-time workers (up 27,000) and
Recently some folks have tried to convince us that housing is now cheap, given valuations are 2002 levels. But that pales next to the following from The Kouk today. Apparently, our economy is the best since 1964! The current economic data in Australia are about as good as one could expect to see. Australia has GDP
This afternoon Rio announced that it would start: …cutting staff in Australia and closing its Sydney office as it battles falling commodity prices and threats to demand from Europe’s debt crisis. Some 30 support and services staff in Sydney and an undisclosed number of employees at the company’s much larger operations in Melbourne would be cut,
Today we have a splendid example of everything that is wrong with Australian political economy. Rather than debate several important issues thrown up the huge wealth accumulated by a small number of folks, we have the usual political and ideological tribalism that reduces the issues to a kindergarten game of name calling. Let’s start at the
Here’s the coverage of this morning’s crashing PMI from the major business papers. Nought at the AFR, which prefers to analyse Springsteen lyrics: And, cracking coverage at The Coalition Pamphlet: No group think here.
The AiG PMI is out this morning and it’s wish me luck as I wave you goodbye manufacturing! Yes, activity has now sunk to the lowest level since the GFC. And it’s broad based: And accelerating: But worry not, it would have happened anyway ;-). And to celebrate, here is the theme song of the
It will come as no surprise to Macro Investor readers to hear that a new report by Newport Consulting is suggesting that mining capex plans are being ratcheted back fast. The report, the Mining Business Outlook Report 2012-2013, surveyed 55 mining executives and found that confidence is down sharply, and plans to invest are eroding fast:
By Leith van Onselen The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates, which registered a small increase in total credit in the month of June, but the second lowest monthly housing credit growth in the series’ 35-year history and the lowest annual mortgage growth ever recorded: Total credit provided
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of June. At the national level, the number of dwelling approvals fell by a seasonally adjusted -2.5%% to 13,336, driven predominantly by a -4.9% decrease in approvals for private sector units and apartments. In the
HIA New Home sales for June are out and show a modest improvement: New home sales increased for a second consecutive month in June 2012 due to a spurt in multi-units, said the Housing Industry Association, the voice of Australia’s residential building industry. The HIA New Home Sales report, a survey of Australia’s largest volume builders, showed
The AFR is reporting this morning that: Opposition Leader Tony Abbott has stepped up his push for a tighter foreign investment regime… Mr Abbott yesterday hinted he would change the Foreign Investment Review Board’s make-up as he dealt with a Coalition split on a stricter national interest test by siding with the Nationals in support for
