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.


NAB Survey shows further weakness

For what it’s worth, the NAB Business Survey for July is out and shows steadily increasing weakness. Here’s the commentary: Business conditions weaken showing an economy continuing to lose momentum and traveling below trend. Confidence remains subdued in the face of continuing uncertainty – but carbon didn’t appear to cause further retreat. Growth in the domestic


Job ads flat

The ANZ July job market report is out and shows a slight deterioration from May: Total job advertisements on the internet and in newspapers decreased by 0.7% in July to be 8.3% higher than a year earlier. Newspaper job ads fell by 0.5% m/m, while internet job advertising decreased by 0.7% m/m. Newspaper advertising is


Fog of the aged

Have you ever wondered why MacroBusiness exists? Why it is necessary for a dozen thirty and (just) forty-somethings to get together and write their buns off about the Australian economy? The first and most vital clue in answering the question is the ages of the MB team. At MB we are seasoned enough to have


RBA forecasts

Below find a series of charts illustrating the changes to the RBA’s forecast arising from today’s Statement on Monetary Policy. Somehow, I think the alterations we’ll see in the next SoMP may be somewhat greater…  


PC report spanks online retail

In its monster retail report, the Productivity Commission has recommended (among a great many things) that the government lower the tax free threshold on online purchases of foreign goods. Thankfully, however, it has also amply demonstrated the practical foolishness of the idea with an assessment of the costs involved in monitoring the parcels at the


Double Dutch continues for tourism

From the ABS, here are the June short term arrivals and departures. Wonder why tourism hasn’t tried a “Buy Australia” campaign yet. Double Dutch powers on: JUNE KEY POINTS SHORT-TERM VISITOR ARRIVALS TO AUSTRALIA Trend estimates: Short-term visitor arrivals during June 2011 (475,600 movements) decreased 0.5% compared with May 2011 (477,800 movements). This followed monthly


SMEs unhappy too

Yesterday NAB released its quarterly SME Business Survey. It’s not generally something I follow but given my conjecture on the likelihood that we’ll see job losses ahead, I thought it might be useful to examine the report this morning. SMEs employ 7.3 million Australians, some 64% of the work force. Not surprisingly, the headline results


Is unemployment about to jump?

Yesterday, Roy Morgan Research released their latest poll on unemployment and and it caused a minor stir amongst market watchers: In July 2011 Australia’s total unemployment as measured by Roy Morgan was 885,000 (7.6%), up 40,000 (0.6%) from June 2011, and up 148,000 (up 1.3%) since July 2010. The Roy Morgan July 2011 ‘underemployed’* estimate was virtually


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, including international data, but this month I want to concentrate on domestic data, but


Coal powers on in June

Today’s trade figures from the ABS provide some positivity after what has been a run of unequivocally weak local data of late. While the trade balance narrowed from a revised $2.7bln in May to $2.05bln in June the composition of the numbers was more positive. Imports rose 2.6% over the month courtesy of a 7.3%


In-credible retail falls

ABS June retail sales are out and it’s more of the same with the seasonally adjusted estimate falling 0.1%. This follows a fall of 0.6% in May 2011 and a rise of 1.0% in April 2011. On to the charts. The first shows that the result was a big miss versus market expectations, God only knows


Services sector still in recession, or is it?

The AIG PSI Index for July is out this morning and makes interesting reading with the services sector still in recession, but without the same collapse seen in Monday’s manufacturing gauge: ■  The services sector contracted in July, with the latest seasonally  adjusted Australian Industry Group/Commonwealth Bank  Australian Performance of Services Index (Australian PSI®) rising 


RBA commodity index up again

Below is the RBA July Index of Commodity Prices hitting a new record high in SDR terms. However, in Australian dollar terms, the index is now sliding. Preliminary estimates for July indicate that the index rose by 0.9 per cent (on a monthly average basis) in SDR terms, after rising by 1.7 per cent in June (revised).


Building approvals by state

Following are a series of charts drawn from today’s ABS Building Approvals numbers. First up, is the national chart for dwelling approvals, which doesn’t look too bad, though is obviously in a significant declining trend, giving back after last year’s stimulus dragged forward demand: When we break down by state, however, we get a very


No hike

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, but the pace of growth slowed in the June quarter. The supply-chain disruptions from the Japanese earthquake and the dampening effects of high commodity


Building approvals fall again

ABS Building Approvals for June are out and the best one can say is that there’s more space for mining to grow into. The ongoing fall is broad based and takes in both residential and commercial construction.  The drop is not as bad as last month thankfully but there is still considerable downward momentum, even if


A modest proposal for manufacturing

If there’s one thing that bugs me about the Australian economy and business it is rent-seeking. It is that practice of big businesses wielding political power for shareholder and personal gain. It is a doubly toxic pursuit because it not only means that Australians often have to pay extortionate prices for goods but it retards


New home sales tank

The mining sector is about to get a whole new batch of construction workers to choose from if the HIA new home sale report for June  is any guide. The index collapsed to GFC levels. The HIA has this to say: New home sales suffered their heaviest monthly decline in five years in June 2011, providing


Manufacturing tanks

The adjustment we all had to have is going gangbusters now. Having been in recession for the better part of a year, manufacturing activity fell off a cliff in July. Here’s what the mild-mannered folk at the Australian Industry Group had to say about the ongoing extinction of their members: ■ Manufacturing activity slumped in


TD-MI Inflation, higher than comfortable

The monthly TD-MI Inflation guage has just been released with a rise of 0.3% in July up from the flat result last month. This has kicked the year on year change up to 3.2% and, for those of us who like to try to interpret charts, the chart below suggests the period of pullback/consolidation in


Disleveraging becomes deleveraging

The RBA has released June Credit Aggregates and it’s getting ugly. According to the bank: Total credit provided to the private sector by financial intermediaries decreased by 0.1 per cent over June 2011, after rising by 0.3 per cent over May. Over the year to June, total credit rose by 2.7 per cent. Housing credit increased by 0.3 per


I am beneficent

Yesterday, to tremendously little fanfare, the Treasurer, Wayne Swan, released his Discussion Paper for the tax summit to take place in October this year. Find the document below. There is not much point going into the full details of the document. Most of it is framework and fluff. And, really, given the extraordinary pressures that


No rate rise

The acceleration in both headline but more particularly core inflation will be of concern to the RBA. It is likely, however, that the high inflation number will result in interest rates remaining on hold, rather than precipitate a hike. The rationale behind that view is that the price increases are not demand related which means consumers


CPI comes in hot

JUNE KEY POINTS THE ALL GROUPS CPI rose 0.9% in the June quarter 2011, compared with a rise of 1.6% in the March quarter 2011. rose 3.6% through the year to the June quarter 2011, compared with a rise of 3.3% through the year to the March quarter 2011. OVERVIEW OF CPI MOVEMENTS The most


Fitch downgrades Queensland

I’ve doubted the resilience of the Queensland economy for some time now. Back in April I asked if Queensland was headed for recession on the back of the failing real estate market. Today I note that Fitch has joined me in those doubts. Fitch Ratings-Sydney/Barcelona-26 July 2011: Fitch Ratings has revised the State of Queensland’s (QLD)


The great depression

Glenn Stevens spoke to the Anika Foundation yesterday with a speech called “The Cautious Consumer” and I hate to be a stick in the mud but I reckon he tried to explain why consumers are doing what they are doing but at his and the RBA’s core they just don’t get it.  The RBA is still tied into the idea that incomes are rising and so should spending,


Glenn Stevens on the cautious consumer

Find below the full text of Glenn Stevens speech this afternoon. The Cautious Consumer Glenn Stevens Governor Address to The Anika Foundation Luncheon Supported by Australian Business Economists and Macquarie Bank Sydney – 26 July 2011 Thank you for coming out once again in support of the Anika Foundation.[1] I want also to thank in


The bizarre retail debate

One of my favourite journalists, Adele Ferguson of The Age, today calls for a retail bailout: Other figures show that online spending is going gangbusters. There is an estimated $12 billion a year spent in online retail, but it could be much higher than this. Domestic online sales have been growing at 5 per cent


Producer prices ease, but…

JUNE KEY POINTS FINAL (STAGE 3) COMMODITIES increased by 0.8% in the June quarter 2011. mainly due to rises in the prices received for building construction (+1.2%), petroleum refining (+10.3%) and other agriculture (+7.9%). partly offset by falls in the prices received for industrial machinery and equipment manufacturing (-2.0%). increased by 3.4% through the year