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.


The baby boomer conundrum

The ageing of the large baby boomer generation is viewed as a huge problem for government finances in the developed world. A working paper released last year by the Bank for International Settlements (BIS) forecast large and rising future costs relating to the ageing of their populations unless drastic measures are taken to curb the rapid growth of health care and pension obligations (see


Full time jobs by state

Below find the state by state break up of full time jobs, all seasonally adjusted. Weakness in NSW, QLD and SA is not sufficiently offset by gains in VIC and WA for a total fall of 22,000. The RBA’s adjustment to Quarry Australia continues apace.


Employment trend at zero

Well…there is now no doubting the message that the NAB Business survey employment index and the recent turn in the ANZ job ads survey have been sending: employment has softened considerably.   Today’s employment data was up 7,800 in May against the markets expectation of +25,000. But the sting was both in the break up between full


Full time jobs down again

  MAY KEY POINTS TREND ESTIMATES (MONTHLY CHANGE) Employment increased to 11,444,200. Unemployment decreased to 588,400. Unemployment rate steady at 4.9%. Participation rate steady at 65.6%. Aggregate monthly hours worked increased to 1,602.5 million hours. SEASONALLY ADJUSTED ESTIMATES (MONTHLY CHANGE) Employment increased 7,800 (0.1%) to 11,440,500. Full-time employment decreased 22,000 to 8,027,100 and part-time employment


Monthly chartathon

The Reserve Bank released its latest Chart Pack yesterday. As a technical analyst/chartist, I prefer a visual representation of data and have always found this series of charts fascinating. The whole pack can be downloaded here (1.28 mB or so) or viewed by section here. Although it covers many areas, I’m going to look at


Age of the credit hawk

Yesterday, Delusional Economics asked whether Fitch would consider downgrading the Australian banks after they lowered credit standards on mortgages to boost flagging loan demand. Today, Fitch reported that it is updating its mortgage default models, which are currently based on the performance of mortgages during the 1991 recession. The change in model methodology reflects the


Housing finance still struggling

The ABS housing finance figures for April out today are a mixed bag: The seasonally adjusted numbers are up but the downtrend remains firmly in place and investors are down on both measures. As my readers know, I prefer long running trends in raw data and if we take a look there the story is


The new economic glossary

Regular readers will know that I am in the process of building a new glossary of terms to help describe Australia’s dramatically evolving contemporary economy. I’ve just added another today and it suddenly occurred to me that it is time to make it official. Here is the whole dictionary thus far: Politico-housing complex The great public/private


ANZ job ads whacked

ANZ job ads for May are out and got thumped. As usual, the accompanying commentary comes with the rhetoric of boom ahead. I think it’s about time we called this what it is: Futureboom. The worse the data, the bigger the Futureboom, it seems: Total job advertisements on the internet and in newspapers decreased by 6.5% inMay to


Exchange rate exodus

On Friday, the Australian Bureau of Statistics (ABS) released data on overseas short-term tourist arrivals and departures. Once again, it provided stark evidence that some of Australia’s domestic industries, in this case tourism and retail, are hurting badly from the high Australian dollar. The below chart plots the monthly tourist arrivals and departures to/from Australia


Flood-pumped retail

Yesterday’s retail sales were unequivocally strong with a print of 1.1%. This flies in the face of what we are hearing regarding arrears levels from the big banks, from retailers themselves, and the rise to an 11.5% savings rate in the national accounts.  Hence, there was a lively discussion yesterday at MB about whether there could have been a


Services activity insipid

The AIG PSI (which tracks services economy activity) for May is out and shows a struggle on Main St: KEY FINDINGS ■ Activity levels in the services sector eased slightly in May, following a solid increase in April.The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) fell by 1.6 points


Trade surplus steady

ABS International Trade for April is out. Not much of a surprise with an ongoing strong surplus: APRIL KEY POINTS BALANCE ON GOODS AND SERVICES The trend estimate of the balance on goods and services was a surplus of $1,557m in April 2011, a fall of $47m on the surplus in March 2011. In seasonally adjusted


Getting so much poorer all the time…

From yesterday’s National Accounts, here’s a stab at explaining why, despite the ongoing growth in the economy (ignoring the March quarter hiccup), there are so many folk that are clearly feeling the pinch. First, a graph of real gross national income: A few observations here. First, that extraordinary dip in 2008 looks like the way


GDP as expected

The AUD rallied straight after the GDP result this morning and now sits at 1.0729, equally 3 year swap rates have risen 5 bps post number also  suggesting that for currency and interest rate traders at least the GDP was not as weak as they had feared even if market economists got pretty close: Indeed


Manufacturing slides away

Last month the AIG PMI  showed a hint of improvement suggested light at the end of the tunnel for manufacturing. Sadly, this month, it’s ugly. The RBA has its adjustment going just fine already. Manufacturing activity remained in negative territory in May with the seasonally adjusted Australian Industry Group-PwC Australian PMI® down slightly by 0.7 points to 47.7


Relative optimism

Today I’m going to take issue with a couple of my fellow bloggers. I’m going to be optimistic, in a real sort of way. I write often on Dutch Disease, which is a very real problem and, in my view, poses a serious threat to our prosperity in the long term. This, however, can sometimes


The Economist on Australia

The Economist magazine has published an article on the Australian economy entitled The next Golden State, which argues that with a bit of self-belief and the right policies, Australia could become the next California. Here’s an extract: IMAGINE a country of about 25m people, democratic, tolerant, welcoming to immigrants, socially harmonious, politically stable and economically


Leigh Harkness: Digging into poverty and debt

Once again Leigh Harkness joins us for a guest post. This time he is analysing the floating exchange system and the mining “investment” boom. There is a mistaken belief that we are experiencing a mining boom in Australia.  But if you had listened to the Treasurer’s Budget Speech, you would have heard that we are


Crumbling foundations

I wanted to retouch on the Building Approvals data released this morning and pop a chart or two in so that you can see just how weak the overall picture has become. This first chart is the break up of the overall Building Approvals series. There seems to be a clear dichotomy between the volatile


Credit flat

The RBA credit aggregates for April are out and show litttle change from the 30 year lows in mortgage growth rates. Business credit has stalled again and personal credit remains weak. Total credit provided to the private sector by financial intermediaries was flat over April 2011, after rising by 0.6 per cent over March. Over the


Ouch – Rate hike off the table

It is going to be very hard for the Reserve Bank to hike after the raft of data that was just released. Here is a quick Snapshot: RP Data-Rismark house Prices -0.1% mom raw and -0.3% seasonally adjusted Building Approvals -1.3% mom and -11.5% yoy. Slighthly better than market expectations but hardly rosy. Private housing


Business indicators weak

Above find the principle points of today’s ABS March quarter Business Indicators Survey. The two main components are inventories (down .4% vs market expectations of 0.1%) and gross operating profits (-2% v +2% market expectations). Needless to say, profits are weak but some of the weakness can be put down to floods with mining accounting


AIG gets busy

There’s a spectacular number of vested interests at work in this morning’s media: FIRB is racist; the banks are hard at work discrediting the ratings agencies and Gittins! notes the work of the baccy companies, raised by Boganomics on Friday. But the one story that has me in a lather is Heather Ridout and her call for


Ageing and asset prices

Following on from my previous article, which discussed the adverse impact of Australia’s ageing population on consumption expenditure, I now want to turn to the likely impact of population ageing on asset prices. Much of this analysis will again draw upon the Australian Bureau of Statistics (ABS) long-term population projections, which provides detailed estimates of


Ageing to punish retail

In 2008, the Australian Bureau of Statistics (ABS) released long-term population projections for Australia under three scenarios: High growth scenario (Series A), which assumes an increase in the fertility rate, higher net overseas migration than existed in 2008, and an increase in life expectancy; Medium growth scenario (Series B), which largely reflected the trends in



Those that read Douglas Adams will recall that the answer to the ultimate question – life, the universe and everything – was 42. This chart was my attempt to recreate that answer: The idea of this chart was to support my notion that retail sales (purple line) drives everything in the Australian economy and that


Mining capex booms on

The bullhawk’s bible is out. ABS Private Capital Expenditure. Here’s the headline release: MARCH KEY POINTS ACTUAL EXPENDITURE (VOLUME TERMS) The trend volume estimate for total new capital expenditure rose 3.3% in the March quarter 2011 while the seasonally adjusted estimate rose 3.4%. The trend volume estimate for buildings and structures rose 2.6% in the


Retail gloom will deepen

Earlier this week I posted an article, The housing-retail link, which discussed the positive feedback loop (“wealth effect”) caused by changes in house prices. This article argued that changes in housing values are a leading determinant of household consumption expenditure, consumer confidence, employment and growth. That is, when house prices rise (fall) in value, households feel