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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Property locusts pointlessly buzz Depressionberg Unstimulus

Here is the problem for Depressionberg Unstimulus in black and white from a hilarious buzzing swarm of property locusts, at the AFR: David Harrison, head of one of the country’s biggest property fund managers, Charter Hall [said] “They are showing leadership. They are borrowing money. They are subsidising the economy that needs to be subsidised,”

23

Australia’s COVID-19 infections jump

Australia recorded 23 new COVID-19 infections overnight, well up on 10 cases recorded yesterday: Victoria recorded 11 new infections, with Melbourne’s 14-day moving average falling only slightly to 9.7, still nearly double the 5 average required to ease draconian restrictions on 19 October: Six of those 11 cases are linked to known outbreaks and five

36

How to rort JobMaker wage subsidy

In Tuesday’s federal budget, Treasurer Josh Frydenberg announced a new $4 billion JobMaker Hiring Credit that will provide Australian businesses with an incentive to employ additional young workers aged between 16 and 35 years old, with around 400,000 jobs anticipated to be supported. Below is the summary of the program from the Treasurer’s budget speech:

5

Rumour: Empty Chair seen mulling budget

There’s a press rumour that an empty chair has been seen mulling the budget, at The Australian: Anthony Albanese will use his first budget reply speech to roll out major economic and social policies, including productivity reforms aimed at repairing skills shortages, and to deliver a pre-­election pitch to women, young families, blue-collar workers and

19

Scummo tax cuts temporary for workers, permanent for rich

Via The Australia Institute: Tax Cuts: Temporary for Low and Middle Earners, Permanent for High Earners New analysis from The Australia Institute has found that the income tax changes announced in the Budget yesterday will disproportionately advantage wealthy Australians both now and into the future. The limited, temporary benefit that will flow to Australians on

72

Labor outraged at migrant English language requirements

The federal budget included the below measure indicating that an English language requirement will be introduced for partner visas and their permanent resident sponsors: As noted above: “These changes will help support English language acquisition and enhance social cohesion and economic participation outcomes”. Elaborating on the measure, Prime Minister Scott Morrison clarified that applicants will

27

Budget forecasts lowest population growth since WW2

Tucked away deep in Budget Paper 3 were the below forecasts for net overseas migration (NOM), with the Treasury’s Centre for Population now expecting NOM will turn negative for the first time since the Second World War (WW2), recording declines of -71,600 in 2020-21 and -21,600 in 2021-22, before recovering to 95,900 in 2022-23 and

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Australia has lost the capacity to debate economics

Yesterday’s MSM budget discussion was shockingly bad. Most worryingly, both criticism and praise of the Depressionberg budget was wrong and misleading, suggesting Australia has lost the capacity to even debate vital economic decisions. On the critical side, Bernard Keane at Crikey composed misleading reams. To begin with, we got this: The Morrison government is counting

16

Aussie males bear brunt of COVID-19 job and wage losses

The Australian Bureau of Statistics (ABS) today released its high frequency Weekly Payroll Jobs and Wages in Australia survey, which revealed that payroll jobs remain 4.1% below their pre-COVID mid-March level, whereas total wages remain 2.9% lower: In raw number terms, there were around 440,000 fewer payroll jobs in single touch payroll (STP) enabled businesses on

1

Australia’s COVID-19 infections gap lower

Australia recorded only 9 new COVID-19 infections overnight, well down on the 28 recorded yesterday: Victoria recorded only 6 new infections, with Melbourne’s 14-day average falling to 9.9, thus edging closer to the 5 case average required to ease draconian restrictions on 19 October: By comparison, NSW recorded 3 new COVID-19 cases. However, these were

20

Used car prices boom as new car sales bust

I reported yesterday how Australian new car sales have collapsed to 2003 levels after recording 30 consecutive months of falls: This data is supported by the ABS’ trade data, which shows that the annual value of car imports has collapsed 22% from their April 2018 peak: Perversely, while new car sales (and car imports) are

105

Federal Budget 2020: Where’s the demand?

Tonight’s Federal Budget delivered by Treasurer Josh Frydenberg was a dull affair that lacked ambition and included no real surprises. As expected, the Budget deficit is projected to balloon: However, the economic projections are rose coloured, with growth projected to bounce back strongly alongside a magical gradual return to trend unemployment by 2023-24: Turning to

3

Roy Morgan business confidence stuck in gutter

From Roy Morgan Research: Roy Morgan Business Confidence up 2.5pts to 85.6 in September – Confidence lowest in Victoria (77.0), SA (75.0) & Queensland (71.6) In September 2020 Roy Morgan Business Confidence was up 2.5pts (+3%) to 85.6 – the highest monthly reading since June 2020 (95.0). However, Business Confidence was a large 25pts lower

7

APS becomes key player in ‘gig’ economy

Last month, the ABC reported that the federal government’s use of contractors, consultants and labour-hire firms has exploded under the Coalition: …an ABC analysis of about 120,000 federal government contracts — for services such as consulting, staffing and recruitment — suggests the Commonwealth’s market for “private” labour has doubled in the past five years, and

23

Coalition to launch ultimate ‘ProfitKeeper’ wage subsidy scheme

Last month we reported how the Morrison Government’s JobKeeper subsidy has been an absolute boon for Australian business owners, juicing company dividends and profits. This was reflected in the latest national accounts for the June quarter, which showed that employee wages & salaries fell by 3.3% over the quarter while company profits soared by 13.7%:

2

Australia’s trade surplus dives

The Australian Bureau of Statistics (ABS) released trade data for the month of August, which registered a sharp fall in Australia’s trade surplus to $2,643 million amid falling exports and rising imports: Key points as follows: The seasonally adjusted balance on goods and services surplus decreased $2,009m to $2,643m in August. Exports of goods and

0

ANZ job ads rebound to crushed

Via ANZ: The recovery in #ANZ Job Ads picked up the pace in September, rising 7.8% m/m. The week-to-week gains throughout the month were positive news given the ongoing restrictions in Victoria. But Job Ads were still down 21% on their February level. #ausecon @cfbirch pic.twitter.com/amOBa1PcBF — ANZ_Research (@ANZ_Research) October 6, 2020 A welcome recovery.

5

Australian COVID-19 infections jump

Australia’s COVID-19 infections jumped overnight, with 26 new cases recorded versus 11 yesterday: Victoria recorded 15 new cases, the highest daily count since 27 September. Nevertheless, Melbourne’s 14-day average fell to 10.6, still well above the magical 5 required to ease draconian restrictions on 19 October: NSW recorded 11 new COVID-19 infections. However, these were

1

Roy Morgan unemployment 12.9% in September

Roy Morgan has released its unemployment estimate for September, which reports that Australia’s unemployment rate fell by 0.9% in September to 12.9%. However, underemployment rose by 0.4% to 9.4%: Unemployment was down 3.9% from its late March peak (16.8%), whereas underemployment was 1.2% lower from its late March peak (10.6%). However, the fall in unemployment

5

NAB business survey is a disaster for wages

The October NAB business survey is out and remains fugly. Overall, the survey saw a modest improvement in September. Conditions are around the levels seen in early 2020 but remain well below average. The improvement in conditions was driven by a rise in all three subcomponents – trading and profitability are in positive territory, likely

71

How much more debt can Aussie households eat?

The Reserve Bank of Australia (RBA) yesterday released its household debt data for the June quarter, which revealed that the ratio of household debt-t0-disposable income retraced to 185.0%, whereas mortgage-debt-to-disposable income retraced slightly to 141.2%: As you can see, both are a fraction below record highs. Separate data from the Bank for International Settlements (above)

8

Unemployment rates become fake news

Cross-posted from FTAlphaville: At a passing glance, it appears that on both sides of the Atlantic the labour market is, if not exactly thriving, doing far better than we might have expected. In the US, the headline jobless rate has swiftly fallen back from 15 per cent to 8.4 per cent. Meanwhile in the eurozone