Realty legend Sam Zell on US realty nicely describes where we are here: Unprecedented uncertainty. Worth watching.
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Zell: No price discovery in realty (or anything else)
Primary Section
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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UBS: April jobs catastrophe much worse than expected
Via the excellent George Tharenou at UBS: Payrolls -227k in 2 weeks to April 18; totalling -975k (or -7.5%) since March 14 For the two weeks to April 18, payrolls declined a further 1.7%, albeit slowing after a 5.8% slump in the prior three weeks to April 4. The total decline over five weeks since
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How Labor should cut immigration
Even before the COVID-19 pandemic hit, there was a strong case to cut immigration, which has run at turbo-charged levels for 15 years: First, Australian real wage growth has remained stillborn for nearly 10 years: Australia’s labour underutilisation rate has been stuck at stubbornly high levels: Whereas average monthly hours worked has collapsed to record
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New car sales plunge into black hole
The Federal Chamber of Automotive Industries (FCAI) has released its new car sales report for April, which saw annual car sales collapse to their lowest level since March 2010: It was the 25th consecutive month of decline, with annual new car sales now running 17.5% below their March 2018 peak. According to FCAI: “A total
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RBA holds cash rate at 0.25%. Flags 10% unemployment
Statement by Philip Lowe, Governor: Monetary Policy Decision: At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points. The global economy is experiencing a severe downturn as countries seek to contain the coronavirus.
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Labor attacks Liveras
Labor’s Craig Emerson at the AFR: Liveris has advised Trump on manufacturing and trade policy. Upon his appointment to the co-ordination commission, Liveris signalled the advice he would provide: “Australia drank the free-trade juice and decided that off-shoring was OK. Well, that era is gone,” adding “If I can achieve anything like what we achieved
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Gargantuan output gaps upon us
Via FTAlpahville: The output gap is a concept we got familiar with during the global financial crisis. But it’s time to revisit it, in some detail. One reason the measure often gets overlooked in mainstream headlines is because it doesn’t sound all that consequential. Yet it is. Arguably more so than ever. Encumbering its popularity,
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ABS: Wages and jobs plummet on COVID-19 shutdown
The ABS has released another survey on the economic impacts of the COVID-19 shutdown, which reveals that employee jobs decreased by 7.5% and wages by 8.2% between mid-March and mid-April: Losses in wages and jobs were near universal across Australia: Males did better than females on jobs, but worse on wages: The young and old
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Economists: No international travel until mid-2021
A survey of 31 economists by Finder suggests that Australia’s international travel market won’t reopen until mid-2021, with the exception of New Zealand: Around four in ten say it’ll be before March [2021], while more than half say it’ll be by June. Eight in ten say September 2021 by the latest. If that sounds a
4
Cost blowouts, delays, infest Dan’s West Gate Tunnel
The Victorian government has advised that the $6.7 billion West Gate Tunnel project will not be completed in 2022 as originally intended. This has now been pushed back to 2023. Work on the tunnel project has been disrupted by a dispute over the disposal of contaminated soil: The project was already running behind schedule amid
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Keneally doubles down with broader Labor support
Go Kristina, again at The Australian, the new home of woke: Kristina Keneally has refused to back down on calling for cuts to migration, repeating claims that the coronavirus is exposing the fact that “Australia is heavily relying on temporary migration that often results in workers being exploited.” Speaking on ABC Radio National, Ms Keneally added
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Consumer confidence rebounds to catastrophic
Via ANZ: ANZ-Roy Morgan Australian Consumer Confidence: is overall around levels seen in the GFC, while a number of the sub-indices have returned to levels that, while still low, are within the previous historical experience. #ausecon #ausretail @DavidPlank12 @roymorganonline pic.twitter.com/v3qN4D7qdR — ANZ_Research (@ANZ_Research) May 4, 2020
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CBA: Consumer spending turns “less bad”
By Gareth Aird, Head of Australian Economics at CBA Key Points: CBA credit & debit card spend indicates that spending momentum has improved over the last two weeks. Total spending is still well down on year ago levels, but the most recent data suggests that the pulse of spending has picked up across a range
2
CBA services PMI goes more or less to zero
Close enough: Latest PMI data showed the extent to which stricter measures to contain the coronavirus disease 2019 (COVID-19) outbreak impacted the Australian service sector during April, with business activity contracting at a record rate. This was accompanied by a severe fall in sales amid reports of temporary business closures. Job shedding intensified as a
2
Construction PMI collapses
Vai AIG: Construction is designated an essential industry and has continued throughout so what happened? Some of it is new orders: But activity cratered as well. I guess some projects stopped. Full report.
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Three quarters of Aussie businesses suffer reduced cashflow
The Australian Bureau of Statistics (ABS) has released a survey on the impacts of the COVID-19 pandemic on Australian businesses. As expected, the majority of businesses have been adversely affected: Almost three quarters of Australian businesses (72%) reported that reduced cash flow is expected to have an adverse impact on business over the next two
23
Grey beards pummel ScoMo reform “fantasy”
To right. Terry McCrann rips ScoMo a new one: It is becoming increasingly clear that the post-virus world will be defined by an elemental struggle between fantasy and reality. The reality will be an economy struggling to emerge in any sustained or real way from not only the worst economic collapse since the Great Depression
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Australia’s COVID-19 lockdown is a stomping success, not failure
Professor Michael Levitt has labelled COVID-19 lockdowns a “huge mistake”. Levitt, who won the Nobel Prize for Chemistry in 2013, contends that the economic and social damage of the lockdowns will greatly exceed the number of lives that may be saved. Levitt contends that Sweden and Germany have responded best to COVID-19, while he has
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Australia plunges into deflation
Via Melbourne Institute comes monthly inflation at -0.1 and 1.2% over the year: We’re odds-on to plunge into outright deflation in the next six months. Cut the rates!
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ANZ job ads halve
ANZ Australian Job Ads halved in April. This was almost five times the previous record monthly fall of 11.3% in January 2009, during the GFC. #ausecon #employment #auspol @cfbirch pic.twitter.com/15JmziqNQ1 — ANZ_Research (@ANZ_Research) May 4, 2020 Not so good.
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Labor erupts into civil war over immigration
The Australian Labor Party (ALP) has erupted into civil war over immigration. Last week, Labor’s multicultural affairs spokesperson, Andrew Giles, demanded that welfare payments be extended to millions of temporary migrants living in Australia: “We can’t allow people to fall through the cracks and become destitute,” he told Guardian Australia. “The Morrison government can fix
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Spending plunges as economic stimulus fades
Economic consultants, AlphaBeta, have updated their real time tracker on the Morrison Government’s stimulus package, which shows that its impact on consumption is fading: AlphaBeta & illion’s real time tracker shows the stimulus was very effective in boosting spending, but has now worn off as consumption by stimulus recipients falls back in line with households
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Commodity prices to drag down Q1 national income
The RBA has released its commodity price index for April, which rebounded 1.4% in SDR (currency weighted) terms – the key determinant of the terms-of-trade – but slumped by 8.1% over the year: Preliminary estimates for April indicate that the index increased by 1.4 per cent (on a monthly average basis) in SDR terms, after
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Roy Morgan: 15.3% of Aussies unemployed in April
Roy Morgan Research has released its unemployment estimate for April, which has shown a massive increase in unemployment since the COVID-19 lockdown commenced in mid-March: Roy Morgan’s unemployment measure for April shows a massive 2.16 million Australians were unemployed (15.3% of the workforce), with an additional 1.32 million (9.4%) under-employed. In total 3.5 million (24.7%
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Immigration fight begins
The carcass of COVID-19 is barely cold and here it comes. Domain leads us off: Australia’s dependence on immigration to grow the economy is about to be sorely tested. …Over the past decade, the nation’s permanent population has grown by 3.7 million to more than 25 million. Of that increase, 60 per cent was due
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Angus Taylor: Minister for Energy chaos
He writes in The Australian today: When it comes to our energy supplies, Australians have been well served and we continue to enjoy ample supply of electricity, gas and liquid fuel. Our fuel supply chains have proven to be resilient during the past 40 years, despite many disruptions. We produce fuel ourselves, and we import
4
Aussie unemployment already at 11%
Via Bloomie: The number of Australians receiving unemployment benefits soared to 1.3 million as of April 24, from 800,000 at end-2019, Department of Social Security figures released Thursday to a parliamentary panel showed. There were a further 300,000 applications yet to be processed. Based on these numbers, the jobless rate would have jumped to 8.8%,
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ABS: One-third of households financially worse off by COVID-19
From The ABS: “One third of Australians (31 per cent) reported that their household finances had worsened over this period, while one in seven (14 per cent) reported an improvement,” said Michelle Marquardt, ABS Program Manager for Household Surveys. While the majority of Australians (81 per cent) said their household could raise $2,000 for something
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Working from home to become new normal
The AFR’s workplace editor, Sally Patten, believes that office workers should expect to work from home for at least half the week for the rest of 2020, while staff are tipped to work from home one or two days a week over the longer-term: Large businesses that are developing plans for staff to start moving
3
Panicked businesses go on record breaking borrowing binge
Yesterday’s private sector credit aggregates data from the Reserve Bank of Australia (RBA) revealed a massive jump in business lending, with annual business credit growth surging from 3.6% in February to 6.3% in March: This was the biggest jump in business lending in three decades as businesses scrambled to open credit lines to see them