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.


Will you pay for The Oz?

In a stroke of irony, The Australian released the following story online this afternoon: THE Australian has announced it will launch digital subscriptions on Monday, with a three-month free trial for all readers. Publisher News Limited said the national broadsheet’s strategy was built around a digital content pass which would provide access to The Australian online and


NAB survey confirms Dutch disease

The September quarter NAB Business Survey  is out and as you can see above. It shows an economy with slumping confidence and conditions, but stable pricing. NAB also makes a point of describing an economy suffering from an unprecedented division between weakness and strength: Business conditions slump and confidence falters mid-quarter, but monthly profile points to subsequent


The jobless vs dole numbers

The RBA and some commentators seem a little confused about the Australian labour market.  Why? Because the ABS labour force data is showing the unemployment rate rising, while the Department of Education, Employment and Workplace Relations (DEEWR) data on income support payments (such as Youth allowance and Newstart) shows a declining number of welfare recipients.


The NBN is money well spent

Yesterday, Telstra shareholders voted in support of the deal offered by the federal government and NBN Co. At a glance this deal appears to offer Telstra $11billion compensation for access to its infrastructure facilities, and for the decommissioning of the copper network. For me, the technicalities of this deal are almost immaterial in terms of


Edgy consumers

Westpac has just released its October Red Book, a comprehensive guide to consumer sentiment. It really is an exceptional document and well worth a few moments of your time. Westpac’s own summary of the findings reads: The Westpac–Melbourne Institute Consumer Sentiment Survey showed a slight improvement in October, holding on to September’s surprisingly strong 8.1%


Will it be a black Christmas?

Dun & Bradstreet, the collections agency, has released a new consumer survey suggesting that the forthcoming Christmas will be a dour one. According to the survey: …which focuses on Australians’ expectations for savings, credit usage, spending and debt performance, also found that only 20 per cent planned to apply for new credit, down from a


The resources curse

Australia’s current terms of trade boom is a media darling.  This widely quoted statistic has provided a degree of comfort to those who proclaim the robustness of Australia’s economy due to close trade connections with Asia, and China in particular. Most readers would not be aware that macroeconomic researchers have built up a solid evidence


More on the car-house connection

I’ve dug into some more data to see what the car sales-housing connection might be able to tell us about future demand for credit and the results are striking. First is ex-refinancing monthly housing finance charted against car sales and, as you can see, there’s some kind of lead/lag correlation. The largest divergence over recent


Lending finance solid

ABS Lending Finance for August is out and shows growth across the board: AUGUST KEY FIGURES Jul 2011 Aug 2011 Jul 2011 to Aug 2011 $m $m % change TREND ESTIMATES Housing finance for owner occupation(a) 14 361 14 554 1.3 Personal finance 7 081 7 145 0.9 Commercial finance 32 298 32 948 2.0


Westpac on structural unemployment

Find below a new study by Westpac into the employment stresses across different states and industries. It includes the first ruminations on structural unemployment that I’ve seen in Australia. The reason is something that Runplestatskin has been discussing for some time: labour is not fungible. Westpac continues to lead the way in institutional research. er20111014BullJobsIndustryState


Two speed states

I don’t use the rhetoric of the “two-speed economy” generally because it’s basically an Orwellian spin on something much older and well understood: Dutch disease. However, NAB’s monthly State by State report out this morning has a terrific breakdown of the the growth matrices in each state and makes fascinating reading. For instance, exports: And


More on unemployment

So, unemployment fell from 5.2862044% to 5.2477873%. Following are the charts. First, the larger picture. As you can see, for the past year job creation has been very patchy. If anything, it resembles the GFC period: Below is the split of part and full time jobs. There has been a lot of churning between the two


Unemployment down a tad

ABS Labour Force data is out and shows .1% fall in unemployment to 5.2% in September. No doubt this will excite the bullish pundits, who, having spent the better part of a month trashing the data, will suddenly fall in love with it again. The key points are below: SEPTEMBER KEY POINTS TREND ESTIMATES (MONTHLY


A black Swan

In a Ministerial Statement released this evening, Treasurer Wayne Swan gave up on the endless China boom rhetoric and launched a new rather bearish narrative. The release appears to have three aims. First, it’s fair bet we’re seeing the ground shifted for the news that next year’s surplus is evaporating as we speak. Second, the


La Nina is back

From the Bureau of Meteorology today comes this: Pacific reaches La Niña thresholds Issued on Wednesday 12 October Conditions in the tropical Pacific Ocean are consistent with the early stages of a late-forming La Niña event. If the current cooling persists, as is expected, then 2011-12 will be recorded as the second La Niña in


The BCA rent seeks population growth

Economies evolve by bargaining over rents.  This occurs in the commercial sphere, where market power leads to price outcomes.  But where bargained outcomes are troublesome is in the political sphere – where vested interests ‘buy’ policy changes for their own benefit. No doubt, this second type of bargaining is part of the motivation of the


Consumer confidence bounce stalls

So, the bounce in consumer confidence has stalled, increasing by just 0.4% in October from 96.9 in September to 97.2. There is a interesting picture building around consumption at the moment. On the back of flattening expectations for rate hikes, we’ve seen a little pop in retail sales, pent up demand if you will. I’ve also


NAB survey indicates no rate cut

The NAB survey has put in a solid performance for September. Business confidence remained subdued but conditions and trading jumped. So too did the employment index. Forward orders was still in deep negative territory and exports are subdued. Given the backdrop of global volatility, I see this as a very good result. As does NAB:


Ageing debate hijacked by vested interests

Kevin Rudd’s political career was over when he uttered the words ‘big Australia’.  Dick Smith, the hobby pilot and millionaire political agitator, took it upon himself to raise the profile of the population debate, making it the Australian identity crisis of 2010.  Many economic commentators came out in support of the high rate of population


Job ads fall in adjustment overshoot

The softening of the jobs market predicted at MB earlier this year is showing more evidence, with ANZ job ads slowing again in September: Job advertisements on the internet and in newspapers decreased by 2.1% in September. Annual growth in total job advertisements decelerated to 3.1% y/y. • Newspaper job ads were flat in September, while


Still struggling with solvency

Dissolve released their latest report on business insolvencies last week, available below. As has been noted before Dissolve is a commercial entity and as far as I can tell their data isn’t adjusted for growth in the number of companies in Australia. However, even with those caveats in mind their last report isn’t exactly happy


Ridout must resign

I’ve spent some time pointing out the flaws in the Australian Industry Group (AIG) approach to defending its manufacturing membership against the annihilation that Canberra’s economic boffins have planned for it. To me it is plainly obvious that to save manufacturing, the AIG must go way beyond its efforts to date. Those efforts have largely


Ken Henry revisits the RSPT debacle

Peter Martin reports this afternoon from the Tax Summit that: Former Treasury boss Ken Henry has conceded he mishandled the selling of the mining super-profits tax the former Rudd government proposed last year. Addressing day two of the tax summit in Canberra, Dr Henry said his review took for granted that Australians understood the difference


Retail sales better than expected

Good news on the economic front has been hard to come by lately and for all the talk of a retail spending drought the data this month and last was far from terrible (even if well below historic averages). Indeed this month’s 0.6% increase in retail sales for August matched the upwardly revised outcome for


Record exports

ABS trade figures are out today and there’s no doubt about it, August was a cracking month, posting a big jump to record export revenues above $28 billion for the first time and delivering a surplus of $3.1 billion, the second highest ever. The good news came from one primary source, iron ore: As you