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.


ABS job vacancies fall

The ABS released its quarterly job vacancies report and for the three months to May and the results are below: MAY KEY FIGURES May 2012 Feb 2012 to May 2012 May 2011 to May 2012 ‘000 % change % change Trend Estimates Private sector 158.6 -2.6 -5.8 Public sector 16.1 -3.1 -9.2 Private and public


New home sales twitch

From the HIA: New home sales crept up by 0.7 per cent in May 2012, suggesting interest rate cuts are yet to have a widespread impact, said the Housing Industry Association, the voice of Australia’s residential building industry. …In May 2012 the number of seasonally adjusted new detached house sales increased by 3.9 per cent in Victoria. Detached


‘Twas the land bubble that killed productivity

Even though more words have been written about Australia’s productivity performance than most other economic issues, I have learnt very little about what our productivity trends really mean. Recently, the RBA tried to unravel the mystery. Here at MacroBusiness my wise colleagues have often penned their interpretation of events. To throw a little more confusion


The productivity perfect storm

In today’s RBA Bulletin, Patrick D’Arcy and Linus Gustafsson produced a fascinating study of what has caused Australia’s post-millennium productivity slump. Called Productivity Performance and Real Incomes, this thing is a piece of work. It begins with a chart of the slump: Then blames a fair slice of it on the mining and utilities sectors: In


Household risk appetite and shares

The RBA has released its quarterly Bulletin. It contains lot’s of goodies but one that caught my eye was a new study of the shift by households from equities to bank based saving driven by decreased risk appetite. It reads a bit like a broker’s report in its recommendation of shares over the long run


Westpac ACCI flat

I don’t think anyone will be surprised to discover that today’s Westpac ACCI Survey of Industrial Trends finds weakness: The Westpac–ACCI Actual Composite was virtually unchanged in the June quarter at 47.9, compared to 47.8 three months ago. • The Expected Composite was also broadly unchanged at 51.7, compared to 51.5 in the March quarter. • Overall, the


Charting Australia’s population growth

By Leith van Onselen Following the release yesterday by the ABS of the Australian Demographic Statistics for the December quarter of 2011, I decided to crunch the numbers to determine how Australia’s population and migration numbers are tracking. According to the ABS, Australia’s population grew by 1.4% in the 2011 calendar year, which was the


WA drives population growth

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Australian Demographic Statistics for the December quarter of 2011, which recorded an increase in the estimated rate of growth of Australia’s population to 1.4% (302,600 persons) over the 12 months to December 2011. This was the fastest rate of population growth


FIFObids gets underway

In another first for the Australian labour market, a new website has launched where mining companies can bid for FIFO workers. From the SMH: A website, inspired by Australia’s skilled labour shortage, has seen resources companies bidding for workers like eBay bargains this week. The privately funded FIFObids website, where companies can bid on the anonymous skills profiles


Leading indicators sing a gloomy tune

Two leading indexes for Australia are out this morning and both sing a gloomy tune for April. The Westpac/Melbourne Institute version rose slightly but remains quite depressed: The annualised growth rate of the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 0.2% in April 2012, well


New car sales bounce

The ABS has released April new car sales and they show good growth up 2.4% up in May from April and 22.4% year on year. Here’s the month on month chart: Of course, there always a catch and today it’s a big one, most obvious in the year on year chart: See that last big


A bullhawk departs this earth

Don’t say I didn’t warn you. When the GDP figure came out two weeks ago I advised going long bullhawk rhetoric. Last week we were subjected to some extraordinary drivel at Business Spectator, where the bullhawks make their nest, and today another feathered bovine screetches completely free of this earth and into a fantasy world of unicorns,


The despair of Ross Gittins

Last week Ross Gittins suggested we all throw in the towel vis-a-vis understanding the economy and today he follows through in a convulsion of public despair: The release of two downbeat indicators of business and consumer confidence last week serves only to deepen the puzzle over the gap between how we feel and what the objective


Innovation schminnovation

From the AFR: The innovation community is aghast that the new research and development (R&D) tax credit is being considered for cuts even before the end of its first year of operation on June 30. The credit is one of the options that could go in order to fund a company tax cut, being considered


Roy Morgan Business Confidence sags in May

Not that we especially needed reminding but according to Roy Morgan, business confidence fell significantly in May: Business Confidence in Australia dropped 6.4pts in May 2012 to 105.8, down from 112.2 in April and is now at the lowest level since August 2011. These are the latest findings from the Roy Morgan Research Business Confidence


Austerity beckons Queensland

I mentioned earlier this month that the new Queensland Liberal government’s cost cutting program had begun including what appears to be a fairly substantial purge of the public service. As far as I am aware this is ongoing and more recently Campbell Newman, the state Premier, has been softening up the state for more cuts: Mr


Where are the jobs?

Yesterday the ABS released its quarterly detailed Labour Force report which gives us chance to peer into the sectoral trends of employment. A couple of standout results included: Mining adding 25.5k jobs in the quarter and 58k over the year. Now at 275k total. Education and training was up 30k in the quarter but only


Job loss expectations jump

From Westpac and the Melbourne Institute comes the unsurprising result that consumer expectations for inflation have tanked in June and expectations for job losses are reaching some pretty alarming levels, completely ignoring happy ABS figures employment figures. Inflation expectations moderate & unemployment expectations deteriorate, adding to the case for additional interest rate cuts The Melbourne Institute


Productivity now!

You will no doubt have noticed the pounding chorus of  “productivity now” emanating from the government’s economic pow wow today. Productivity is vital, absolutely so. Wikipedia describes it thus: Productivity is a measure of the efficiency of production. Productivity is a ratio of production output to what is required to produce it (inputs). The measure of productivity


Mineral exploration explodes in WA

By Leith van Onselen The Australian Bureau of Statistics (ABS) released Mineral & Petroleum Exploration data nd it’s boom boom time in the resources sector! Nationally, expenditure on minerals exploration hit an all-time high of $2,016 million in the December half, with petroleum exploration expenditure also rising to $1,677 million; although it remains well below