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.


Private versus public infrastructure

Recent media interest in the issue of gold-plating electricity infrastructure signals that it is an important time to take a step back – to take an objective look at the history and known economic issues surrounding infrastructure provision, and particularly the private versus public infrastructure debate. These issues are also relevant for the debate about


NAB Survey still weak

The July NAB Business Survey has printed a another weak result. There was improvement in a number of headline segments: Confidence jumped, obviously, according to NAB on easing international fears. However, conditions and profitability both dived. Oddly, labour costs and input surged. The weakness in employment eased but is still at levels associated with rising


Car sales ease

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released new motor vehicle sales for the month of July, which registered a seasonally-adjusted -0.8% fall over the month, led by New South Wales, Queensland, the Northern Territory, and the ACT: Despite the recent dip (sales fell last month by -1.0%), the below chart


New company registrations still strong

Courtesy of Mark the Graph: Yesterday, the Barking Cat asked me to have a look at ASIC’s new company registrations. Unsurprisingly, the raw data displays strong seasonality. Applying the standard R seasonal decomposition of time series by loess package, we can derive a seasonally adjusted and trend perspective for each state and nationally.    


Higher unemployment is on its way

There was some good material produced yesterday by several bank economists on the Labour Force survey which showed that the headline numbers are hiding a trend towards higher unemployment that is likely to become apparent in the next six months. First, to give you some perspective on what has transpired so far, Westpac made the


Unemployment in detail

By Leith van Onselen As reported by the Prince earlier, the Australian Bureau of Statistics (ABS) has released labour force data for the month of July, which reported a slight reduction in the headline unemployment rate to 5,2% from 5.3% in June (originally reported as 5.2% but revised upwards). The economy added 14,000 jobs (+0.1%)


Unemployment steady

By Chris Becker The Australian Bureau of Statistics (ABS) has just released Labour Force Survey figures – i.e unemployment – for July – and it’s come in at 5.2% – on expectations of 5.3%, with last month’s print revised up to 5.3%:     The Unconventional Economist, Leith van Onselen will follow up with an in-depth


Opposition seeks to boost investment elsewhere

Does the Opposition even understand macro economics? From the AFR today: The federal opposition has signalled it opposes the Reserve Bank of Australia intervening in currency markets to weaken the dollar, preferring to let market forces determine its value. Former RBA board member Warwick McKibbin wrote in yesterday’s Australian Financial Review that the central bank should consider printing


PCI: Construction funk deepens

Here’s the July PCI, about which I have previously expressed doubts whether it is correctly measuring engineering work. Anyways, even if biased towards dwelling construction, it kicked downwards in July: And employment sank to its lowest level in the past few years: Binder 1


Large retailers still feeling the pinch

By Leith van Onselen The contradictory signs coming out of the retail sector have continued, with last week’s release of strong retail trade data by the Australian Bureau of Statistics (ABS) contradicted by reports of falling profitability and sales amongst Australia’s large retailers. Last week’s ABS figures revealed that retail sales grew by 1.0% over


Bogan exodus booms

By Leith van Onselen News got worse for Australia’s tourism industry on Friday, with the release of the overseas short-term arrivals and departures figures for June showing a record number of departures over the year, led by the bogan hot spots of Bali and Thailand. Although short-term visitor arrivals increased by 3.3% in June, outweighing


Farmers reject Abbott Declaration

From the AFR: Farmers have rejected a Coalition plan to lower the threshold at which agricultural land investment is subject to scrutiny by Australia’s foreign investment watchdog, as part of a tightening of investment rules. “That’s not the way we would have gone about it,’’ National Farmers Federation (NFF) president Jock Laurie told The Australian Financial


SMEs get adjusted

The NAB Business Survey (SME Edition) is out today and it was an unhappy second quarter with indexes falling across the board: Moreover, the pain is widespread across sectors, with some relief in the recent retail bounce: And all states, even WA, struggled: Looks like the mining boom is for the big end of town


PSI weakens

The AiG PSI for July is out and shows creeping weakness: The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) fell by 2.3 points in July to 46.5. ■ The decline in the Australian PSI® reflected a fall back in sales and new order levels, after they expanded in June, and


Is Abbott’s great gaff of China policy or not?

The AFR reports this morning that Abbott’s great gaff of China is to become Coalition policy: Opposition Leader Tony Abbott will today propose tightening Australia’s foreign investment regime in a concession to the Nationals…One of the proposed changes is to reduce the financial threshold for the Foreign Investment Review Board to examine foreign purchases of agricultural


Roy Morgan unemployment stays high

Roy Morgan unemployment for July was just release and shows no easing in its recent spike: In July 2012 an estimated 1.171 million Australians (9.7%, unchanged in a month) were unemployed, and the Australian workforce* was 12,119,000, (up 110,000 in a month) — comprising 7,432,000 full-time workers (up 81,000); 3,516,000 part-time workers (up 27,000) and


The Kouk sees a glass chock full

Recently some folks have tried to convince us that housing is now cheap, given valuations are 2002 levels.  But that pales next to the following from The Kouk today. Apparently, our economy is the best since 1964! The current economic data in Australia are about as good as one could expect to see. Australia has GDP


Big miners begin to cut

This afternoon Rio announced that it would start: …cutting staff in Australia and closing its Sydney office as it battles falling commodity prices and threats to demand from Europe’s debt crisis. Some 30 support and services staff in Sydney and an undisclosed number of employees at the company’s much larger operations in Melbourne would be cut,


Billionaires blather

Today we have a splendid example of everything that is wrong with Australian political economy. Rather than debate several important issues thrown up the huge wealth accumulated by a small number of folks, we have the usual political and ideological tribalism that reduces the issues to a kindergarten game of name calling. Let’s start at the