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OZ economy: The good, the bad and the ugly
By Peter Switzer
Well, footie grand finals are done and dusted and the players who train around the Richmond area — the Richmond Tigers in the AFL and Melbourne Storm in the NRL — have plenty to be happy about. And the grand final cheering is just starting to peter out as I write at week’s end, but maybe it’s time we started cheering the record-breaking, big goal-kicking champs called the Oz economy.
Some missed shots
Sure, there are a few disappointments that have come with the economy lately — subdued consumer confidence, weak wages growth, lower business investment as the mining boom wound down and the stock market has gone sideways since April.
We’re on a win
But these negatives are outweighed by good economic news, which I suspect will start delivering better stock price news over the last quarter of 2017. So it’s a new month and I’ve always hoped that the last quarter of 2017 could be good for stocks — we started the year at 5773 on the S&P/ASX 200 Index and we’re now at 5681 — so we need a big finish.
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Where are we heading?
Corporate profitability is on the improve here and overseas, and global stock markets as well as their related economies are going well, but our economy has a few challenges. These ‘little issues’ include a too high dollar, weak wages growth and consumer sentiment that’s not encouraging.
In the ‘getting better’ category, we’ve seen great jobs growth in the past six months after a worrying start to the year and plans for business investment are even making the most pessimistic economists a little more positive.
Meanwhile, there are concerns about a slowdown in the housing sector, but while price rises in Sydney and Melbourne seem likely after an unbelievable three or so years, the worries about housing construction might be too much and/or too soon.
Trump needs to lift his game
Undoubtedly, I’m worried that US stock market indices are at record highs and President Trump needs to get his tax plan through, or at least look likely to be passed by Congress before year’s end, if we want Wall Street to have one of their legendary Santa Claus rallies, which would give our stock market that big finish I’ve been sweating on.
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Is our economy set for a win?
So if the US ‘ducks’ line up, will our economy be poised to give key stock market influencers the drive to take our share prices and stock market indices higher?
I had a weekend conversation with a lawyer mate, who doesn’t devote much time to economic analysis. He had the feeling that our economic outlook was pretty dire but I explained to him that I thought the opposite was the case. The signs are looking better and there are a lot of records and statistical highs that normal people are missing.
Look at the scoreboard
I hope this little run of economic positives will turn you into a true believer of what the Oz economy could do. Stand by to be impressed:
The economy grew by 0.8% in the June quarter, after rising by 0.3% in the March quarter. Annual economic growth held at 1.8%. The economy has just completed its 26th consecutive year of growth – the last recession was January-June 1991 and this is a world record!
CommSec estimates that wealth rose to a record $397,267 in the June quarter, up $4,730 over the quarter and up around $29,100 over the year.
A record 22.4% of all household assets are held in superannuation.
In real terms, household financial liabilities (debts) fell by $25.6 billion in the June quarter – the biggest quarterly fall in five years.
Job vacancies rose by 6% to a record 203,700 in the three months to August. Job vacancies are up 15.4% on a year ago.
Employment rose by 122,700 in the three months to August, after a gain of 150,500 in the previous three months. It was the biggest six-month gain in jobs in records stretching back almost 33 years.
Australia’s population grew by 126,138 people over the March quarter – the biggest quarterly increase in nine years.
The budget deficit for 2016/17 was $33.15 billion, or 1.9% of GDP. The budget deficit was a $4.4 billion improvement on the $37.6 billion deficit forecast just four months ago The annual deficit was the smallest in four years. There has only been one smaller deficit in the past eight years. On a rolling monthly basis, the deficit was the smallest in 39 months.
The Bureau of Statistics (ABS) reported that new vehicle sales were broadly flat in seasonally-adjusted terms in August. Annual sales of new vehicles hit record highs.
Company operating profits fell by 4.5% in the June quarter, after rising 24% in the previous six months, but in the year to June, profits hit a record $304 billion, up 20.9% on a year ago.
Construction work done soared by 9.3% in the June quarter, underpinned by work on a large engineering project in Western Australia. Construction work hit record highs in NSW and Victoria.
The rolling 12-month surplus rose from $12.2 billion to $14.4 billion (the biggest surplus in six years). Exports to China hit a record $96.2 billion in the year to July.
June quarter rural exports were at a record high.
The NAB business conditions index rose from +14.1 points to a 9½-year high of +15.2 points in August.
Get the picture?
I could go on with this optimism-creating stuff but that will do. I could also go looking for negative stuff and in economics, it’s always there, but my mates in the media do that every day, so I thought I’d paint the positive picture.
A few surprises
Before I sign off, there have been two surprises for even me, with the weekly ANZ/Roy Morgan consumer confidence rating falling by 0.6% to 114.1, after rising 4.6% to 7-week highs in the previous week. However, the confidence rating remains above short and long-term averages. And happily the wage bill rose 1.2% in the June quarter – the biggest lift in two years!
If you’re a fanatic supporter like me!
Anyone who argues we have a solid case for being negative hasn’t fanatically looked at the facts about my favourite ‘footy team’ called the Aussie economy. Go Aussie go!
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
