Yahoo Finance How strong is the Aussie economy?
There are some economists out there who seem to have in their make-up to talk down our economy, and if they were right, I’d have to shift from being cautiously positive about our outlook. So, let’s have a look at the latest readings that make up the overall picture of an economy that escaped the recession post-GFC that most economies of the world succumbed to.
No recession
Before we look at the latest numbers, understand that we have avoided a recession for 25 years or 100 quarters, and if we can beat 103, we will break the world record held by the Dutch.
They cracked this between 1982 and 2008 when North Sea oil delivered a terrific bonus for growth.
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On an international comparison basis, right now US economic growth is 1.2% while we’re at 3.1% and the Poms grew at 2.1%. The Germans — the powerhouse of Europe — could only manage 1.7%.
This is what the Poms at FT.com said it: “Australia has notched up a quarter-century without recession, a record that has pushed living standards to among the highest in the world.
“The country last suffered a recession in 1991 — the year the Wallabies won their first Rugby World Cup and pop stars Michael Hutchence and Kylie Minogue broke up. Economists say luck and good management have enabled Australia to sidestep global crises, including the 2008 financial crisis, that hobbled other countries.”
Questionable argument
Those economists who want to bag our economy point to an income recession, which means our income has gone backwards for some quarters, unlike production, but economists such as AMP’s Shane Oliver and CommSec’s Craig James agree with me that this is a questionable argument.
“Talk of an income recession based on Real Gross National Income being down 1.3% over the last year is way over the top,” Shane Oliver told me. “The main driver of the slump in real GNI is the slump in commodity prices, iron ore, coal etc. And this does affect the economy overall but only parts of it (e.g.: miners, revenue growth in Canberra etc). Most Australian’s do not get paid in iron ore or coal so their slump is off less relevance.”
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I thought the best guide to how our income has changed would have been Disposable Personal Income, which takes in things like tax cuts, etc. and both Oliver and James agreed with me. This chart proves the point that income recession talk is overdone.
Economic checkup
OK, let’s do a check up on recent economic data to see if we should be positive or negative.
Here goes:
The CoreLogic RP Data Home Value Index of capital city home prices rose by 0.5% in June after lifting by 1.6% in May and 1.7% in April. Home prices were up by 8.3% over the year to June, which means the home sales market is not in bad shape despite the regulators’ attacks on investors and foreign buyers.
The Performance of Manufacturing index edged up 0.8 points to 51.8 in June. A reading above 50.0 indicates that the sector is expanding. The index has been above 50 for 12 months – the longest period of expansion since September 2006!
The March economic growth number we got was a 3.1% result for the year, which was way over the 2.5% level many economists predicted. If you take the last six months and multiply those two quarters of growth, you get 3.4%. That’s the preferred measure of the Reserve Bank. (Growth over 3% means unemployment should fall if history holds true.)
The RBA says: “While GDP growth had been stronger than expected in the March quarter, reflecting unanticipated strength in resource export volumes, it was expected to have been more modest in the June quarter. Economic growth was expected to pick up to be above estimates of potential by mid 2017.” The RBA says growth will be between 2.5-3.5% over the coming year.
Unemployment defied critics, dropping from 5.8% to 5.7% in March. This time last year, economists were telling us to hold our breath for a 6.5% top out for the jobless rate.
Employment rose by 26,200 in July after rising by 10,800 people in June (previously reported as a rise in jobs of 7,900). Full-time jobs fell by 45,400 while part-time jobs rose by 71,600. Economists had tipped a 10,000 increase in jobs.
On average in 2015-16 there were 139,400 people aged 15-19 that were unemployed, down 13,300 or 8.9% over the year – the biggest percentage decline in 17 years.
The ANZ/Roy Morgan consumer confidence rating rose by 3.6% to 121.8 in the week to August 21 – the highest reading since late 2013. Confidence is up 7.8% over the year and well above the average of 112.4 since 2014. The measure of whether it was a good time to buy a major household item, lifted to the highest reading in 3½ years.
New home sales rose by 8.2% in June according to the Housing Industry Association.
Car sales are around record highs with luxury car sales in the year to July, was 104,277 — up 15.7% over the year.
Tourists from mainland China and Hong Kong rose to a record 1,389,200 over the past year (up 21.4% over the year) and now well ahead of tourists from New Zealand (1,321,700 visitors over the past year).
The NAB business conditions index fell from +10.9 points to +8.4 points in July (long-term average +4.9 points). The business confidence index fell +5.4 points to +3.8 points (long-term average +5.7 points). The survey was conducted from July 25-29.
The Consumer Price Index rose by 0.4% in the June quarter, in line with expectations. In seasonally adjusted terms the CPI rose by 0.6%. The annual rate of inflation fell from 1.3% to 1.0% – equaling the low set in June 1999. So inflation stands at a 17-year low.
The wage price index rose by 0.5% June quarter after a similar rise in the March quarter. Annual wage growth held at a record (18-year) low of 2.1% but the gap between annual wage growth and inflation is 1.1 percentage points – the biggest margin in 3½-years (December 2012).
Construction work done in the June quarter fell by 3.7%, to be down 10.6% on a year ago.
Total lending finance fell by 4.7% in June - the third consecutive fall. Lending totaled $64.2 billion in June, down 12.6% over the year and holding at a 19-month low.
Retail sales rose by just 0.1% in June after a 0.2% lift in May. Sales have lifted 2.8% over the past year. Non-food retailing rose by 0.6% in June.
In summary…
As you can see, there are some softer statistics but nothing screaming out beware! Also some of the weaker data links up with the long election period, which can always hurt parts of the economy.
On an international basis we have a pretty good economy better than most Western economies we compare ourselves to and our Government debt to GDP is again one of the lowest in the Western world under 40% of GDP while the likes of the USA and the UK are closer to 100%!
Anyone who wants to talk down this economy has a vested interest to do so. It’s not going gangbusters but it’s nowhere near the proverbial gurgler!
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
