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Signs the Aussie economy is finally getting better
On Thursday the estimate on business investment for 2016-17 went up for the second quarter in a row.
Investment intentions up
“Despite considerable uncertainty that existed in early July including the aftermath of the UK’s Brexit vote, a close Federal election and the possibility of a hung parliament, firms have upgraded their total capex intentions for 2016/17,” said Kishti Sen, senior economist at BIS Shrapnel.
“It appears firms are getting on with the business of investing taking comfort from a low interest rate environment, a lower dollar and generally calmer economic conditions. While a fully-fledged recovery in non-mining business investment will take time as there remains sufficient excess capacity to meet current demand levels, recent capex data suggests we may be slowing coming out of the bottom of the cycle (in terms of non-mining investment).
“From an initial (Jan/Feb) estimate of $94 billion capex for 2016/17 and an April/May estimate of $98 billion, private businesses now expect to outlay just over $105 billion in 2016/17.”
Businesses increasing their plans to invest is great news for the economy, jobs and the PM!
Also read: Lower property prices ahead
Silence isn’t golden
And when a leading banking economist surveys some new data and says that the economy looks like it’s better than was thought, what does the media do with it? That’s simple – it ignores it!
Of course, if dwelling approvals fell 11.3% in July, you can bet your life that a story like ‘we’ll be ruined’ would’ve been a good chance of a headline story.
Digger deeper on dwellings
So in case you missed it, dwelling approvals rose by 11.3% in July after falling by 4.7% in June. In trend terms, approvals rose by 0.2% in July. In the same month, house approvals fell by 0.6%, apartment approvals rose by 23.4% (holding just shy of record highs) and the value of all commercial and residential building approvals rose by 3.2% in July.
Now generally, I would’ve ignored a month’s figures but when a respected Westpac economist like Matt Hassan says that the numbers suggests the economy might be better than expected, then this kind of news should be released to the public at large.
Also read: Is Australia's lower jobless rate simply masking record underemployment?
Where are our confidence-boosting leaders?
We have a crisis confidence, which I talked about last week, and there should be someone in the Government doing what I’m doing – trumpeting positive aspects of our economy. Why do those plonkers in Parliament need to be told this? Are we getting the politicians we deserve?
Remember, the housing sector is a big employer and it helps the multiplier effect that propels the economy’s growth and jobs to a higher level.
Negativity reigns in Canberra
I watched the pomp and pageantry on TV yesterday at the opening of Parliament and thought “what a waste of time!”
I want our politicians to do more stuff that gets us pumped and builds up confidence rather than simply whinge and whine about banks, the other party’s policies and the unusual views of Pauline Hanson.
Some more good news
This is what CommSec’s Craig James said about the building numbers: “The number of dwelling approvals surged in July, no doubt driven by the May rate cut and, in general, the super low interest rate environment. It’s clear that despite a modest consolidation in overall activity, the housing sector continues to bubble along at a healthy pace."
"Home prices remain resilient, despite changes in regulation and tighter lending standards that have been adopted by the banking sector. Importantly, the pipeline of new building will continue to support broader-based economic growth over the coming 12-18 months. The housing sector is no longer on the Reserve Banks wall of worry and unlikely to have a significant impact on interest rate policy.”
Why does an economist get it that news like this is important when politicians don’t?
Also read: Here's why we should all be worried about Nigeria's economy
Yanks are feeling good
And, fortunately, good news could be on the way from the US and while it could lead to a stock market slide, I say “bring it on!”
Overnight, US consumer confidence came in at 101.1 rather than the economists’ consensus of 97, which is a big miss to the positive side. This led to the logical market player expert reaction from Peter Cardillo, chief market economist at First Standard Financial on CNBC:“The consumer confidence came in strong and that bodes well for the Fed to raise rates.”
But will the Fed raise rates?
Right now, the Yanks and the rest of the world is on data-watch to see if the US Federal Reserve is set to raise interest rates in September. The big bets are for December but since the Fed Vice Chairman Stanley Fischer made some comments, such as “the US job market is almost full strength” and other utterances, some smarties think the rate rise could be in September.
In fact, the US economy might be so good it might need two rises, with another in December.
Also read: What's the right investment for this stage of the property cycle?
Stock market implications
This rate rise speculation could be ramped up on Friday when the latest US jobs report is released, with 180,000 jobs expected. This is a good number in its own right but, if it comes in bigger, then we could see the stock market slump on the news!
The stock market reaction to rate rise news speculation has been consistently negative, so when it happens I expect a substantial sell off but that will only be Act One in this new play for Wall Street and global stock markets.
After a short time, the positivity of the thought that the US economy is actually and unambiguously recovering lead to a bounce-back for stocks. And so I say, as loudly as possible, “bring it on!”
But I wish I had some media hungry political buddies with big mouths helping me spread the good word.
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
