The Australian economy is right where the Reserve Bank wants it to be. Forget the rate-cut talk ahead of next Tuesday’s March RBA meeting.
The resources boom is well and truly, well, booming, home building is offsetting it with weakness and manufacturing is alive and expanding, contrary to all those eulogies that were spat out of laptops and think tanks late last year and in January and February as a succession of companies cut staff.
Manufacturing grew by for a third successive month, according to the Performance of Manufacturing survey by the Australian Industry Group and PricewaterhouseCoopers. The PMI was 51.3, only 0.3 index points down on the January reading (above 50 indicate an expansion in activity).
Australian Industry Group (Ai Group) chief executive designate, Innes Willox, said in a statement that the result suggests manufacturing remains resilient in the face of the high Australian dollar and “the movement of new orders into positive territory for the first time since the middle of 2011 is also encouraging”.
So manufacturers are still doing it tough, but there seem to be signs of adjustment under way.
That should be the focus of current economic policy — enabling the adjustment of manufacturing to the harsher environment of a high dollar, not shielding it with handouts. It will result in a higher productivity, more competitive sector, in a way the pre-GFC years of easy living for employers and employees alike never could.
And the resources boom continues. This morning we saw the private investment figures from the ABS showing a 0.3% fall in seasonally adjusted terms in actual spending in the December quarter (to a near record $37.9 billion). Estimates of forward spending for this year eased 0.7% to a massive $164.15 billion. And the first estimate for private investment in the 2012-13 financial year were revealed at an even larger $172.88 billion.
Manufacturing investment this year is forecast to rise 3.4% to $13.334 billion, but the first estimate for 2012-13 shows an 8.1% drop to $10.6 billion as the impact of the cuts and high dollar take their toll.
Yesterday the ABS said the value of construction work done in the December quarter dipped 4.7%, but that was after the record 12.5% surge in the three months to September. Spending in this area remains more than 9% above where it was in 2010.
Building approvals showed a small rise in total approvals in January, thanks to a big rise in NSW in non-private dwellings. That means there was a surge in council approvals for apartments and townhouses as backlogs were cleared from the end of 2011. The Australian Bureau of Statistics said the number of dwellings approved rose 0.9% in January 2012, in seasonally adjusted terms, following a fall of 0.8% in December.
Yesterday we saw retail sales up 0.3% in January, seasonally adjusted, lending data from the RBA showing sluggish growth for the same month, and weak new home sales.
In fact the economy is right where it was at the end of last year when the RBA described it as growing “around trend”. Plenty of jobs seem to be disappearing by the day, but not too many people are concentrating on finding out where the new jobs are until the monthly jobs reports from the ANZ bank and then the Australian Bureau of Statistics.
The retail sales report for January coincided with the release of a very poor sales and profit report from Harvey Norman yesterday. In fact, so weak was the sales effort (down 6% for the half year and more on a same store basis, with a big fall of 10% registered in the December quarter), that the company held back making the sales data public for two weeks until the profit could be released. In 2011, the interim sales figures were released two weeks ahead of the half year profit; yesterday, both together. The media missed this bit of jiggling by the company and its management.
The profit figure showed a 37% fall from the company’s core franchise retailing business, and a higher property profit and contribution managed to limit the slide to around 2% overall. On the Fairfax websites this morning, a story on the very poor interim profit result from Harvey Norman quoted Gerry Harvey that Australians had to start spending if more retail businesses were to escape going bust. “Give us the money or our employees will cop it,” the ever-popular Harvey seemed to be saying. Gerry’s comments, which always go down well with the punters produced well over 270 comments, overwhelmingly adverse, by noon.
It seems many people have a different view of retailing’s future than Gerry Harvey, and that he and his company do not feature in these views. That’s a message to all the moaners and groaners in retailing, in the media, unions and consultancies: consumers are not in a generous mood to hear stories of woe and warnings about worse to come. This is an economy in transition — the task is to get on with the adjustment, not whinge about it.
Looking forward to all those automated service economy jobs. Maybe Dy er’s can be the first job to be automated. That should increase the productivity curve nicely.
What the debate about the high dollar misses is that it’s SMEs and micro businesses operating in the value added service sector that are getting most hurt by the high dollar.
Most of these businesses are capital light and labor intensive. Most are at the forefront of software development and deployment within their businesses and are at the top of value add chain.
One by one they are getting squeezed and shedding staff and cutting working hours. As small businesses they fly under the statistical radar and the squeeze is largely ignored.
Where possible, jobs are being shifted offshore, but in many cases they are simply being wound up as many of these businesses are operated by people now in their 50s and 60s having established them in the wake of the great tariff reforms of the 1980s and the advent of desktop computers.
Rather than these businesses being passed onto a new generation of business operators they are being squeezed out of existence or forced offshore.
The Gillard government has no industry development policies other than the carbon tax and some glib statements about a clean energy future – when there are effectively no clean energy companies operating in Australia now or anytime soon.
As a long term Labor supporter I cannot believe the shallowness of the government’s response to the impact of the dollar and can only assume it gets away with it because the opposition has no idea how to attack the government without exposing its own policy contradictions.
Could it be that Gerry Harvey is not doing well because he’s not a good businessman? He’s the last place I go to for electrical and electronic, because of his high prices and limited range. Fix your business model, Gerry, don’t expect the taxpayer to subsidise you!
As a clarification – I’m specifically referring to SMEs and micro businesses operating in the export sector or otherwise exposed to the high dollar.
Maybe if big volume Australian retailers like HN could get their multinational suppliers to abandon ‘regional pricing’ models where they charge twice as much for the same product as in the US?
Of course, the housing/credit bubble and excessive mortgages is killing retail as well.
Regarding Australian ‘business models’, retailers in Australia often fail to bring in the complete model range from suppliers, robbing consumers of choice. With the advent of the internet, Australians can increasingly see a full overseas catalogue, realising local retailers have only selected one or two models from the line, and not the one they actually want!
While only a small volume market of 22M people (who rely HEAVILY on imports), the import-wholesale-retail model lets them down. With international freight costs low, it’s just as easy to dial up what you want in a catalogue and have it mailed direct to your place from Macau, much as the Dell model works. (Dell don’t even have a retail/office physical presence in Australia, it’s all done from overseas, and they use local tech businesses to handle repairs.) You might think this is inefficient from a freight and handling perspective, and you would be right — but the other option of bringing in limited supplies in a container ship courtesy of Harvey Norman doesn’t work well either. And how many times do we get told an advertised product we want is no longer available as they’ve run out, there might be another container load coming along some time, but don’t count on it?