Some of the country’s leading economists and business analysts can’t see a boom for the gloom that they are preaching and writing about.
If we get many more reports as positive as the ones we have seen in the past six days about the level of demand and activity in the Australian economy, then pressure for a rate rise will grow and only the worsening crisis in Europe will keep the RBA from lifting rates.
Westpac’s Bill Evans caused a stir last month in forecasting a rate fall later this year. Others have joined him. Perhaps they should have been reading the Fairfax economics editor, Ross Gittins, who has been one of the few commentators who has explained why the economy isn’t trapped in some sort of recessionary squeeze.
Anyone who read the testimony of Reserve Bank governor Glenn Stevens to the House of Reps economics committee would have realised that the economy isn’t going to hell in a hand basket, or being ruined by online purchases by consumers looking for a bargain, or by consumers intent on saving as much as they can, and not spending it.
They are spending it, on online purchases here and offshore, on cars and especially on overseas travel. But don’t tell some of these economists or economics writers that’s happening. Instead watch what tomorrow’s national accounts say about the strength of consumption. The first quarter national accounts said consumption grew at the solid annual rate of 3.4% in the year to the end of March.
But had it not been for the sharp slowdown in the US economy, the stupid argument over the debt ceiling, the worries about the stability of the euro and economies such as Italy and Spain, we would have had a rate rise last month. We won’t get one today because those offshore fears remain very large and very real and could deepen from tomorrow night onwards.
The NAB and AMP late last week forecast growth of 0.9% for the June quarter. Ben Jarman, an economist at JPMorgan, said the data released yesterday could see growth of 1.2% in the quarter. And Westpac senior economist Andrew Hanlan told AAP he expected the economy returned to more normal operating conditions in the June quarter, with GDP up by 1.1%.
Take the latest reports and think hard about what they are telling us:
A 0.5% rise in retail sales in July, a small rise in building approvals, but a fall in approvals for private dwellings, also for July. A near 5% rise in business investment in the June quarter AFTER a 7.7% jump in the March quarter, revised up from the original “weak” 3.4% estimate. Included in the June quarter rise was a surprise 2.2% rise in plant and buildings.
Yesterday we had a strong jump in car sales, up more than 4% from July and more than 7% from August last year. Rental sales were up 25%, but private sales also rose, up 9%.
Company gross operating profits rose 6.7% in the June quarter and were up 0.2% over the year, according to the Australian Bureau of Statistics (ABS).
Wages and salaries were up a solid 2.3% in the quarter to be up 8.3%, seasonally adjusted, over the year. Wages and salaries do not increase 8% a year in a recession, or near recession-like conditions.
And estimated business inventories, in seasonally adjusted chain volume terms, rose 2.5% in the June quarter, following a 0.7% rise in the March quarter. Economists were expecting inventories to have been up 0.4% in the quarter.
But that could be a sign of weak sales by retailers. The ABS figures hinted at that with a 0.1% fall in seasonally adjusted sales by manufacturers and a 0.7% drop in wholesale trade sales of goods and services. That could be as a result of the sluggish performance of retailers in the quarter.
But it’s not, its mining companies, especially coal groups in Queensland replenishing their stockpiles after running them down in the great floods and wet weather in the first six weeks of this year.
Job ads fell for a second consecutive month in August, according to the latest ANZ survey of newspaper and internet job ads. It was the fourth fall in five months. The index eased 0.6% last month to an average of 186,331 ads online and in print, following a 0.7% drop in July. The survey showed newspaper ads dropped 3% in August to 8057 to be 15.6% lower than a year ago (and all but irrelevant in terms of job advertising now). Online job ads dropped 0.5% August to 178,274, to be up 7.3% over the 12 months.
The survey underlined the failure of newspapers with which it said were “losing market share to online advertising.” Is that why some newspapers and their commentators are gloomy? Certainly it hasn’t impacted what Gittins has been writing in the Fairfax broadsheets.
The monthly Australian Industry Group (AIG)/Commonwealth Bank Australian Performance of Services Index (PSI) rose 3.3 points to 52.1 points in the month, a huge increase and one that suggests a bit of catch up in the survey with what was happening in previous months. A reading above 50 indicates growth in activity. Typically Heather Ridout of the AIG did her best to ignore the surprise improvement. Similar surveys in Asia (China especially), the UK and Europe showed a sharp fall in activity. America reports its survey results tonight.
And there was an improvement in the monthly inflation estimate from TD Securities and the Melbourne Institute. It fell 0.1% last month after a rise of 0.3% in July. Falling prices of fresh fruit and vegetables were to “blame”. It was the first fall in this survey since October 2009.
And finally, last Friday the ABS reported that the number of Australians travelling overseas in July was again higher. The ABS said the number of Australians travelling abroad rose by 3.2% in seasonally adjusted terms in July to 661,100 — the second-highest figure on record. Overseas departures were up more than 10% in the seven months to July, compared with the same period last year. In contrast, visitor arrivals are up just 0.4%, the ABS said.
Strong car sales, especially imports, strong demand levels of overseas travel for the past two years, especially in the past 12 months, and solid buying online, and even when it’s domestic, it’s from businesses importing product and undercutting established retailers and retailing channels.
What the myriad economists, retailers describe as doom and gloom don’t or won’t say is that Australians aren’t as gloomy as the surveys say.
Gloomy consumers don’t spend money on a new car (nor do gloomy businesses or governments or car rental firms); they don’t travel overseas every year and they don’t go hunting for bargains online here or offshore and use their credit cards.
These surveys don’t seem to be able to pick up the high levels of demand for cars, for overseas travel or for internet purchases; perhaps the questions need for be redrafted.
Consumers might be saving billions of dollars a year (the new savings rate will be in the national accounts tomorrow), but they are also spending and they are spending in a way currency speculators would be proud of. They are seeking out bargains and cheaper prices that have been created by the sharp rise in the value of the Australian dollar.
Not only is the strong currency driving the restructuring in trade exposed industries such as manufacturing, but the consumer response to the stronger currency is also helping restructure retailing in its broadest form. But that’s a separate issue.
How about the ABS and this incompetent federal government look at broadening the retail sales series of statistics to try and capture more details on car sales, offshore travel and online purchases. Car sales and travel are captured, sort of, but not in a really meaningful way. There’s a desperate need for better data with the broadest possible reach.
Offsetting the strong flow of data was today’s current account figures.
The ABS said that in seasonally adjusted chain volume terms, the deficit on goods and services rose $1643 million (19%) from $8581 million in the March quarter 2011 to $10,224 million in the June quarter 2011.
“This is expected to detract 0.5 percentage points from growth in the June quarter 2011 volume measure of GDP.” That will cut some of the more optimistic forecasts for GDP growth.
That was despite a significant improvement in the current account deficit, Which “seasonally adjusted, fell $3696 million (33%) to $7419 million in the June quarter 2011.
The ABS said the surplus on the balance of goods and services rose $2852 million (104%) to $5599 million. The primary income deficit fell $870 million (7%) to $12,499 million.
Government finance data showed a rise in government consumption in the quarter, but a fall in capital investment. This is a hard set of figures to get a handle on for their impact on GDP.
Housing finance for owner occupied homes rose 1% in July, solely due to a 1.3% rise in lending for the purchase of existing homes. Loans for new home purchases and construction both fell.
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