If only there was a way of converting the energy expended by commentators and analysts in response to each set of economic data, we’d have a nifty source of renewable energy to tap into, although plenty of CO2 would be produced from the excited utterances, making it an emissions-intensive form of power.
Quite a few megawatts were produced from the frenetic leaping to judgment by some commentators yesterday and today after the August jobs figures were released.
An editorial in The Australian Financial Review called them a “wake-up call” (for what exactly wasn’t clear, but, well, up-and-at-’em anyway). The Australian wondered if the strong second quarter growth had carried on into the September quarter with jobless numbers rising for the fourth month in August. The implications for interest rates were mulled over. Suddenly they were heading back down again — like they were 48 hours earlier, before the GDP data had the monetary soothsayers predicting the next move was up.
The Australian also carried a quite peculiar, and very big, plug for the ANZ Bank that seemed to undermine the line in the jobs report.
“Australia stands poised to capitalise on an economic transformation unparalleled in the nation’s history, with a resources and commodities boom capable of generating $480 billion of exports in the next 20 years and creating 750,000 jobs. A landmark report by ANZ Bank and economic consultants Port Jackson Partners, released exclusively to The Australian, finds that almost $2 trillion needs to be invested in the Australian economy for the nation to capitalise on the mining boom caused by the developing world’s march towards urban industrialisation.”
“Landmark” or not, that’s in the “no shit, Sherlock” category of stories: if you couldn’t get an idea of the of the size of the boom, the investment already committed and likely investment growth based on what we have seen in the past five years, then you haven’t been paying attention. Based on a conservative low $100 billion a year average investment from the private sector (2012 could see upwards of $148 billion invested, while $119 billion was invested in 2010-11 financial year), the $2 trillion gee-whiz figure is a certainty, even without new tax deductions and other rent seeking. And that doesn’t include government investment in the same time.
Not too shabby for an industry that the mining tax, and the carbon pricing package, were supposed to kill.
So with these sorts of job and investment estimates, can you really take seriously the slightly fear-tinged warnings following the August jobs report? Maybe in the industry that’s reporting them — courtesy of Fairfax’s recent woes and News Ltd cutting costs by 20% over three years. But elsewhere?
It’s as though some media and business commentators, having found themselves short and too negative on the second quarter growth data, are off looking for a new headless chicken to turn into an issue with which to beat the federal government (and the Reserve Bank). Watch for more of the same in the weekend papers.
For a different perspective, have a read of the interim economic assessment from the OECD. The so-called rich countries’ club significantly revised down its forecasts for the rest of the year for G7, and expects at least one quarter of contraction in Germany and Italy. It also sees the US only growing at a 0.4% annualised rate in the December quarter. “A downturn of the magnitude of 2008-2009 is not foreseen”, the OECD’s Pier Carlo Padoan concluded, but “growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up”.
But what about Australia? OECD reports are frequently dismissed as being second-hand commentary from Treasury officials. But this report could have been written by Wayne Swan himself.
It forecasts a surge in growth over the next year, along with falling jobless numbers and moderate inflation. “The Australian economy is set to rebound after the disruptions caused by major natural disasters in early 2011,” it said. Growth, driven by historically high terms-of-trade, should accelerate from 3% in 2011 to 4.5% in 2012.
“Unemployment is projected to fall, although the remaining slack in the economy will mute the risk of inflation pressures. The continued fiscal consolidation, despite the cost of the rains and flooding to public accounts, is welcome, including from a cyclical point of view. The current stance of monetary policy seems appropriate, in absence of potential second-round effects on inflation of weather disruption and of oil price hikes. The authorities must take advantage of the favourable economic situation to pursue long term structural reforms, including those that favour output involving less CO2 emissions.”
Reads like a Swan speech, doesn’t it?
The OECD thinks the current flat jobs market we have seen in the past four months or so will dissipate later in the year. The Reserve Bank will watch to see what impact the soft jobs market has on labour costs and inflation. RBA governor Glenn Stevens made this observation in his speech in Perth on Wednesday: “significant rises in a range of administered prices are still set to occur over the period ahead. Moreover, unit costs have been rising quite quickly given the fairly poor performance of multi-factor productivity growth over recent years. In fact the experience of the past year, as the deputy governor noted recently, is that while growth seems to be turning out weaker than expected at the end of last year, underlying inflation seems to be turning out higher.”
The “administered prices” Stevens is concerned about are those set by state governments, either directly or through the cop-out “independent” pricing tribunals: power, water, gas, and other smaller taxes and charges. Government charges, as much as labour costs are a concern, but, for all the bleating about “cost of living pressures”, you don’t hear much about them, despite them being far more controllable (by not ripping big dividends out of utilities, for starters) than most prices.
It’s a small example of how the key challenges confronting our policy makers are those well within their control — basically, how to deal with growth fuelled by a decades-long boost to our terms of trade. They’re challenges that politicians and officials in Washington, Paris, Tokyo and Brussels would be delighted to have.
[Based on a conservative low $100 billion a year average investment from the private sector (2012 could see upwards of $148 billion invested, while $119 billion was invested in 2010-11 financial year), the $2 trillion gee-whiz figure is a certainty..]
Not convinced. This assumption that the current huge infrastructure investment will continue at that rate during the entire 20 year period of the boom seems unlikely. Resource companies love Australian iron and coal because they are huge concentrated sources, and they can continue to exploit them for ages after the infrastructure is in place. (Then we’ll really see them make serious profits. Let’s hope there is an equally serious MRRT in place by then.)
In fact a feature of this game is that the companies are slow to react to the uptick in demand. This was the case in this present boom when they delayed many years before fully committing to a serious ramping up. It is natural because of the huge costs and the risk from a possible boom becoming a mere blip.
The sun only shines on the Sun King’s subjects.
What hubris. Yes, the mining sector is going strong. Yes, our government is not up to its eyeballs in debt (unlike most other OECD countries.)
But – (1) every non-mining trade exposed industry is under the pump due to the high Australian dollar, this covers everything from manufacturing to global software development. (2) While our government isn’t drowning in debt, households are. We’ve borrowed hundreds of billions of dollars from overseas to inflate the prices of existing houses without building many new ones. Just wait until that bubble bursts, as it inevitably will.
Am I being unduly dyspeptic in wondering if, when the massive infrastructure is in place it will either (a) be highly automated and/or (b) staffed by the nationals of the owners’ countries, so few being in Oz control?
Like Chess above, I’ve wondered for several years when the private/household would cause, if not apoplexy then sclerosis when its servicing precludes productive expenditure on the little things in life, like… food for offspring. If any.
should be “private/household debt…”