While the political focus has been on housing and corporate tax cuts of undetermined, likely trivial, economic impacts, the real economic issue is slow employment growth, slow wage growth and weakish consumer demand.
In fact Australian businesses are doing well currently, even before their pointless windfall of a tax cut — the National Australia Bank monthly survey for March on Tuesday showed a sharp improvement in business conditions to their highest level in eight years. According to NAB’s chief economist Alan Oster, that could have been partly due to a lower response rate in cyclone-hit North Queensland. “Even so,” he said, “conditions have improved almost across the board to levels that suggest a strong economy in the near-term.”
The survey showed most industries were enjoying improved conditions, with services the stand-out performer and the long-struggling mining industry improving thanks to higher commodity prices and an improved global demand outlook (the iron price is currently experiencing a dive that will cause some nosebleeds in Treasury, which is currently preparing tax revenue forecasts — but it is still well above levels on 2015 and 2016). Oster said the results were encouraging for the near-term outlook and supported the bank’s forecast for economic growth to accelerate in the second half of 2017. However, he says, “there is still cause to be cautious about the longer-term outlook, particularly as other growth drivers, including LNG exports, commodity prices and housing construction, begin to fade.”
But retail conditions bucked the trend in the NAB survey — which was not unexpected given the shock sales and earnings downgrades from companies at different ends of the retail spectrum — discounter the Reject Shop, and luxury brands seller, Oroton Group.
That reflects an ongoing weakness that has baffled and worried the Reserve Bank: in wages growth, unemployment and consumer demand. This is despite years of heavy fiscal stimulus from the government’s deficit spending — which looks set to continue until the 2020s — and heavy monetary stimulus from record low interest rates, which similarly won’t be ending any time soon.
This morning’s jobs data for March showed some signs of improvement in the labour market, with full-time jobs growing in trend terms, although monthly hours worked fell slightly and the unemployment rate rose in trend terms to 5.9% (seasonally adjusted, steady at 5.9%). The increase in the trend unemployment rate, however, was partly driven by a rise in participation, which is a positive sign for the overall labour market.
As Oster notes, the stimulus from the recent housing boom has probably also peaked. It will still be a powerful source of jobs, because dwelling approvals remain at historically high levels and a lot of projects will take months and maybe over a year to complete. But we may be looking at diminishing returns from the traditional source of Australian growth as lending standards tighten and worries about an apartment glut in Melbourne and Brisbane curtail new developments — luckily there are still foreign buyers driving new property construction.
And while there’s political calculation in Scott Morrison’s “hasten slowly” mantra on housing affordability, he’s right to be wary of triggering a correction in property, given even a limited one will accelerate the tail-off in housing-sector stimulus to the rest of the economy. But elsewhere on policy, if anything, the government appears to have its priorities reversed — looking after business at a time of good conditions while pushing for wage cuts for low income earners at a time of minimal wages growth. Especially given low income earners spend much more of their income than the rest of us.
Falling iron ore prices aren’t the only worry for Morrison, his Secretary John Fraser and Treasury as it puts the budget together. Weak consumer demand and low wages growth will continue to undermine forecasts both of the economy’s performance and the amount of revenue the government can bank in. And while the political test of the budget will be what it offers on housing affordability, the macroeconomic test will be how it addresses the problem of soft wages and increasingly shy consumers.
Surely companies that are using a lot of gas are not travelling all that well, or so they say, because of the huge cost increase.
Just what ths country needs, an increase in retail spending.
Service industries – the epitome of the economic delusion of taking in each others washing.
Politicians in general and the government in particular couldn’t care less about unemployment, BK, they only say they do. Look at what they DO, not what they say: when’s the last time you saw a policy designed to get money into the hands of the majority so they could spend it and stimulate demand which creates jobs? 2008- and it was a one off implemented in response to the GFC.
When’s the last time you saw a policy aimed at getting money into the hands of the wealthy minority? Well, there’s this corporate tax cut and the one before it for the top 20% of wage earners- two in 2 or 3 years.
Politicians are content with a two tiered economy. Unemployment and underemployment don’t bite them or theirs. There are no paupers in parliament.
Business loves higher unemployment as this means there is a larger amount of out of work people who are willing, because of necessity, to work for a lot less, hence some of business profits are 20% higher now. Successive governments especially the conservative right but each successive government for the past 20/30 years as you say, give business the breaks and to hell with the people. Tax cuts, negative gearing, capital gains tax, selling the country’s assets to foreign entities and enabling multinationals to dispose of 100% of our natural gas overseas. Until these things are addressed this country is on the downward path. Unfortunately I have no trust in the present politicians to even attempt to change this. They are too busy at playing politics.
It is true. If we keep going at this rate wages will remain low with some in the retail industry falling. This will occur as more and more people attempt to enter the work force. Couple that with immigrants seeking employment, no new jobs growth….. competition drives wages and progress down. People we have a problem.
Just to clarify, look at who the fiscal stimuli has been given to, for decades.
Wage stagnation, underemployment, huge mortgages; even baby-boomer retirees have most of their wealth locked up in a multi-million$ home, while their cash assets are earning less than half what they conservatively budgeted for ten years ago (an incentive to not convert the home to cash). Consumer demand? Who’s got the disposable income?