This is one of the big weeks of the year for the Australian economy. The first weeks of March, June, September and December are when the monthly meeting of the Reserve Bank board coincides with the national accounts for the preceding quarter from the Australian Bureau of Statistics (and the start of monthly economic data such as retail sales, building approvals and trade). Looming elections federally and in NSW, however, make this week especially important.
After the shock slowing in September quarter GDP growth to 0.3%, from 0.9% in the June quarter, economists are tipping a further slowing in the December quarter. Subject to revisions in the previous quarters’ data, annual growth in the December quarter could slow from 2.8% to a range of 2.4% to 2.6%, with most quarter-on-quarter estimates around 0.2% (AMP) to 0.4% (ANZ and NAB).
Those estimates might alter with today’s figures on wages, salaries, sales and business stocks and the current account (and there’s government finance and investment data tomorrow). Most forecasts are around that level after last week’s solid December quarter private investment figures were countered by a big fall in construction spending in the December quarter and large revision downwards for the three months to September.
This won’t affect the Reserve Bank — they’ll leave rates on hold tomorrow — but if the December quarter numbers are as poor as predicted, the bank will begin to focus more on the metric it has identified as the guide to the immediate future of monetary policy — the unemployment rate and the “substantial” rise that would prompt it to cut rates. Complicating that story, however, is what we used to call the “two-speed” nature of the jobs market.
In Western Australia — where what’s left of the Morrison government is in serious trouble — unemployment is 6.8%, despite strong exports and high commodity prices. It’s a similar picture in the other battleground state, Queensland, where unemployment is 6% but significantly higher in regional areas. But in NSW, and in Sydney in particular, the economy is charging along with unemployment at a record low of 3.9% — the sort of level that should see an incumbent comfortably re-elected, but this month’s election is proving difficult indeed for Gladys Berejiklian.
The bank is also worried about weak household income growth, continuing sluggish wage growth, weak consumption spending and, to a limited extent, moderating house prices. If you believe Nine and News Corp — and their Domain and REA Group property arms — and even the ABC, house prices are the be-all and end-all of the economy. Friday’s monthly CoreLogic property price data showed more falls in Sydney and Melbourne in February: house prices in Sydney down 1.1% last month to be down 11.5% over the past 12 months (and at July 2016 levels), while in Melbourne prices fell 1.2% to also be down 11.5% (back to November 2016 levels).
That, inevitably, brought out the doom and gloom merchants in the media. But their self-interested obsession with the property market means they can’t or won’t see what the RBA really thinks about falling house prices. It is a “second order issue” according to RBA governor Phillip Lowe, who used that word a couple of times at his recent House of Representatives Economics Committee appearance, referring to
weak income growth, which is the primary story, and housing prices, which is the secondary story. Income growth over recent years has been sub 3%. It used to be 6%. When your income is not growing as fast as it used to, you have to curtail your spending. That’s the primary thing that’s going on. As income growth has been slow year after year, more and more of us have realised that the old days are not coming back anytime soon and we have to adjust our spending plans … The second-order issue is what’s going on in the housing market. There are some wealth effects from declining housing prices, but they’re relatively small. We’ve got to remember that in Sydney and Melbourne prices are still up 70 or 80% over a decade, so most people are sitting on very substantial capital gains … It’s largely the income story which doesn’t get talked about enough, because the media love talking about property prices, but year after year of weak income growth finally weighs on our spending plans.
Lowe couldn’t have been clearer about how the focus by Nine, News Corp and the ABC on property is deeply misleading when it comes to what’s really going on in the economy. And income growth has been a key constraint on GDP in recent quarters — and likely a key constraint on the political prospects of governments seeking re-election.
“Important data released this week will give us an idea of how the economy fared in 2018 — and enable us to assess the government’s claims to economic competence ahead of the election.”
Only if accompanied by an explanation of what the government did or didn’t do to contribute to how the economy fared.
Otherwise it is like the terrible media and Coalition narratives about Howard’s greatness (because he had the luck of receiving a mining boom that he didn’t create) or the “debt and deficit disaster” under Labor last time (because they inherited the GFC the Coalition and their media hack buddies now pretend didn’t happen).
Misuse of numbers and statistics by journos is rife, and Crikey is not immune to this, but please try to do a bit better this time around hmm?
“And income growth has been a key constraint on GDP in recent quarters — and likely a key constraint on the political prospects of governments seeking re-election.”
Good, so you learned something from the comments on the “OMG employment is so strong, why isn’t the Coalition getting credit for this?” article.
More people are affected by their wages being stagnant (and going backwards relative to CPI) than are affected by whatever part-time new jobs have been created, even if there is a Coalition policy to credit for the new jobs (and even the Coalition struggles to point to one).
The reason the Liberals and the Murdoch press would prefer to focus on real estate prices rather than slow wages growth is blindingly obvious. First, falling property prices directly affect the portfolio values of their core constituency of wealthy individuals, who are Very Important People whose circumstances must always be reported upon. Second, the only way to address sluggish wage growth is by increasing wages – which reduces company profits and thereby the finances of this same wealthy cohort. Given that the Liberals are only funded by the wealthy for the wealthy, and only govern to enrich the wealthy, the second matter is unspeakable.
I often wonder what Scummo means by a ‘strong economy’ for which he claims so much credit. It seems it means an economy that is tanking with no policy ideas for fixing it.
So well find out we are in technical recession, two quarters of negative growth (per capita).
Oh, didn’t you know. Neither did I till I read it the other day. The only economic indicator that is worth look long at, barely, showed we went backwards last quarter. Who knew?
The media is basically bought and sold.
One might expect that “(house)prices are still up 70 or 80% over a decade” will prove somewhat difficult to sell at such a mark-up in the Times Ahead.
And that is only in the Great Wens of urbanisation – out here in rural reality an old 4-5b/r on acres still cost less than 2 years average earnings even assuming that jobs still exist in a couple more years.
To paraphrase those great philosophers, the FFB, “Home grown veg will get you through times of no money better than money will get you through times of no food”.