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Don't worry, be happy. The economy looks good

Peter Switzer
18 November 2016

By Peter Switzer

One of the little services that Switzer provides for its followers — readers, viewers, listeners, subscribers and financial advice clients — is to tell them ‘stuff’ that’s going on in the economy that seems pretty important.

It tends to be good news for two reasons. First, the run of economic news is actually more good than bad right now. Second, other media outlets specialise in bad news, so we like to be different and provide the good stuff, if it’s around.

Of course, when the bad outweighs the good, I will get negative and inform our followers, so they’re ready for reality but for the moment, as the old song goes, don’t worry, be happy.

Yesterday, unemployment actually hit a three-and-a-half year low, though it has been reported as an unchanged or flat result of 5.6%. However, for news, the Statistician rounds up the number to one decimal point. The figure was actually 5.58% and was the best since February 2013!

Also, the worrying trend that has grabbed headlines over the past few months, of part-time jobs rising and full-time jobs disappearing, was reversed. The latter was up 41,500 in October while part-time work dropped 31,700. And I guess a lot of part-timers became full-timers, which is a positive development. Let’s hope that becomes the trend.

On the economic data front, here are the big pluses that have surfaced recently:

  • The NAB business conditions index — what business says about businesses right now — eased from +7.8 points to +6.2 points in October but it still beats the long-term average of +4.8 points. (Unfortunately, the business confidence index fell from +6.0 points to +3.7 points. The long-term average is +5.8 points but it could be US election fears related. Let’s hope the new Donald ‘love’ turns it around in November.)
  • Job advertisements rose by 1% in October to a 4-year high.
  • The number of loans (commitments) for budding home owners (owner-occupiers) rose by 1.6% in September, after falling 2.7% in August.
  • Tourist arrivals rose by 2.6% in September. And departures fell by 0.3%. Arrivals are up 11.5% on the year, with departures up 4.7%. Tourists from the US have surged by almost 18% in smoothed terms in the past year – the fastest pace of growth in records going back 26 years.
  • Oz retail rose by 0.6% in September, to be up 3.3% over the year – a 4-month high.
  • The Performance of Manufacturing index rose by 1.1 points to 50.9 in October. A reading above 50.0 indicates that the sector is expanding.
  • A $10 billion Budget bottom line gain from the Trump victory and its impact on commodity prices because of higher infrastructure spending.
  • Inflation came in at 1.3% for the year, which was a rise on the previous 1% number.
  • If we build them, yes, they will come, with the news that new home sales (houses and apartments) rose by 2.7% in September, after a 6.1% rise in August.
  • CommSec says the terms of trade (ratio of export prices to import prices) increased 2.4% last quarter. “Based on today’s data, we expect that the terms of trade rose by around 4.5% in the September quarter.” That’s the biggest jump in five years!
  • The wage price index rose by 0.4% in the September quarter, after a 0.5% rise in the June quarter. Annual wage growth stood at a record low of 1.9% but because inflation is at 1.3%, real wages or the purchasing power of wages was up.
  • Over the year to October, 1,178,688 vehicles were sold, just below September’s record high.
  • In the week to November 13, the ANZ/Roy Morgan consumer confidence rating rose by 0.3% to a 7-week high of 118.2. Confidence remains above the average of 113.0 since 2014.
  • The RBA is optimistic and said this a few days ago: “Higher commodity prices and expectations that growth in the major advanced economies would exceed potential growth suggested that the risks to the global inflation outlook were more balanced than they had been for some time.”

Okay, let’s go overseas and see what’s happening:

  • In the US, 161,000 jobs showed up in October, which compares pretty well to the 175,000 that the Reuters poll of forecasters guessed.
  • US economic growth has risen to 2.9% after being 1% the previous quarter.
  • The global Purchasing Managers Index hit an 11-month high.
  • US non-farm productivity rose at an encouraging 3.1% annual rate in the third quarter — the fastest pace in two years.
  • Over the year to October, Chinese consumer prices rose by 2.1% (forecast 2.1%). Producer prices rose by 1.2% in the year to October (forecast 0.8%) – the biggest annual gain in almost five years.
  • Dr. Doom himself, Marc Faber, told CNBC that commodity prices will go higher, which is good for the likes of Rio and Fortescue. And he sees oil at $US70 a barrel, which has to be why so many analysts now love BHP! Faber says Asia is set to jump on the infrastructure road train.
  • The German Ifo business climate index rose from 109.5 to a 2-year high of 110.5 in October, propelling the German stock market to 2016 highs.
  • US reporting season: with 91% of the companies in the S&P 500 reporting earnings for Q3 2016), 71% of S&P 500 companies have reported earnings above the mean estimate and 55%of S&P 500 companies have reported sales above the mean estimate. 
  • Japan grew at 2.2% after two decades of sub -1% growth!
  • The Chinese statistician (if you trust it and we do when the numbers are bad) says growth is 6.7%, which is better than doomsday merchants have been predicting.

My main concern now is economic growth out of the EU, which had been on the improve but Germany came out with a poor 0.2% number two days ago. That’s something to watch. This aside, the overall economic picture makes me comfortably recommend: “Don’t worry. Be happy.”

P.S. The Trump euphoria and Fed boss Janet Yellen’s comments overnight pushed the greenback up and the Aussie dollar under 74US cents for a time. A lower dollar is good for our growth. 

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