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Is Turnbull an economic dud?

Peter Switzer
19 February 2016

By Peter Switzer

With unemployment surprisingly rising from 5.8% to 6% and excessively right-wing commentators telling us that the “economy is going down”, are Malcolm Turnbull haters right?

Are his slow or no actions, as his critics lament, hurting the economy?

My argument is that I’d like an economic/tax plan but it has to be something sellable and something that won’t hurt confidence and the economy. A GST could do both in the short-term and, right now, our economy seems to be on an uptrend.

Let’s start by doing an eco-check, where I survey the kinds of information that the Reserve Bank of Australia and leading economists would look at to form an opinion on the health of the economy and whether Malcolm and his Treasurer, Scott Morrison, are getting in the way of our economy.

Here goes:

• Retail sales rose by 0.4% in November. Sales are up 4.3% on a year ago with the 5-year average being 3.7%. (That’s good.)

• Employment fell by 7,900 in January, after falling by 800 in December. Full-time jobs fell by 40,600, while part-time jobs rose by 32,700. Economists had tipped a 15,000 increase in jobs. A total of 298,300 jobs were added over the year to January. The annual growth rate was steady at 2.6%. In trend terms, employment has risen for 26 consecutive months. (The short-term fall was annoying but the longer-term trend looks pretty positive, though the ABS figures are questionable.)

The unemployment rate lifted from 5.8% to 6% but the ABS figures are questionable, remember? The participation rate was steady at 65.2% and Westpac says this explains why unemployment rose. 

• Given recently volatility, CommSec says the ‘trend is your friend’ and this shows a 5.8% jobless rate – a 26-month low. “In trend terms, 15,400 jobs were created in January, which seems to be more in line with activity indicators.”

The outlook for the job market remains positive, with lead indicators like vacancies and job ads still rising. CommSec expects that the unemployment rate will continue to drift lower over 2016 towards 5.5%. (That’s good news if it happens.)

Job advertisements rose by 1% in January, after falling by 0.1% in December. Job ads are up 10.8% on a year ago. Job ads have only fallen for two of the past 10 months. Job ads are at the highest level since July 2012. In trend terms, ads rose by 0.6% in the month, the 28th consecutive monthly gain, to be up 11.2% over the year.

Total new loans (personal, business, housing & leases) fell by 4% in December from 7½-year highs. Total lending is up by 6.9% on a year ago. (Lending near 7½-year has to be good news.)

• In 2015, new commercial loans hit record highs in both Victoria and South Australia. (More good news for the economy.)

There were 84,373 new vehicles sold in January, up 2.7% over the year. In the year to January, a total of 1,157,665 new vehicles were sold – marking the strongest 12-month period on record.

The number of loans (commitments) for people buying or building homes to live in (owner-occupiers) rose by 2.6% in December to a near 7-year high. In December, a record 20,911 home loans were refinanced. (More good news!)

• Tourist arrivals rose by 2.3% to record highs in December.

Tourist arrivals from mainland China passed 100,000 for a month for the first time. A record 103,300 tourists from mainland China came to Australia in December 2015. (Notice how many record highs we are seeing?)

• The average credit card balance rose by $34.30 (1.1%) to $3,191.60 in December. It was the biggest increase for a December month in five years. (This has to be a good confidence indicator.)

• New home sales rose for the first time in four months, up by 6% in December. Sales of multi-units rose by 21.1%, while detached house sales increased by 2.2%. (Good to see rising interest rates has not killed off home sales.)

The Westpac/Melbourne Institute index of consumer confidence surprisingly rose by 4.2% in February to 101.1, after falling by 3.5% in January. The confidence index is up 0.6% on a year ago. (This was a good effort, considering the negative stock market news over February.)

The NAB business conditions index eased from +6.2 to +4.8 points in January. But the rolling annual average rose from +7.7 points to a 5-year high of +7.8 points. And the business confidence index eased lifted from +2.4 points to +2.5 points. The survey was conducted from January 27 to February 2. NAB noted: “The NAB Business Survey softened slightly in January, although the deterioration was to a large extent driven by a sharp decline in mining and wholesale – conditions were generally mixed elsewhere – and was largely concentrated in Western and South Australia where the flow on effects from the mining slowdown (conditions -47) are clearly spreading. This suggests that fundamental conditions in the non-mining economy remain resilient.”

The Reserve Bank has not materially changed economic growth forecasts but trimmed medium-term growth forecasts. Economic growth is now seen at 2.5-3.5% in June 2017, down from earlier forecasts of 2.75-3.75%. (These growth predictions don’t suggest the RBA expects our economy is heading down.)

This Business Insider’s headline says a lot: “Australia’s Astonishing Economy Does it Again!” The story said this:

“Australian economic growth accelerated in the September quarter of 2015, increasing 0.9% leaving the annual rate of growth at 2.5%. Markets have been expecting a quarterly increase of 0.8%, with the annual rate ticking up to 2.4%. The increase extends Australia’s phenomenal economic record, having not experienced a technical recession – two consecutive quarters of negative economic growth – since the June quarter of 1991.”

The Reserve Bank has been forced to lift its issuance of $100 notes, due to public demand. In the past six months, the value of $100 notes in circulation has grown at an average annual pace of 12.1% – the highest since the global financial crisis. (That sounds bullish for local consumers, doesn’t it?)

• Over 2015, 232,078 new homes were approved – the strongest calendar year on record and these records go back 36 years! (More good news!)

• In the year to December, Australia exported almost $10.6 billion of goods to India – a two-year high. (A left-field piece of good news as we know China is slowing down.)

• The CoreLogic RP Data Home Value Index of capital city home prices rose by 0.9% in January, after a flat result in December. Home prices were up by 7.4% over the year to January. Dwelling prices rose in just four of the eight capital cities in January. (Rate rises haven’t KO’d the housing sector, which is good to see.)

The Performance of Manufacturing index fell by 0.4 points to 51.5 in January. A reading above 50.0 indicates that the sector is expanding. New orders and employment fell in January, while production rose.

• The Australian Industry Group Australian Performance of Services Index increased by 2.1 points to 48.4 in January of 2016 from 46.3 in the previous month, the highest since October last year.

The chart below shows the services sector is improving but is not roaring at this stage. A number over 50 would be a great sign.

And just in case you don’t want to believe me, have a look at what others say about our economy:

• “Overall, members noted that recent domestic data had, on balance, been positive and judged that there were reasonable prospects for growth to increase gradually over the forecast period.” (RBA)

CommSec says Glenn Stevens believes that market reaction has been too pessimistic, noting that the “gloom and doom is overdone.”

Glenn Stevens: "The economy is continuing to grow at a modest pace, in the face of considerable adjustment challenges. It has apparently been generating more employment growth and lower unemployment than we expected, while inflation has remained quite low.”

• Stevens on our economic outlook: “The fall in mining investment spending will continue for at least one more year, though it is probably having its most significant effect on the rate of growth now. Other areas of demand are expected to add to growth. The net effect of all this is likely to be continuing expansion at a moderate pace.”

Craig James, chief economist at CommSec: “We expect economic growth in a 2.50-3.00% range in 2016, suggesting a move to near “normal” economic growth.”

The evidence above shows our economy is doing well and looks to be heading up and not down, provided an external curve ball isn’t thrown out of the global economy or international financial markets. And in case you missed it, the current reporting season has come in better than expected, as AMP’s Shane Oliver has shown: “The Australian December half profits reporting season is now more than half done and overall results have continued to come in much better than feared. 53% of results have bettered expectations (against a norm of 44%), 69% have seen profits up on a year ago and 68% have raised their dividends relative to a year ago (against a norm of 62%).”

On what I’ve shown here, our economy is doing OK under Malcolm and Scott’s stewardship and maybe they should keep stum until they have policies that will actually turbo charge this good news.

Of course, better policy ideas will be welcomed but I think we can afford to wait until the May budget for their economic game plan. Clearly, anyone who reads the above and who still wants to whinge about Malcolm, well, are Turnbull-haters, plain and simple.

 

 

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