31 March 2020
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Recession ahead. Do you believe negative journalists or positive Pete?

Peter Switzer
28 May 2018

This Friday we’ll get to see the latest bad news on the house price front, which is bound to be lapped up by the weekend newspapers to remind us how life sucks and then you die!

The media’s preoccupation with bad news is (as the French) would say ‘raison d’etre’ (or their reason for being) but don’t believe the residual impression that all’s not well in the state of Australia and its economy.

In the Fairfax press today, the hand-wringing story is that there are seven charts that show:

  • Tighter credit — tougher lending rules for investors in particular and slightly higher rates
  • Price rises are over, especially in Sydney and Melbourne
  • Auction clearance rates are falling from crazy high levels
  • Slow wage rises
  • Supply is increasing from more sellers and new builds coming on the market

Of course, the really big reason is that there’s simply price exhaustion in Sydney and Melbourne after four years of market madness. Sanity is prevailing. Ironically, those people in the media now writing about price falls worries are the same ones tipping that the house price bubble would burst, with seriously scary implications for three out of those four years.

In fact, according to this Fairfax/Bloomberg story, this current price fall shows the drop in prices is one of the slowest in recent times. Why? Well, for starters, it’s happening without a threat of a recession or rising unemployment, which is something worth cheering about.

So while I’m getting positive, let’s look at the current crop of good economic omens out there right now to offset the negativity from media mates addicted to ruining your sunny dispositions.

  • For Budget worriers — in the 12 months to April 2018, the Budget deficit stood at $12.1 billion, which is less than 0.7% of GDP. This is the smallest rolling annual deficit for nine years.
  • The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7% to a 15-week high of 121.6. Confidence is up by 8.4% over the year and above the average of 113.8 since 2014.
  • The NAB’s business conditions reading is at an historic high and business confidence is way higher than the long-term average.
  • The economy is flying high, with a record 4.77 million passengers flying on the Sydney-Brisbane route in rolling annual terms in March.
  • In the year to April, 57.1% of those aged 60-64 years and 13.4% of those aged 65 years and over were in the job market – both record highs.
  • The Internet Vacancy Index fell a small 0.5% in April after increasing for 17 consecutive months, ending the longest run of consecutive monthly increases since March 2011. The index is still 9% higher than a year ago and just off 5½-year highs.
  • Economy-wide spending based on the CBA’s Business Sales Indicator rose in April by 0.9%. This has now risen between 0.9-1% a month for the past five months.
  • Employment increased by over 430,000 jobs last year, which has embedded new demand for goods and services this year, as the unemployed become employed with pay packets.
  • Experts like Deloitte’s Chris Richardson is tipping better wage rises are in the pipeline this year.
  • And in the all-important US economy, the first quarter growth came in at 2.3%, which beat the 2% expectation. But the expected second quarter growth has been tipped to be as high as 3.6%!

In the absence of a black swan throwing a curve ball at the global economy, the USA or China (could Kim Jong-un be a black swan?), it makes sense to be cautiously positive about the Oz economy.

One day it will be wise to be negative on our economy, but now is not the time. The housing boom saved us from a serious economic downturn when the mining boom went off the boil. And while the economy is not going gangbusters, it is making gradual improvement, which is not worth whinging about.

Enjoy the ride, even if it’s not as exciting as you’d like. At least it probably means the next recession is a lot longer away than the negative nervous Nellies out there would have us believe.

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