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The Australian economy is screwed. Not!

Peter Switzer
3 April 2017

By Peter Switzer

All too often I hear media ‘experts’ telling us that our economy is “shot to pieces” and our standard of living is falling! And let’s not talk about our public debt problem!

As the Treasurer embarks on his last month of economic research and reconnaissance on the Aussie economy before next month’s Budget (on the second Tuesday in May), let’s just objectively see what he might be finding out about the place we call our economic home.

And given my acceptance of what Albert Schweitzer said: “Success is not the key to happiness. Happiness is the key to success”, let’s encourage success by concentrating on the better, make-me-happy news first.

Here goes:

  • Employment rose by 80,000 in the three months to February, after a gain of 11,900 in the previous three months. Over the past year, employment lifted by 190,400, which was the strongest gain in a year.
  • Job vacancies rose by 1.8% to 185,600 in the three months to February – a 6-year high. Job vacancies are up 7.3% on a year ago.
  • Our last economic growth reading for the December quarter was 1.1% after a minus 0.5% number in September.
  • Annual economic growth lifted from 1.9% to 2.4%. The economy has not experienced a recession for more than 25 years! 
  • The NAB business conditions index eased from a 9-year high of +16.3 points to +9.3 points in February. The business confidence index eased from a 3-year high of +9.7 points to +6.9 points. (These numbers jump around but note the 3-year and 9-year high readings recently.)
  • The Performance of Construction index rose by 5.4 points to 53.1 in February and any number over 50 means the sector is expanding.
  • The Performance of Manufacturing index rose by 8.1 points to 59.3 in February – the strongest result since 2002. 
  • Conservatively, around $22 billion (around 1.3% of GDP) will be paid out by companies over the next few months.
  • Company operating profits rose by 20.1% in the December quarter to record highs.
  • According to CommSec, the earnings season, “has been good. Very good. Only eight companies from the ASX 200 have produced a statutory loss for the six months to December. Recently many were surprised by survey results that showed that business conditions are the best in nine years. The earnings results confirm that Corporate Australia is in good shape.”
  • Total net wealth stood at a record $9,404.5 billion at the end of December 2016, up $328.1 billion (or 3.5% over the quarter), making it the largest quarterly increase in net wealth in seven years! 
  • 315,000 babies were born in the past year, which was just short of the record going back 35 years!
  • Our public debt is higher than it used to be but so it goes for most economies. Have a look at this chart to see how bad we are compared to the rest of the world:

Now for the bad stuff:

  • As CommSec’s Craig James noted: “The minutes from the March 7 Board meeting show that the Reserve Bank has upped its rhetoric on the “build-up of risks associated with the housing market”. 
  • The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by just 0.1% in trend terms in February. This is the slowest growth in two years.
  • The ANZ/Roy Morgan consumer confidence rating lifted from an 11-month low, rising by 1.6% in the latest week.
  • New dwelling approvals rose by 1.8% in January but were down 12% on the year.
  • Unemployment rose from 5.7% to 5.9% but we’ve had a huge rise in the workforce population.
  • The Australian Performance of Services Index fell to 49.0 from 54.5 in the previous month, pointing to the first contraction in the services activity since September of 2016.

And here’s a final word on the disappointing unemployment number, from CommSec’s chief economist, Craig James: “It would be easier to accept the latest jobs data if it lined up with other evidence. But it doesn’t. There have been healthy business surveys in recent months, with the NAB business conditions index hitting 9-year highs in January. Mining prices have lifted, the agricultural sector is buoyant, tourist arrivals are at record highs and more homes are being built than ever before. Certainly, leading indicators like job ads are pointing higher rather than lower. And low real unit labour costs give employers plenty of reasons to be taking on staff. Investors are best advised to move on and focus on the next major economic data, which is retail trade, released on April 3.”

So, despite some slightly worrying developments on a monthly basis, the general run of data remains solid. This is why I remain positive on the Oz economy for 2017. I hope the Treasurer frames a Budget that doesn’t ruin this pretty positive picture.

By the way, while the Oz story is better than OK, the overseas snapshot is equally OK and better than expected. US consumer confidence hit a 16-year high! China’s manufacturing sector expanded at the fastest pace in five years and US pending home sales rose by 5.5% in February to 112.3 – the highest reading since April 2016 and the second best reading in 11 years.

And AMP’s Shane Oliver pointed out: “Eurozone sentiment readings were strong, with overall economic sentiment about as high as it ever gets and strong readings for the German IFO business conditions index.”

And if you need proof of better times on the continent, then know that the German stock market’s DAX index recently edged closer to record highs!

You’d have to be pre-conditioned to be negative to look at all this stuff and be pessimistic for 2017. 

Australia looks on track for a stellar year. To our Treasurer with his fiscal game plan ahead, I say, “beam us up a great Budget Scotty!”

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