Today we get the latest economic growth number and it might well tell us what the RBA will do with interest rates and whether Bill Shorten’s dream of higher wages will be affordable.
This comes when the news from the Reserve Bank was surprisingly positive. Regular readers know I remain guardedly optimistic on the economy, though I have noted that data has turned a little negative but many of these slightly disappointing readings are coming off record high levels.
This chart of job ads proves my point. Note how steeply they have risen. While they have started to dip, the actual number of ads are huge compared to five years ago. Then the number was 120,000. Now it’s closer to 170,000!
And in case you think I’m on a one man crusade to try to paint the economy as better than it really is, have a look at this headline from CommSec’s Craig James, after the RBA meeting on rates: "Upbeat Reserve Bank sees stronger growth."
After the 31st month in a row with the cash rate anchored at 1.5%, the country’s internationally highly respected central bank has looked at the same economic data that I see (and my doomsday merchant critics could see) and it remains positive.
The CEO of Freelancer, Matt Barrie, teased me on twitter, calling me the “Queen of Denial” but I’m not alone in not being committed to a “we’ll be ruined” scenario.
Craig actually prepared a list of what changed from the last RBA board meeting to now, which is worth reading. I’ll insert a comment in brackets where I think it’s appropriate.
What has changed since the last meeting?
• The Australian jobless rate remained at a 7½-year low at 5% in January.
• The NSW jobless rate fell to a record low of 3.9% in January.
• The CoreLogic national home price index fell by 6.3% over the year to February 2019.
• Building approvals rose by 2.5% in January.
• Australian business conditions rose from a 4-year low of 2.6 points to 6.6 points in January.
• The Australian share market has lifted, with investors digesting results for the earnings season.
• Business investment rose 2% in the December quarter.
• Construction prices are rising at the fastest rate in 9 years.
• Company profits hit record highs in 2018.
• Wages rose 2.3% over the year to December. Including bonuses: 2.8% – highest in four years.
• The Australian dollar has fallen from US72.50 cents to around US71 cents.
• Investors are encouraged by the reported progress on a US/China trade agreement
• Annual credit growth stands at 4.3% – the slowest rate recorded in 5 years.
And on credit growth, look at the pink line. It grew from 2010. And since 2016, when APRA told the banks to lend less to investors and Chinese borrowers, it’s been falling away. Then the slowing housing sector has taken over, with a little help from the Royal Commission. But look at a real credit crunch with the pink line in 2008!
That was the last time I was pessimistic! And it’s why the current credit fall isn’t spooking me.
Bill Shorten wants the election to be a referendum on wages and is talking about the great achievements of Bob Hawke’s Accord with the unions. But these times are very different.
Unions are better behaved and employers aren’t simply screwing workers. Many businesses are coping with cheaper online rivals, other digital disruption challenges and rising power bills. Slow wage rises are not just an Aussie thing and is happening worldwide. And you can blame the Internet and the fact that it has helped people in India, Vietnam, Indonesia and other low wage countries steal jobs from Australia. And it has put a lid on wage rises!
If Bill increases wages without economic growth and productivity, he will kill jobs. So he might give you a chance for a higher wage but if you lose your job, the pay rise will be worth diddly squat!
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