3 June 2020
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Why is good news so hard to see?

Peter Switzer
6 June 2016

By Peter Switzer

Why is Nathan T saying horrible things about me? It’s the only downside about twitter. In the minds of vindictive types, sensible argument can become a little too personal!

Describing himself as an analyst, Nathan doesn’t agree with me and then made a ‘courageous’ conclusion that I must’ve been the “worst economics lecturer.”

That’s a little bit rough and short-sighted to make a conclusion like that because I argued that the economy is good and the doomsday merchants should be ignored.

Let me recap why I was more positive on the economy and I’ll put the historically significant points in bold print:

  • The March quarter economic growth number was 1.1%, taking annual growth to 3.1% (this is found by adding the past four quarters).
  • The ABS upgraded the December quarter growth guess from 0.6% to 0.7%.
  • The Reserve Bank takes the last two quarters — 0.7% and 1.1% — adds them together and multiplies them by two to make the past six months annualized. This comes in at a solid 3.6%! 
  • Growth is now the fastest in three and a half years.
  • Growth over 3% in Australia tends to take the unemployment rate down.
  • Unemployment at 5.7% is at a two and a half year low.
  • Job ads are up 7% over the year, so bosses seem positive.
  • The CBA’s look at economy-wide sales is at a six-year high.
  • The CoreLogic RP Data Home Value Index of capital city home prices rose by 1.6% in May, after lifting by 1.7% in April. Home prices were up by 10% over the year to May and dwelling prices rose in seven of the eight capital cities in May (Perth prices fell 2.7% but this is the mining state, so you’d expect that).
  • The Performance of Manufacturing index eased further from 12-year highs in May, down 2.4 points to 51. A reading above 50.0 indicates that the sector is expanding. The index has been above 50 for 11 months – the longest period of expansion since September 2006!
  • Dwelling approvals rose by 3% in April. The value of all building soared by 18.3% – the biggest monthly rise in four years. CommSec says “building was at record highs in trend terms”.
  • Private sector credit (lending) rose by 0.5% in April to stand 6.7% higher than a year ago – the strongest growth in seven years.
  • Even the troublesome business investment area, badly affected by the mining boom petering out, showed that the second estimate of investment for 2016/17 is $89.2 billion, up 6.3% on the first estimate and the second best lift for an equivalent period in eight years.
  • Over the year to May, a record 1,172,402 new cars were sold. Annual growth of 4.3% is the strongest in 31 months.
  • Australia’s export of services rose by 1.6% in April to record highs. Annual growth stands at 15-year high of 18.9%. Tourism-related credits (tourism inflows to Australia are recorded as credits on the balance of payments) are rising at the fastest rate since the Sydney Olympics.
  • Dwelling approvals rose by 3.0% in April. The value of all building soared by 18.3% – the biggest monthly rise in four years. Building was at record highs in trend terms.

Nathan there’s a hell of a lot of bold print, which makes it hard to ignore the good news that virtually no one puts together.

Seriously, the only indicator worth worrying about is the lack of business investment, but the mining boom has stopped miners and related businesses from investing and I’d be over-the-top bullish if this was spiking but the second estimate of investment for 2016/17 was up really solidly, which makes me a little confident that even investment can kick up for non-mining businesses. And it would be helped if the media didn’t always focus on the negative stuff.

I ask you: has anyone in the media put together this economic good news story? I hope someone has but I bet they haven’t.

Nathan (whoever you are) you have to concede there’s a lot of pretty positive stuff above. Many of them are record highs, five year highs or something else that makes you stop and think that when you look at all this, in total, the good news outweighs the bad by a long chalk.

Also Nathan, you picked me up on why the Reserve Bank cut interest rates, suggesting that it could only be because they’re worried about demand in the economy but the RBA minutes disagree with that argument.

CommSec’s chief economist, Craig James, wrote this after the minutes were released:

“The Reserve Bank may not have materially changed economic growth forecasts but it has slashed inflation forecasts. Underlying inflation forecasts have been cut by 1% to a new range of just 1-2% through December 2016. And inflation out to June 2018 is now expected to hold between 1.5-2.5% – well below or at the low end of the target band.”

He added this as well, which might surprise you Nathan: “Economic growth is now seen at 2.5-3.5% in December 2016 – around half a per cent higher than previous forecasts. Growth of 3-4% is expected into June 2018 – in line with prior forecast.”

(I hope Craig and the RBA did not have the “worst lecturers” too, Nathan.)

We ‘lousy’ ex-lecturers look at a surprisingly strong economy and falling inflation and note that petrol prices fell 10% and fruit prices 11% over the March quarter when we saw deflation at 0.2%. 

When I taught economics, I recognised the importance of demand for growth, but lower costs can increase the supply of goods and services and even bring prices down. I suspect the Internet age, with its Ubers, Airbnbs and the likes of freelancer.com (which brings low-cost businesses contractors from all over the world) is not only stopping price rises but indirectly wage rises as well! 

Given all these challenges and the petering out of the investment-side of the mining boom (as I argued last week), our economy is looking good and we should avoid the doomsday merchants if we want growth to continue. Falsely-created negativity doesn’t help consumer confidence and this, unlike business confidence, has been struggling. In part, I blame excessive negativity.

Finally, my old Fairfax mate, Michael Pascoe, tweeted in his inimical style after my good news economic story. He tweeted “glass half full but also glass half empty.”

I’m not surprised a respected journalist would make that observation, but I hope after looking at the long list that Michael would improve his maths by admitting it’s more three-quarters full and one-quarter empty!

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