Woolworths faces $623m loss in entering the hardware market, 1/10

'WOOLWORTHS' foray into the hardware market could wipe off as much as $2 per share in value for investors, according to Merrill Lynch retail analyst David Errington.

'In a briefing note to clients, Mr Errington yesterday estimated Woolies could lose $623 million within five years of opening its first big-box hardware store, currently slated for late 2011.

'Woolworths has teamed up with US hardware giant Lowe's to open a chain of warehouse-sized hardware outlets in competition with market leader Bunnings, which is owned by Wesfarmers. Mr Errington said one of Woolies' biggest challenges would be to secure well-located sites that could generate sufficient sales to be profitable.' Reports The Austalian.

As an extra note, Woolies aims to secure 150 sites for its stores by 2015. However, Mr Erring notes that it took Bunnings 25 years to secure its 160 stores.  Read on here

Henry's iconoclastic ideas about corporate remuneration are in today's Blog.

Economic data strong, 30/9.

Henry's 'doldrums' hypothesis has taken a bit of a beating with the latest ABS data today.

Retail turnover for August showed an increase of 0.9 %, following decreases of 0.9 % in July and 0.8 % in June.

More wind today comes in the shape of ABS estimates for dwelling approvals. 'The seasonally adjusted estimate for private sector houses approved rose 3.1% and has risen for eight months'.

The ABS still provides 'trend estimates' for this series - though the first home owner handouts might be thought to distort this series too - and the ABS says 'The trend estimate for private sector houses approved rose 2.1% in August and has risen for eight months'.

Read on here.

But what about fiscal policy?, 29/9.

Henry responds to a puzzled reader.

A reader has said: 'Explain yourself Henry!  At the time you said there should be far less stimulus and that it should not be in the form of handouts to the battlers.

'Now you agree with Treasury Secretary Dr Ken Henry that fiscal stimulus should not be withdrawn.

'Que?'  (Message from 'Puzzled of Mosman'.)

RBA signals rate hike soon, 28/9.

Michael Stutchbury  reports: 'THE Australian economy is already recovering from a mild downturn, Reserve Bank governor Glenn Stevens declared today, setting the scene for a pre-Christmas rise in interest rates.

'The central bank governor gave a considerably more upbeat reading on the economy than provided last week by Treasury secretary Ken Henry, who warned last week that winding back the federal government’s budget stimulus more quickly than planned could lead to steeper increases in unemployment.

'But Stevens this morning told a Senate economics committee that unemployment may already have peaked at its current 5.8 per cent or might only rise to “six point something’’, compared with the official budget forecast of 8.5 per cent'.

Read Glenn Stevens' testimony for yourself, linked here.

Note in particular the comments on the role of disciplined 'policy frameworks' to see that fiscal policy is tightened and interest rates raised as recovery progresses.

Except for mining and government, Australia in the doldrums, 23/9.

This is the theme of Henry's Blog today - this is a two speed economy, fast (and frantic, especially in Canberra), waiting for wind elsewhere.

Coal miners and their brethren in the mining industry are pretty busy, and investing for a busy future.  Government - Federal, State and public corporations - is working flat out.

But the advertising business is grim - and has deteriorated in September.  Bad debts are starting to look serious if one is in the mortgage origination business. Retail spending has again slumped.  There are signs in shop windows offering discounts of up to 70 %, and did we notice more 'closing down' signs than usual?

Most small businesses are struggling, and the tourism industry (that has 50 % of Australia's small businesses) is in bad shape. Roy Morgan Research Executive Chairman Gary Morgan says "Australia is a ‘two speed’ economy.  Government - Federal, State, Local and Public Corporations with cpi wage rises for all and no thought of productivity gains or less work.

"Then there are those in the large private small business sector- struggling with too many working fewer hours than they’d like – well over a million Australians unemployed or ‘underemployed’ in small businesses – all ignored by all levels of Government."

Australia and the mining boom, 22/9.

Michael Stutchbury says this week’s Group of 20 leaders summit 'will be dominated by American and European fears of prolonged economic weakness. But Australia is more likely on the verge of a renewed resources-driven boom that produces a much richer and more populous nation'.

'In New York during the past few days, Rudd rightly talked about the need for a more sustainable world growth model. This is code for narrowing the gaping trade, savings and investment imbalances between the US and China. Yet, while the US and Europe will take years to repair their financial damage and belatedly adjust to China’s industrial challenge, Australia is set to ride on China’s rising back. As Treasury secretary Ken Henry suggests, Australia’s next growth phase could produce a wider current account deficit. Yet this would be a “good” external imbalance, driven more by an excess of mostly mining-related investment and productive capital inflow than by deficient domestic savings.

'It also would be a high return but high-risk strategy demanding stringent policy discipline. Australia had a taste of the challenge in the boom years just before the crisis: rising inflation, bubbling house prices, rising interest rates, infrastructure bottlenecks, a currency heading to greenback parity, unemployment at generational lows, acute labour shortages and a flood of government tax revenue'.

See Henry's Blog today on climate change issues.

The two speed economy, 18/9.

This is analysed by Julian McCrann on the occasion of Henry's absence in Canberra, battling to improve Australia's innovation system.

The resource boom has not really gone away, as the analysis of regional labor market and consumer confidence data shows.

Commodity prices surge, Barnaby Joyce dreams of next ice-age, 17/9.

More good news for the miracle economy.

And might the sun be helping to explain the gap between trends in greenhouse gas emissions and the global temperatures that has been worring Steve Fielding?  Read on here, though we admit the message is a bit cryptic, and we apologise in advance for our slightly frivolous treatment of such a serious matter.

Government orders Telstra breakup, 16/9.

The federal government will use new powers to force Telstra to sell off parts of its business, according to The Australian.

It reports, 'If the company does not agree to structural separation, the Government will use new laws to break up Telstra and force it to sell off its cable network and 50 per cent stake in Foxtel.

Communications Minister Stephen Conroy announced the dramatic reforms today as the government prepares to roll out its $43 billion broadband network.

Senator Conroy said it was possible to achieve a win-win outcome for Telstra shareholders and all Australians. But the new arrangements would not trigger any compensation for Telstra because the company was not being forced to sell any of its assets.'

The government argues the move is justified, because it will improve competition in the market.

'Senator Conroy said previous Labor and Liberal governments had failed to undertake serious reforms of the telecommunications sector.

``The measures in this legislation will finally correct the mistakes of the past,'' he said.

``The government will require the functional separation of Telstra, unless it decides to voluntarily structurally separate.'' '

Henry's blog today reflects slightly bitterly on Telstra's performance as a wealth generator, and interprets the Reserve Bank's latest beautifully crafted minutes.

Paul Kelly today reports further on his latest book, 12/9.

'The March of Patriots, the book that provoked Rudd's speech last Monday, argues that Paul Keating and Howard were simultaneously "pioneers and rivals" in devising a new Australian economic model for success in the globalised age. At the outset it is worth noting the view of federal Treasury veteran Greg Smith that: "No one really controls a market economy. Australia's economic course is charted mainly by the business sector but public policy remains important." This debate is filled with shades of grey. Yet some conclusions are irresistible. The March of Patriots reveals there is a rough agreement among advisers and participants about this story.'

Looking ahead, reports that Malcolm Turnbull may be reconsidering the importance of labor market flexibility is good news for both the economy and the Liberal Party.

Henry declared victory yesterday in his long-running campaign to get Australia's opinion leaders to be aware of the massive waste in Australia's labor markets.

Henry's Blog Friday drew out the messages for policy makers.

The bottom line? 'Now its official ? a staggering 14% or so, over 1.6 million of Australia?s workforce are unemployed or underemployed.  This represents a vast waste of resources. Put to work, these missing or forgotten workers could drive this country?s development far faster than it is now progressing.'

Over to you, Kevin Rudd and Julia Gillard, and the Liberal opposition, assuming you plan to be competitive with Labor any time soon.

What does 14 % underemployed workers mean?, 11/9.

'The evidence that unemployment and underemployment is far worse than suggested by the 5.8% ?official? rate of unemployment has great consequences for economic policy.  The general point is that the extraordinary recovery of consumer and business confidence hides an underlying fragility in the Australian economy.

'This should be carefully considered by the Reserve Bank as it thinks about raising interest rates.  Glenn Stevens is likely to focus on the effects of the forgotten workers in restraining wage inflation. Together with the general fragility of the recovery shown by these figures, it will likely modify the Reserve Bank?s determination to remove ?emergency? low cash rates.

'It is also a powerful argument against removing fiscal stimulus too quickly.  To be sure, one can like Henry wish there had been less stimulus and better targeted stimulus, but removing stimulus now would risk destabilising a promising recovery.

'The real challenge is for Julia Gillard.  Yesterday Ms. Gillard acknowledged that there are ?troubling aspects? of the labor market, and this means the vast army of unemployed or underemployed workers.  The Government is having to reintroduce piecemeal labor market flexibility as various small businesses make a case for exception from the heavy hand of union and government control'.

Latest ABS Unemployment figures show unchanged rate of unemployment, but this is not the full story, 10/9.

As we have emphasised, the ABS numbers are far from the full story, but they are doing better.

First, as to the headline numbers.  ABS Unemployment figures show 31 K drop in full-time jobs, 4 K rise in part-time jobs and a further fall in hours worked, but no change in rate of 'unemployment'.  Que?  Answer - discouraged workers, people who have dropped out of the ABS estimates of the Australian workforce.

On the broader issue of wasted resources, Gary Morgan says: 'The August ABS unemployment estimate of 5.8%, released today, is unchanged from last month - a similar result as announced by Roy Morgan last week (7.4%, down 0.2%).

'However, for the first time the ABS has released a monthly underemployment estimate. Roy Morgan Research has been calling for the release of these figures for years ? and releasing our own monthly underemployment estimate for almost a year as the economic slowdown demanded closer attention be paid to the state of the Australia labour force.

'The Roy Morgan unemployment and underemployment estimate for August of 14.4% (1.66 million) shows too many Australians are looking for more work ? many more than has been understood by the public, politicians and the media in the past.

'Today?s release by the ABS of the August ?underutilisation rate? of 13.9% shows for the first time that the ABS has started to accurately report Australia?s true unemployment and underemployment situation. Australia cannot get out of the recession without this figure dropping dramatically. For the RBA to put up interest rates at this time would be ?economic suicide?.

 'Today?s ABS figures are a ?giant leap? forward for understanding the Australian labour market ? it is time that Australia?s politicians started a real debate on how to find jobs for more than 1.6 million Australians looking for work or more work!

 'What is the major concern for Australia is for the 13th month in a row the ?hours worked? has dropped ? in August down by another 5.8 million hours a month!

More from Gary Morgan, Executive Chairman of Roy Morgan Research, who was interviewed this morning on Radio National - and you can catch the interview here.

Morgan's argument essentially revolves around the downplaying of underemployment - those employed for as little as an hour a week who the ABS includes as 'employed.' Clearly, many of those working only an hour or two a week would like to work more hours - so shouldn't this measure be important in determining how many Australians are really looking for work at any given time?

Henry's Blog today explains how the miners cope.

Skepticism wanes, 9/9.

It's official - correction, quasi-official.

Henry has said -after considerable rumination - that endemic suspicion among global investors about Australia as an investment haven is waning.

This could, of course be just another time in which investors go for higher rewards in riskier ventures, but Henry thinks there is more to it than that.

Only time will tell, of course, and Henry's hypothesis will be more certain if the Rudd Government is able to establish its ability to introduce economic reform rather than simply being champion spenders of other people's money.

Consumer sentiment improves dramatically, 9/9.

A Westpac-Melbourne Institute revealed consumer sentiment jumped for the September month.

The Australian reports, 'AN INDEX of consumer sentiment in Australia soared an "extraordinary" 5.2 per cent in September to its highest level since July 2007.The index rose to 119.3 points in September in seasonally adjusted terms, from 113.4 points in August, the authors of the report, Westpac Banking and the Melbourne Institute, said today.

In annual terms, the consumer sentiment index rose 29.4 per cent in September in seasonally adjusted terms. In trend terms, the index rose 2 per cent in September from August, contributing to a 34.1 per cent annual increase.'

The news follows a string of good economic statistics that show Australia is weathering the worldwide economic downturn.

Business confidence builds, 8/9

'AUSTRALIAN business confidence surged to its highest level in almost six years in August, sending a strong signal the economy has continued to grow solidly in the third quarter and cementing the case for a rise in interest rates before the end of the year.

'Business confidence jumped 8 points in August from July to an index reading of +18 points, its highest reading since October 2003 and well above its long-run average levels, according to a monthly survey of businesses by the National Australia Bank'.

Henry's Blog today asserts that a Keynesian offensive, an expansionary monetary agenda and vital bank bailouts saved us from another great depression.

Inflation threat, 7/9.

Today the Oliver index of job ads also signals better news to come for Australia?s labor markets, and David Uren has noticed the warning about inflation given by RBA Chief Glenn Stevens.

'... if underlying inflation were still around 3 per cent by the middle of next year and capacity constraints were emerging in the stimulus-affected construction industry, then the government's fiscal policy and the RBA's monetary policy might find themselves at loggerheads.

'Official rates could be heading to 5 per cent, with the RBA warning of more to come. Could it raise rates during an election campaign? It has done it before.

'Inflation is still too high at an underlying rate of 3.9 per cent, but it has been quietly trending downwards, helped by lower commodity prices, lower wages and greater competition.

'Commentators, decoding Glenn Stevens's statement after last week's RBA board meeting, zeroed in on the new remark that "underlying inflation should continue to moderate in the near term, but the likelihood of inflation being persistently below the target now looks low".'

Is the GDP data right? Unemployment holding, 4/9.

Tim Colebatch yesterday presented a nice piece of forensic analysis.

'In the year to June, the production data showed GDP fell 0.7 per cent. On the income data, it fell 0.3 per cent. Yet on the expenditure measure, GDP growth accelerated despite the recession to 2.9 per cent. And it is the average of these three that gives us the official figure of 0.6 per cent.

'Something is very wrong, and there's an obvious suspect. The bureau reports that between December and June the value of our exports plunged 22 per cent. Yet it says exports actually grew, and the slump was due solely to a 24 per cent plunge in prices for everything we sell.

'Sorry, I don't buy that. I predict it will be revised, and take the GDP down with it'.

I must repeat something from Tuesday's advice for the board of the Reserve.

'It?s never as bad as it seems when it?s bad, and it?s never as good as it seems when it?s good.'  Maybe Australia is undergoing a recession anyway.

The latest unemployment estimates released by Roy Morgan Research yesterday for the month of August suggest that unemployment in Australia may already have peaked - Roy Morgan has recorded a second straight month of declines in unemployment - now at 7.4% for August, down from 7.6% in June and 7.8% in July.

The Roy Morgan unemployment estimates show there were 838,000 Australians looking for a job in August (down 23,000) from July, while 798,000 (down 224,000) Australians were underemployed. ie, currently working part-time but wanting to work more hours.

This leaves a total of 1.64 million Australians either unemployed or underemployed in August - a significant fall from the 1.88 million in July or 1.83 million in June.

Australian growth exceeds expectations, 3/9.

The Australian economy showed remarkable resilience for the June quarter as other advanced economies faltered. Economic growth increased 0.6%, exceeding the expectations of many economists.

The Australian reports, 'Today?s stronger-than-expected June quarter growth confirms this strong underlying growth momentum.

It means unemployment may not even hit 7 percent, let alone the 8.5 percent forecast by the Rudd Government?s May Federal Budget.

It will encourage the Reserve Bank to lift interest rates, as early as next month, to remove some of the ?emergency? easing in response to the global crisis.

And it will further ramp up the debate over whether the Rudd Government should similarly wind back its budget stimulus, including the lower return $15 billion-plus building program for primary school halls.'

Continued Chinese demand for raw materials was an important contributor to the result.

The CAD, Ouch!, 3/9.

'AUSTRALIA'S trade gap widened more than expected in July on a stronger currency and as consumer and business demand bolstered imports' says Sam Holmes.

'At the same time, lower Chinese demand for Australian commodities crimped exports.

'Official data released today by the Australian Bureau of Statistics showed the seasonally adjusted balance of trade in goods and services widened to a deficit of $1.56 billion in July, from a deficit of $538 million in June.

'Imports rose 4 per cent while exports fell 1 per cent on a monthly comparison.

'The July deficit figure is wider than analysts' expectations for a deficit of $850m'.

Bad news day, 2/9.

Australia?s central bank decided, in line with most expectations, to stay with its ?emergency? low interest rates yesterday.

At the same time, the private banks say funding costs are rising and soon they will need to raise lending rates.  Indeed, this has been a theme for some time now.  Try locking in borrowing rates at what increasingly looks like a low in the interest rate cycle and you are likely to take a punt on current floating rates. 

The Rudd government is holding onto planned stimulus levels despite the signs of economic revival and evidence of gross mismanagement, most visibly in housing for indigenous Australians and schools in remote and disadvantaged areas.  ?Go early, go hard, go waste and mismanagement?.

?It?s never as good as it seems when it?s good? is one of Henry?s beliefs.  Wall Street had another big fall overnight, making three down nights in a row.  Australia?s exports slumped in the June quarter, after an almost miracle performance before that.  Today?s GDP is expected to show a weak 0.2 % rise.  Much above this is a vote for rate hikes soon, much below is a vote for more sitting easy from the old lady of Martin Place.

Henry's blog has more, if you can stand it.

Swan defends wasteful stimulus spending, 2/9.

Wayne Swan has defended the government's $42 billion stimulus spending, ahead of an economic growth report later this week.

Swan told the Australian he was unrepentant about the rushed stimulus package.

'The Treasurer was adamant yesterday the government was committed to its spending plans, which he credits with helping Australia avoid recession. He said although Australia had outperformed most advanced economies, there was no room for complacency.

"The road to economic recovery will be long and very bumpy as the global recession plays out, which is why you can rest assured the government is 100 percent determined to keep implementing our stimulus to support Australian businesses and jobs," Mr Swan said in a note on the economy.

However, he said the government would consider "recalibrating" the program if necessary, but without reducing its overall size. "We will continue to monitor the stimulus package, to make sure it is providing support to the economy - when it is needed and where it is needed," he said.'

The Australian also expects the newest economic figures will show the resilience of the Australian economy.

'The release tomorrow of data on exports for the second quarter will be a key component of Wednesday's GDP figure. The domestic economy is proving more resilient than expected, supporting business activity and confidence. A rise in GDP in the June quarter would mark the second consecutive quarter of growth since a 0.6 per cent dip in the three months to December sparked fears of a slump.'

[Ed: the above report comes from Bert in Washington.  Either he has learned to predict the future or he is still confused about the effect of the International Date Line.]

RBA statement on Australian monetary policy, 1/9.

'At its meeting today, the Board decided to leave the cash rate unchanged at 3.0 per cent.

'Sentiment in global financial markets has continued to improve. But the effects of economic weakness on the balance sheets of financial institutions will still be coming through for a while. This constitutes one of the main remaining risks to the global expansion. For the recovery to be durable, continued progress in restoring balance sheets is essential.

'Credit growth overall remains quite modest. Housing credit has been solid and dwelling prices have risen over recent months. Business borrowing, on the other hand, has been declining, as companies have sought to reduce leverage in an environment of tighter lending standards. Large firms have had good access to equity capital and access to debt markets appears to be improving, helped by the better-than-expected economic conditions and increased willingness on the part of investors to accept risk.

'The Board?s judgement is that the present accommodative setting of monetary policy remains appropriate for the time being. The Board will continue to adjust monetary policy so as to foster sustainable growth in economic activity and inflation consistent with the target.'

Full RBA statement available here: rba.gov.au

RBA to 'stand easy', but rate hikes to come soon, 1/9.

The Reserve Bank board meets today and should respond cautiously to the flood of apparent good news.

Today, for example, we learn that the China boom is perhaps not so certain as it looked before yesterday's 6.7 % drop in the Shanghai stock index.

Inflation steady - but do not relax, this is merely confirming CPI data, 31/8.

'A closely-watched private sector indicator of inflation pressure in Australia was unchanged in August compared with July.

'The TD Securities-Melbourne Institute Monthly inflation gauge rose by 1.7 per cent in August from a year earlier, well below the Reserve Bank's 2-to-3 per cent target band.

'Contributing most to the monthly inflation gauge in August were price falls for holiday, travel, and accommodation; audio, visual and computing, and financial services.

'These were offset by rises in prices for private motoring, alcoholic drinks, and fruit and vegetables.

'The August data indicate that there is no resurgence in inflation.

"Indeed, the flat August result for the inflation gauge indicates that inflation pressures are more subdued," said Annette Beacher, senior strategist at TD Securities.

'With inflation below the RBA's target band for the last four months, there was no rush for the central bank to start raising official interest rates, Ms Beacher said.

'She said the indicator would "tell the market that any RBA tightening is still a long way off?.'

However, Henry comments that CPI inflation is telling a similar story, whereas underlying CPI inflation is still well above the RBA's target range.

So, although the TD measure is useful, providing a monthly readout, it is currently telling us nothing new.

Investment surge - rate rise soon, 28/8.

James Glynn reports: 'BUSINESS investment in Australia defied the gravitational pull of the global slowdown in the second quarter and rose strongly, pulling the economy clear of any lingering recession risk and likely bringing forward the timetable for interest rate increases.

'Firms still expect to wind back investment spending in the year ahead but the extent of the contraction is likely to be modest by historical standards, with upward revisions looking increasingly likely in coming quarters.

"With investment intentions being revised higher, the risks of a pre-Christmas rate hike are rising," said Scott Haslem, chief economist at UBS'.

Equally important is the persistent strength of asset markets.  The Reserve Bank will not admit that is is no longer following a simple (goods and services) inflation targetting regime, and when they do they will say this has 'always' been the case, but the strength of asset markets is another factor the RBA cannot ignore.

The world's money supply is exploding, goods and services inflation is subdued but the excess money has to go somewhere other than under beds.

Wage hikes threaten recovery, 26/8.

More reports of wage hikes of concern, today minimum wages in various states.

Other news mostly good, especially the Gorgon natural gas deal with China - business beats ideology any day it seems - and signs of stabilisation or even recovery in the USA, Europe and Japan.

Ben Bernanke's mooted reappointment cheered the markets but recovery will test him along with other central banks, including the old lady of Martin Place.

See Henry's Blog on Bernanke, and below that others from the week so far.

Australians see Indonesia as our greatest geopolitical threat says new Morgan Poll.

Low debt boosts stimulus impact, inflaexible labor markets inhibit recovery, 20/9.

Australia is a developed nation with a lesser overhang of debt to weaken the impact of fiscal expansion, and strong links to the fast recovering Asian economies, notably of course China.

Outcomes should be between weak America/Europe and strong Asia.

Our relative lack of flexibility, especially in the labor market, will hold us back.

But Henry is slightly encouraged by reports that the Rudd-Gillard government is willing to look at the strongly adverse impact of Industrial Relations rollback on the hospitality industry.

Better to allow all industries to respond flexibly to changing circumstances - providing welfare or tax benefits to the working poor.

But recognition of rigidities in one sector will inevitably encourage similar recognition in other sectors.

Henry's Blog today develops this theme.

Job ads fall slows, fiscal stimulus questioned, 19/8

'JOB advertisements in Australian newspapers and the internet fell 1.7 per cent in July, seasonally adjusted, over June figures.

'The result followed a 6.7 per cent decline in June and the easing of the decline is a tentative sign that job ad numbers may soon stabilise'.

Signs that Australia's economic slowdown may be far less than originally predicted has raised fresh questions about the degree of fiscal stimulus.

As Henry's Blog points out today, the next question will be about the quality of the stimulus.

Shares fall, (Dr Ken) Henry warns of second leg down, ETS debate hots up, 17/8.

Headlines today include: 'Wall Street tumbles in global rout';   possible 'second economic shockwave'; and 'Time to hit the brakes on ETS'.

Ebbs and flows in economic data are always with us, like death and taxes, as any Treasury secretary can confirm.

Henry (Thornton, not Dr Ken) begs to differ with Dennis Shanahan on the ETS, as action now is far better than action later.

Henry's Blog today explains.

Inflationary expectations edge up, 13/8.

'THE inflationary expectations of Australian consumers rose in August as unemployment remained low and house prices gained.

'According to the latest survey by the Melbourne Institute, consumer inflationary expectations rose to 3.5 per cent this month, from 3.2 per cent in July.

'The relative strength of Australia's job market and widespread media reporting of a rise in house prices over recent months most likely nudged expectations higher, the report said today.

"Given a July unemployment rate below market expectations and rising house prices in the second quarter, it is not surprising that consumer inflationary expectations rose by 0.3 percentage points," said Sam Tsiaplias, a fellow of the Melbourne Institute.

Business confidence rises further, 12/8.

BUSINESS confidence in Australia rose to its highest levels in almost two years in July, a NAB survey suggested today.

The Australian commented: 'The boost is likely adding to the case for a rise in official interest rates earlier rather than later.

Henry says this confirms the relatively cheery Reserve Bank view of the Australian economy (see 8/8 report) and contradicts the gloomier IMF view (10/8).

Henry notes, however, that the RBA has tended to whistle cheerfully during this recession while the IMF has a well-based tendency to tell people about hard reality.

Henry's blog today acknowledges all this but recalls the risks - greatly underutilised labor market resources in the local economy.

IMF - a dose of gloomy reality, 10/8.

House prices are overvalued by as much as 20 per cent, reports David Uren, and the International Monetary Fund is worried that a price correction 'might yet pitch Australia into recession and bring massive losses to the banks.

'The fund's annual review of the Australian economy identifies high levels of mortgage debt as the biggest risk it faces over the coming year.

"The linkages between high household debt and bank balance sheets are a key domestic vulnerability," the fund said.

"A sharper than expected deterioration in banks' asset quality, possibly stemming from lower house prices, could constrain credit and deepen the downturn."

'The fund has presented a much more sombre view of the immediate economic outlook than the Reserve Bank of Australia's latest forecasts and it has also rejected Treasury's optimistic medium-term growth projections.

"The near-term outlook for growth is weak and highly uncertain," it says.

'The IMF expects the Australian economy to contract 0.5 per cent this year, whereas the RBA's latest estimate, released on Friday, tips 0.5 per cent growth.

'The IMF believes the worst of the crisis might be yet to hit the Australian economy'.

Henry's blog today reports the views of two American gurus - weak recovery, asset price inflation, who knows what next?

RBA revises forecasts up, 8/8.

 James Glynn reports as follows:  'THE Reserve Bank said today it will start raising interest rates back to a more normal level if recent evidence of an economic recovery proves durable over coming months.

'In tandem with its more hawkish policy outlook, the Reserve Bank of Australia revised up its forecasts for gross domestic product, and lifted slightly its expected trajectory for inflation over coming years.

"With the cash rate at an unusually low level and the global economy stabilising, movement towards a more normal setting of monetary policy could be expected at some point if further signs of a durable recovery emerge," the RBA said in its August Statement on Monetary Policy.

'But the central bank appears ready to wait for now to see if the recent strength of the economy is built on more than just the mountain of monetary and fiscal stimulus announced since the collapse of Lehman Brothers nearly a year ago'.

Unemployment unchanged but hours worked falling, 6/8.

Julia Gillard commented soberly and sensibly (on Sky News) on the unchanged unemployment data announced today.

This is appropriate for at least two reasons.  Properly measured, the rate of unemployment is almost 2 full percentage points about the 'official' 5.8 % rate.

But a new (to Henry at least) hours worked series from the ABS shows declining hours, on the face of it declining about as fast as in earlier recessions.

Ms Gillard said that workers, employers and unions were working together to save jobs, and this may well be correct. 

But the careful ABS discussion suggests the current decline in hours worked is a classic sign of a serious recession, which is indeed what Australia is experiencing.

The political point is that the government, but not the opposition, has presumably had access to this data.  Malcolm Turnbull, go for it.

Source: Australian Bureau of Statistics

BHP expects iron ore demand to rise strongly, 5/8.

'BHP Billiton, which is moving closer to a proposed iron ore joint venture with Rio Tinto, expects seaborne iron ore demand to rise strongly in the next 15 years as China continues to hunger for the steel-making material.

'Iron ore demand should rise from about 800 million tonnes (Mt) in 2009 to 1,800 Mt by 2025, BHP Billiton head of iron ore Ian Ashby told delegates today at the annual Diggers and Dealers conference in Kalgoorlie, Western Australia.

"We remain convinced about the long-term viability of the seaborne iron ore market demand," he said.

"In China, we expect steel demand growth to continue, despite the current volatility, driven by industrialisation and urbanisation.''

Australian interest rates unchanged at 3%, 4/8 (Afternoon).

Australia's interest rates have remained unchanged at the 49-year low of 3%. This is the fourth month in a row that the RBA has decided to leave interest rates untouched.

The RBA commented briefly on both the global financial situation:

'With considerable economic stimulus in train around the world, the global economy is stabilising after an earlier sharp contraction in demand. Downside risks to the global outlook have diminished, though they have not disappeared and most observers expect only modest growth overall. There is tentative evidence that the US economy is approaching a turning point, but conditions in Europe are still weakening.

'Growth in China, in contrast, has been very strong in recent months, which is having an impact on other economies in the region and on commodity markets.

'Sentiment in global financial markets has continued to improve. Nonetheless, credit conditions remain difficult, and the effects of economic weakness on asset quality present a challenge. For the global economic recovery to be durable, continued progress in restoring balance sheets is essential.'

And the more rosy picture here in Australia:

'Economic conditions in Australia have been stronger than expected a few months ago, with both consumer spending and exports notable for their resilience. Measures of confidence have recovered a good deal of ground. This suggests that the risk of a severe contraction in the Australian economy has abated. The most likely outcome in the near term is a period of sluggish output, with consumer spending likely to slow somewhat and investment remaining weak. Stronger dwelling activity and public spending will start to provide more support to overall demand soon, and growth is likely to firm into 2010.

'Inflation is gradually moderating, given the earlier decline in energy and commodity prices, and the effects of weaker demand on prices and labour costs. Given the current prospects for demand and output, this moderation should continue over the year ahead. The higher exchange rate over recent months will assist this moderation, at the margin.'

For the full RBA Press Release please see here:

To let the RBA know what you think of this decision, please don't hesitate to email the RBA

Interest rates unlikely to change today following Reserve Bank board meeting, 4/8.

The board and the staff need to ponder both the current state of the major economies and Australia, but also forecasts and risks.

As well as global risks discussed below, there is the risk posed by Australia?s labor market, where unemployed and underemployed resources are far larger than official statistics suggest.  Rate hikes anytime soon would exacerbate this issue.

A key question about the international economy is: ?Could the current global economy, or important parts of it, be unstable??

Read on here.

For another view, try Dr. Doom - economist, Nouriel Roubini - splashed large over today's business page in the Oz.

Latest Roy Morgan unemployment estimate shows Australian unemployment at 7.6% (861,000), 3/8.

The latest Roy Morgan unemployment data released today shows '7.6% (861,000) Australians unemployed in July, down 1,000 since June, but up 254,000 since July 2008. The latest Roy Morgan unemployment estimate is 1.8% above the 5.8% currently quoted by the ABS for June.

'The Roy Morgan July 2009 ?under-employed? (those working part-time that want to work more hours) estimate is 1,022,000 (9.0%), up 55,000 (0.2%) on June 2009. In total in July an estimated 1,883,000 (16.6%) Australians were unemployed or ?under-employed,? up 54,000 on June 2009.'

The dissonance between this data and official (ABS) data is one of those sources of instability.

Roy Morgan Executive Chairman Gary Morgan believes that the employment situation in Australia revealed by the latest Roy Morgan figures needs to be taken strongly into consideration by the RBA in terms of its interest rate setting policy.

'?Of equal significance is the massive increase in the ranks of Australia?s ?under-employed? ? now in excess of 1 million Australians for the first time as measured by Roy Morgan. The increasing level of ?under-employment? in the Australian economy is directly due to the cutting of hours from formerly full-time workers who have now been forced into part-time work.

?The RBA must take the level of Australia?s under-employed into strong consideration when considering Australian interest rates. There is certainly no case for raising interest rates ? because of high unemployment and under-employment ? there is, in fact, a stronger case for cutting interest rates!?'

Inflation gauge up, will worry RBA, 1/8.

'A KEY indicator shows Australian inflation rose at a record monthly pace in July, driven by increases in the costs of communications, utilities and other housing.

'The TD Securities-Melbourne Institute inflation gauge rose 0.9 per cent in July following a 0.4 per cent rise in June, making July the fastest monthly rate of increase in the gauge's seven-year history. The gauge rose 1.9 per cent over the year.

"The sharp rise in prices in July follows a solid increase in June and may hint at a bottoming in inflation momentum," TD Securities senior strategist Annette Beacher said.

Henry's Blog earlier this week shows this is part of a decade long trend to higher inflation.

NSW minimum wage rises, 31/7.

NSW's lowest paid workers were awarded a 2.8% rise by the state's industrial relations commission.

The rise comes after the federal commission did not increase the minimum wage earlier this month.

The Australian reports unions and workers were enthusiastic about the decision.

'"Today's result is economically smart and socially responsible,'' Unions NSW Secretary Mark Lennon said.

"Too often working Australians bear the brunt of a downturn, but miss out on the fruits of the recovery.

"This decision allows working Australians to live with dignity as we ride out the downturn.''

The NSW decision follows the federal Fair Pay Commission judgment earlier this month which decided against any increase in its latest pay round.'

Economy improving, says RBA gov'ner, 29/7.

A generally upbeat speech by the Reserve Bank Chief, Glenn Stevens cheered the punters this week.

Henry is impressed at his ability to learn from past mistakes.

But there is one more lesson to go.

Commentators have pointed out that Glenn Stevens said or implied - presumably in response to a question - that interest rates might begin to rise while unemployment is still rising.

Regular readers will know that Henry Thornton and Roy Morgan regard current official Labor market statistics as badly flawed.

Hours worked are falling strongly and are likely to fall a fair bit further yet.  Most consultants are struggling to find work and businesses respond to hard times by cutting use of those people not on the regular payroll.

It would be a tragedy - an avoidable tragedy - if failure to appreciate the real nature of Australia's labor market led to premature tightening of monetary policy.

But that is a question for another day.

Embattled Virgin Blue taps markets for $231 million to stay afloat, 27/7.

Embattled airline Virgin Blue has gone to shareholders to raise a further $231 million to shore up its shaky bottom line in the midst of what it calls the "most challenging global environment to date."

The Age reports that 'Virgin's cornerstone shareholder, Richard Branson's Virgin Group, will tip in between $61 million and $80 million to at least retain its existing stake. It is also acting as a sub-underwriter for 20 per cent of the retail offer, which means that its stake in the Australian airline could increase from 25.5 per cent to 30.2 per cent depending on investor appetite.

'Mr Godfrey said in a statement that the proceeds of the capital raising would be used to strengthen Virgin's capital position, and improve liquidity and financial flexibility in "light of the challenging conditions facing the airline industry."

'In an earnings update, the airline said it expects to report a net loss of $160 million to $165 million for the last financial year, compared with a $98 million profit in the year before.

'Virgin's fledging long-haul carrier, V Australia, is expected to report a trading loss of between $30 million and $35 million for the financial year just ended. It will also incur further pre-operational start-up and foreign exchange losses of $60 million to $65 million.'

Kevin Rudd's latest economics essay, 26/7.

Kevin Rudd has published another essay concerning the worldwide downturn and Australian economy.

He says Australia will recover from its economic woes soon, but that it won't be easy.

The Australian reports, 'He warned the government would have to make some tough budget decisions.

?Australia is performing better than most other economies, with the fastest growth, the second-lowest unemployment and the lowest debt and deficit of all the major advanced economies,? Mr Rudd wrote.

?And we remain the only advanced economy not to have gone into recession.

?The economic recovery, however, will be a long, tough and bumpy road with many twists and turns.? '

Rudd also argued for greater international co-operation to resolve economic problems and criticized unregulated capitalism as the root of all evil.

'?We have seen spectacular market failure requiring equally spectacular government intervention in the economy to effectively save the system from itself.?

There was a strong case, Mr Rudd wrote, for the G20 to play a leading role to co-ordinate a successful exit from fiscal and financial market interventions that governments have undertaken.'

BHP doubts nuclear power will become a reality in Australia, 24/7.

BHP is uncertain whether Australia will allow nuclear energy as an alternative to coal power.

The Australian reports, '"If you talk about nuclear power and BHP Billiton in Australia we have no position - we are ambivalent,'' Dean Dalla Value, chief operating officer for BHP Billiton's recently created unit Uranium Australia said today.

"It's purely a matter for the Australian people and the Australian government to make a decision on. When the country has the right set of conditions it will make that decision."

"I'd like to have them (Australians) as a customer and it doesn't form any part of our business plan."

BHP Billiton and Canadian uranium explorer Mega Uranium are racing to develop West Australia's first uranium mine.'

There is a strong economic and environmental case for nuclear energy in Australia. Australia could trade uranium with developing countries to lower their pollution levels.

Inflation falls, but still too high, 22/7.

'CORE inflation remained above the Reserve Bank's target last quarter, stoking fears the bank will abandon further interest rate cuts.

'Bond yields rose sharply after the data and the Australian dollar rallied on the back of the inflation numbers, which showed core inflation still uncomfortably high in the quarter.

'Core inflation, which is crucial to rate setting at the Reserve Bank of Australia, rose 0.8 per cent in the June quarter, slightly more than was expected by financial markets.

'The annual rate of increase in core inflation was a solid 3.9 per cent, still well above the central bank's desired 2-to-3 per cent target band, the Australian Bureau of Statistics said today.

'But the pace was slower than the 4.15 per cent increase in the March quarter'.

Mortgage repayments rise, 22/7.

More Australians are repaying their mortgage debts with the economic downturn according to the Australian.

It writes, 'LOWER interest rates and a return to financial conservatism has prompted a 10 per cent jump in the number of mortgage holders making over payments, with fewer struggling to meet repayments.

Genworth Financial's 2009 national survey of 2000 consumers conducted in late April and May revealed borrowers are reducing their level of debt across the board, with 21 per cent now debt-free compared with 18 per cent in 2008.

Of some 800 respondents, or 40 per cent of the sample, who hold a mortgage 41 per cent are overpaying their mortgage, up from 31 per cent from 2008, Genworth said.'

The continuation of the federal government's first homebuyer grant, lower interest rates and higher saving levels are primarily responsible for the rise.

'The extension of the Federal Government's first home owners grant saw a record level of first home buyers in the market early in 2009, rising to 29.5 per cent to May from from 19.4 per cent in October 2008.

The government grant brought forward the purchase decisions of 24 per cent of recent first home buyers, and encouraged 21 per cent of them into the market when they previously had no intention to buy, Genworth said.

Between September 2008 and April 2009 the Reserve Bank of Australia (RBA) lowered the official cash rate by 425 basis points from a 12-year high of 7.25 per cent to a 45 year low of three per cent.'

Economy to defy gloom?, 21/7.

Forecast early and forecast often is an old piece of advice to young economists.

Peter Martin reports: 'AUSTRALIA is set to emerge from its downturn a year earlier than forecast and with far fewer people losing their jobs, according to leading forecaster Access Economics.

'In a major reassessment, Access now says Australia will defy Treasury forecasts for a contraction in the economy this financial year, and instead record modest growth. "Things are better than either we or the Treasury expected," said Access director Chris Richardson.'

Leading economist Ross Garnaut at a seminar in Melbourne yesterday expressed another view.

The weakened global financial system will make it far harder for deficit countries to be financed by surplus nations.

Adjustment will be 'far harder' for deficit nations than for surplus nations.

Professor Garnaut ended on an apocalyptic note that Henry fully shares: 'Australians haven't yet woken up to this.'

In markets, the price of gold and the Aussie dollar rallied to a five week high, as US stocks hit a peak for 2009 so far.

Inflation genie back in the lamp, 21/7

There is more good economic news as The Age reports: 'PRICES paid to Australian producers have had their sharpest fall in 10 years, in a sign that inflationary heat is fading rapidly.

'The Bureau of Statistics' producer price index (PPI), which measures business inflation, showed yesterday that prices had plunged 0.8 per cent in the June quarter, the series' biggest decline since it began in 1998.

'After a 0.4 per cent fall in the March quarter, the trend suggests the broader gauge of inflation ? the consumer price index (CPI) ? will remain subdued and might even fall'.

Petrol price war heats up, 20/7.

Smaller companies say the petrol price war between Coles and Woolworths is escalating at their own expense.

Woolies and Coles are fiercely competing against one another with fuel discount promotions in their supermarkets.

The Australian reports, 'NEWS that supermarket giants Coles and Woolworths were offering discounts of up to 40c per litre on petrol this week was greeted not with cries of delight from consumers but squeals of protest.

Smaller players in the retail and petrol sector wailed that the big two were misusing their market power, while the consumers who stood to save on fuel costs worried about a future when independent retailers have been forced out of business, leaving the Coles-Woolies behemoth free to charge as it pleases.

The trend in market share would seem to confirm their fears.

Woolworths started selling petrol in 1999, kicking things up a notch in 2003 via an alliance with Caltex that propelled it from the fifth-largest petrol retailer to equal second.

Coles also sprang into action in 2003, tying up a deal with Shell that delivered it a 16 per cent share in petrol retailing overnight.'

The supermarkets now dominate the petrol market and some want the ACCC to intervene. However, the ACCC has not yet seen cause to intervene in the petrol price war.

'ACCC petrol commissioner Joe Dimasi has said he will scrutinise the promotion to ensure it is not being used "in a predatory way to drive competitors out of business".

But he has also indicated he's not opposed to the discounting scheme overall. '

Australia's bipolar economy, 18/7.

Henry's hypothesis of a bipolar economy is supported today by reports from the housing market, where the affliction is most evident.

The bottom end of the market is booming, thanks to big cuts in interest rates, stimulus-providing handouts and generous first home owners grants - but the risk is that all of this is creating Australia's very own subprime housing crisis.

Prestige homes are said to have plunged in price by upwards of 40 %, as Australia's well-to-do people see paper wealth exaporate before their eyes.

'Are we out of the woods or just resting in a glade?'  asks Scott Murdoch today.

The Australian economy 'sits in a delicate, precarious position. So far, the budget has been forced into a structural deficit as deep as $191 billion over the next five years, while the government has been forced to [correction, chosen to] spend almost $60bn in emergency fiscal spending packages'.

Gold keeps rising, 16/7.

The gold price looks set to surpass $1000 later this year, according to an article by the Australian.

Alex Wilson reports, 'SINO Gold chief executive Jake Klein expects the gold price to pass $US1000 an ounce late this year and for this to establish a new base for the price.

"You have seen it test the low $US900s and it seems to have bounced strongly form there," Sino Gold cheif executive Jake Klein said.

"Once it goes through and breaks through $US1000 I think that will establish a new level."

Mr Klein said Sino Gold is not seeing any fallout from the detention of four employees of Rio Tinto  by Chinese authorities for allegedly stealing state secrets.

"It is in the interests of everybody that it gets sorted out as quickly and as transparently as possible, but from our perspective it is business as usual," he said.'

Gold has fared well in the economic meltdown compared to other investments that have collapsed.

Job cuts slow as green shoots emerge, 15/7.

Job cuts in the private sector have slowed, as signs of economicy recovery become stronger.

The Australian reports unemployment predictions have been downgraded and businesses are now more optimistic.

'NAB now forecasts unemployment will reach 7 per cent at the end of the year and peak at 8per cent by late next year. This compares with the Treasury forecasts of an 8.5per cent peak.

Forward orders in retailing jumped and vehicle sales were lifted by the federal government's investment allowance. The boost in confidence also increased business investment.

Businesses reported a slight decrease in their difficulty accessing credit, with 15per cent of respondents recording tougher credit availability compared with 22per cent in May. '

Unions lobby for 15% super contribution, 14/7.

Unions want Kevin Rudd's government to increase the compulsory superannuation contribution from 9% to 15%.

The Australian reports, 'THE Rudd government has left open the idea of lifting the compulsory superannuation contribution above its current 9 per cent rate as unions prepare to push for their long-held goal of 15per cent contributions by 2015 at this month's ALP national conference.

Superannuation Minister Chris Bowen said yesterday that raising the compulsory superannuation contribution above 9per cent was being examined as part of the Henry tax review and the Harmer retirement review.

"Obviously higher post-retirement incomes are better than lower post-retirement incomes but there's a trade-off with pre-retirement incomes and we need to strike that balance," Mr Bowen told the Ten Network's Meet the Press program.'

The announcement comes in the wake of the ACTU's decision to push for a super contribution rise.

'His comments came as ACTU secretary Jeff Lawrence told The Australian that unions would push their long-held goal of lifting compulsory contributions to 15per cent by 2015 at the ALP national conference in Sydney later this month.

Unions would also be arguing for reforms to superannuation tax and the treatment of casuals in relation to superannuation.

The government has faced pressure to review retirement contributions from the funds management industry and from former prime minister Paul Keating, who has long been an advocate of pushing the compulsory contribution towards 15 per cent.'

Senior guru dissects economic data, 13/7.

Australia's most senior economic guru, John Stone, has subjected the national accounts data to forensic dissection.

His summary: 'THE Rudd government claims that Australia has dodged the bullet of an economic recession, and that its fiscal stimulus is responsible. Both claims are essentially untrue'.

This is a balance sheet recession and will not be overcome by cash splash or wasteful spending on schools and home insulation.

This 'means abandoning all talk of a V-shaped recovery. As businesses and people gradually rebuild their balance sheets, recovery will be at best U-shaped and, more likely, L-shaped'.

Stone's expert analysis supports the evidence of real unemployment and underemployment - see posts immediately below this.

Official (ABS) unemployment edges up, understating real situation, 9/7.

'THE jobless rate rose to 5.8 per cent and near a six-year high in June, but was below expectations, as employers slashed 21,400 jobs.

'That compares with 5.7 per cent in May and economists? expectations for 5.9 per cent. It is the highest level since October 2003, according to the Australian Bureau of Statistics.

However, the latest data from Roy Morgan ? based on our research on Australia?s forgotten workers - shows Australian unemployment rose to 7.8 % (up 0.4 %) during June. This is a total of 862,000 Australians out of work and looking for work. This is well on the way to topping 1 million unemployed Australians later this year.

The picture for the under-employed (part-time workers who want to work more hours) was even worse, with many more Australians now part of this classification.

The Roy Morgan June 2009 ?under-employed? estimate is 967,000 (8.8%), up a large 306,000 (2.9%) on May 2009.

In total in June an estimated 1,829,000 (16.6%) Australians were unemployed or underemployed, up 343,000 on May 2009.  This measure, incidentally, omits another 4 % or so discouraged workers who surveys say have given up the idea of finding a job.

Note that the sharp drop in job vacancies supports the reading from the Henry Thornton-Roy Morgan data rather than the ABS data.

If the Reserve Bank had been using the more accurate labor market data it would have stopped hiking interest rates sooner in 2008 and rates would now be lower.

A more accurate picture is reported here.

RBA sits pat, 7/7.

The Reserve Bank fully met Henry's expectations by deciding not to cut official cash rates today.

The Reserve however reiterated its continued readiness to cut rates if necessary when the Governor said: 'The Board?s current view is that the outlook for inflation allows some scope for further easing of monetary policy, if needed.

A severe jobs crisis is slowly replacing the credit crisis as the chief thing to worry about, but this will mainly be of concern to those who lose their jobs.

The RBA's statement is linked here.

Triple crisis faces Rudd, world leaders, 6/7.

'THE G8 summit of world leaders in Italy this week has turned into a high-risk gamble that will shape the success or failure of both the Copenhagen climate change conference and agreement on a global path out of the economic crisis.

'Four days before a high-level leaders climate change meeting on the sidelines of the G8 - called by US President Barack Obama in March to try to break negotiating deadlocks before the crucial Copenhagen talks in December - it was unclear whether leaders would make any progress at all'.

Henry's blog today focusses on the economic crises as they effect Australia.

Since this was written, we have learned that job advertisements are 51 % lower than a year ago.

Allison Jackson reports: 'THE decline in newspaper and internet job advertisements accelerated in June as businesses shied away from hiring new staff.'
 
'The total number of jobs advertised in major metropolitan newspapers and on the Internet fell 6.7 percent in June from May to a weekly average of 127,346, the ANZ Job Advertisements Series shows.

'On an annual basis, job ads were down 51.4 percent. Newspaper advertisements rose 0.9 per cent, but were down 50.7 per cent from a year earlier'

This strongly supports our claim that Australia's real rate of unemployment and underemployment is far higher than generally assumed.

Rio Tinto offloads Alcan Packaging Food Americas, 5/7.

It looks like Rio Tinto is finally managing to move some of the surplus divisions it acquired in its top-of-the-market purchase of Alcan on - as it promised - in a bid to reduce its overall debt burden.

'MINING giant Rio Tinto has sold off a division of Alcan for $US1.2 billion ($1.5 billion). Rio Tinto, which has debts of about $US24 billion ($30 billion), has been trying to offload the Alcan Packaging Food Americas division for some time.

'Rio Tinto says it is selling the Food Americas division to Bemis Company for $US1.2 billion, of which $US200 million may be in the form of shares in Bemis.

'The sale is subject to conditions and regulatory approvals. Rio Tinto acquired Alcan Packaging as part of its takeover of Canadian aluminium giant Alcan in 2007. Food Americas contributes about 23 per cent of Alcan Packaging's total revenue.'

Along with the other revenue raising initiatives undertaken by Rio Tinto in recent months, what had seemed late last year and early this as a massive debt mountain is now surely firmly back under the control of Rio Tinto management.

Australia's two speed economy may avoid recession, 4/7.

Australia's wealthier citizens are experiencing recession while, so far at least, poorer people's  incomes and spending is being propped up by the Rudd government's handouts and other forms of stimulus.

Housing markets tell the tale.

The result is a two speed economy, but continued increases in unemployment may change this situation, especially if wages begin to surge.

We guess that David Uren has been talking to Treasury officials: 'THE economy may be poised for a rebound, with mining companies telling the Treasury strong demand from developing countries will soon return, while the services industry has begun to grow and the motor industry has chalked up its best sales in a year.

'Although unemployment will still rise, the growth evident in industries ranging from banking to communications and resources suggests the Treasury's budget forecasts for next year will prove too pessimistic.

'Although the Rudd government is sticking to its line that the economy is "not out of the woods yet," there is growing conviction its stimulus packages are working, boosting consumer spending and business investment.'

Southern Capital Australia's "boom" city, more than America's "boom" city New York, 2/7.

As Melburnians shiver through another Winter - albeit one without much rain so far (only 126mm for the city so far this year), latest statistics from Matusik Property Insights indicate Melbourne is expected to grow quickly during the next five years - quicker than any other Australian city.

Jason Dowling of The Age reports that 'Melbourne will add 70,000 residents each year for the next five years making it the highest urban growth area in Australia. The population rise means Melbourne will need 29,000 new homes a year for the next five years - especially alternative housing such as houses on smaller lots, townhouses, villas and apartments.

'At the release of the new growth figures, Federal Minister for Housing Tanya Plibersek said Australia could have an under-supply of 200,000 homes by 2013. The Development Council report showed the biggest population increase in the next five years - of 19 per cent - was expected in the 60 to 74 age group.'

Looking across the Pacific at the United States, a similar study has shown New York to be America's fastest growing city in terms of raw numbers, while New Orleans is the fastest growing in percentage terms - although it remains well short of pre-Katrina (2005) levels.

Les Christie of CNNMoney reports that  'For sheer numerical increase, New York City is America's fastest growing, trumping the fastest growing percentage wise - New Orleans. During the same 12-month period, Gotham added nearly 53,500 residents, more than any other city. That represented a growth rate of only 0.6%.

'Following New York City were Phoenix, which added 33,184 residents (2.1%) to a total of 1,567,924, and Houston, up 33,063 to 2,242,193 (1.5%).

'New Orleans lost more than half its residents during the deluge accompanying Hurricane Katrina. Few large U.S. cities have ever had to cope with a disaster on that scale. Since then, it has been one of the country's fastest growing cities.

'New Orleans is now growing rapidly. Its population is up 8.2% in the 12 months that ended July 1, 2008, gaining 23,740 people to 311,853, according to the Census Bureau.' Despite this impressive growth New Orleans would have to grow a further 55% to reach its pre-Katrina population of 484,674 though.

Roy Morgan shows Australian unemployment rose to 7.8% in June, up 0.4%, 1/7.

Latest data out from Roy Morgan shows Australian unemployment rose to 7.8% (up 0.4%) during June. This is a total of 862,000 Australians out of work and looking. Well on the way to topping 1 million unemployed Australians later this year. The picture for the under-employed (part-time workers who want to work more hours) was even more grim, with 967,000 Australians now part of this classification.

'The Roy Morgan June 2009 ?under-employed?* estimate is 967,000 (8.8%), up a large 306,000 (2.9%) on May 2009.

'In total in June an estimated 1,829,000 (16.6%) Australians were unemployed or ?under-employed,?* up 343,000 on May 2009.

'In June 2009 there were 6,678,000 (down 399,000 on May 2009 and down 144,000 on June 2008) Australians working full-time and 3,485,000 (up 248,000 on May 2009 and up 148,000 on June 2008) working part-time.'

Find Roy Morgan's latest unemployment results here:

Adios to a Keating of a year, but DJs upbeat, 1/7.

The doubts are at last being expressed about frenetic attempts to stave off recession rather than deal with underlying imbalances.

'THE Rudd government's fiscal stimulus packages may provide no more than a temporary boost to growth, and be followed by an extended period of economic stagnation'.

So says David Uren, reporting on the dire warnings of the Bank for International Settlements (BIS).

It has 'warned the biggest risk is that governments might be forced by world bond investors to abandon their stimulus packages, and instead slash spending while lifting taxes and interest rates'.

John Durie reports that Australia 'is already out of the woods, if David Jones boss Mark McInnes is to be taken at his word.

'This morning?s profit upgrade called the end of the recession - before it had even started.

'The theory is that department stores are the first in and first out of economic downturns, so if David Jones can upgrade numbers now, then blue sky beckons before we are officially into a recession.

'The stock market took him at his word, with DJ?s share price up 10 per cent at $4.57 a share; indeed, a lot of chief executives around town are reporting that life is not nearly as bad as had been predicted.

'The economy is bouncing along the bottom, and the question is, how fast will the economy grow, with the answer being ?slowly?, which also explains why McInnes?s statements must be treated with caution'.

China discovers its own iron-ore 'motherload,' 1/7.

In news that is sure to interest many of Australia's larger iron ore players - China has announced the discovery of a large iron ore province. Clearly this discovery would aid Chinese steel makers when negotiating with large iron ore exporters like Rio Tinto and BHP Billiton about getting a better price.

'China said it had found a new iron ore deposit in northeastern Liaoning province that state media has described as the largest in Asia. "We did find an iron ore deposit there," an official with the land and resources ministry, who declined to be named.

'He refused to give further details but the official China News Service said on Tuesday that an iron ore deposit with an estimated reserve of more than three billion tonnes was discovered in the region. The report said the reserve, near the city of Benxi, was the largest in Asia and could prove to be twice as big as currently thought as exploration work progresses.'

Australian banks head world rankings, 27/6.

Australia's big four banks now account for half of the world's AA ranked banks, after the economic meltdown cut the list from 20 to 8.

The Australian reports, 'THE top Australian banks have moved from world minnows to majors in the space of just two years as the global recession has claimed the majority of the world's largest and once safest financial institutions.

There are now only eight AA-rated banks in the world, and the Australian domestic brand names of CBA, NAB, ANZ and Westpac account for half.

Before the financial crisis engulfed the world there were 20 AA-banks. The robust state of Australia's banking system has been applauded globally and used as a benchmark for regulatory reform.'

Several analysts believe the Australian banks will emerge even stronger from the international downturn.

'Deloitte financial services partner Chris Cass said the Federal Government was keen to participate in global reforms and had also moved to instigate its own changes, particularly on the banks' role in consumer credit standards.

"The top four banks are extremely well placed to take advantage and withstand whatever remains of the Global Financial Crisis (GFC) and to pull out of the end of it in very good shape," Mr Cass said.

"In terms of regulatory change I think it's going to be more of a tweak. The Australian Government is taking a strong leadership position in the G20. From my reading, the government is determined that Australia will play its part where it's appropriate."'

Contraction of Australian millionaires, 26/6.

The number of Australian millionaires has fallen 23.4% from 2007-2008, reports the Australian.

The Australian reports, 'Now ranked eleventh after two years at tenth, Australia's high net worth population ? individuals with net assets of $US1 million ($1.3 million), excluding their primary residence - fell 23.4 per cent from 2007 to 2008.

That is greater than the 14.2 per cent drop in the Asia-Pacific region and the 14.9 per cent fall globally, according to the World Wealth Report by Merrill Lynch Global Wealth Management and consulting firm Capgemini.'

Falling stock markets, low saving levels and the end of the housing bubble were the principle reasons for the decline of Australian millionaires. The decline in wealth was a result of three factors, the first being lower growth in overall economic activity arising from a fall in demand for commodities.

It was also a consequence of weaker stock markets and a lower savings rate arising from an increase in household debt and falling property values.

?After a few years of robust growth, the ASX (Australian Securities Exchange) declined by almost 50 per cent last year, and this was the most important factor contributing to the decline in overall high net worth population and wealth in Australia,? Mr Li said.'

Australia also dropped out of the 'top ten' millionaire nations. Brazil took our position as the tenth rank.

To read earlier updates to the Australian Economy Page - Please click here.