Qantas battles for profitability, 31/3.

'QANTAS will slug customers with more fuel surcharges after chief executive Alan Joyce yesterday announced cuts to flights and management jobs, and warned unions were threatening the airline's international operations.

Mr Joyce could not guarantee that job cuts would not spread across the airline's wider workforce and said that further fuel levies on passengers were a possibility if high jet fuel prices continued to threaten the airline's profitability.

'Qantas has already lifted fuel surcharges and hiked airfares twice in the past couple of months.

'Its subsidiary budget carrier Jetstar has also increased ticket prices and charges for items such as checked baggage.

'In comments that infuriated union officials last night, Mr Joyce told The Australian that agreeing to the unions' bid to curtail the use of cheaper contract labour through award job security clauses would remove the company's flexibility to deal with fluctuations in the market'.

More here. 

Markets volatile but outlook still positive for Australia, says NAB, 21/3.

*  Markets very volatile, hit by a deluge of major events internationally. Aussie dollar up on Yen intervention

*  Stocks perk up, despite oil prices remaining high

*  RBA Minutes show they expect a strong mining sector ahead and good employment growth, but with risks from higher commodity prices and inflation

* This week, no local data of note. RBA half yearly Financial Stability Report due on Thursday

Consumer confidence plunges, 3/3.

'Consumer Confidence has fallen sharply to 114.0pts (down 6.6pts in a week since February 19/20, 2011) according to the weekly Roy Morgan Consumer Confidence Rating conducted last weekend — February 26/27, 2011. Consumer Confidence is now 15.5pts lower than a year ago, February 27/28, 2010 (129.5) and is at its lowest since July 11/12, 2009 — nearly two years ago.

'The fall has been driven by Australians having less confidence about all components of the survey especially expectations for the next 12 months and comes after Prime Minister Gillard announced new plans for a carbon tax'.

More here. 

Moderate GDP growth, 2/3.

Treasurer Wayne Swan is relieved that GDP growth is moderate, though he says national accounts are as complex as he has seen. (He does not know of the GDP accounts following the great tea-trolley crash of March quarter 1986.)

GDP growth in the December quarter was 0.7 %, implying annual growth of 2.7 %.  This is close to the sustainable growth of 3 to 3.5 % (no-one knows for sure).  Wages growth is increasing and this is important to monitor.  If there is a wage explosion, as now seems likely, all bets will be off and the Gillard government weill be history.

The opposition to the great big new taxes may do the job even without a wage explosion, but this is less certain.  Both together and its goodby Julia, Hello Tony!

Strong growth predicted, 17/2.

The RBA's Assistant Governor (Economic), Philip Lowe, has given voice at the annual CEDA outlook conference.

Cool, calm and collected', as befits a future Deputy-governor, there is no better overview of the global economy and what it means for Australia.

Mr Lowe's summary of this matter is as follows: 'Our central scenario remains for the economy to grow strongly over the next few years. The quarterly GDP outcomes in the near term are, however, going to be materially affected by the recent extreme weather events. These events significantly disrupted production in both the December and March quarters, especially in the coal industry. The Bank’s current estimate – which remains subject to significant qualifications – is that total output in the March quarter will be around 1 per cent lower than it otherwise would have been. Given this mainly arises from a disruption to production, the decline in spending is likely to be somewhat smaller than 1 per cent.

'Following the March quarter, we expect a strong rebound in output, as coal production recovers its fall and the rebuilding effort gets underway. Over 2011, our current forecast is for the economy to grow by around 4¼ per cent. This is higher than we were expecting three months ago, although this upward revision just reflects a lower starting point because of the decline in coal production in December 2010. Beyond the current year, our central scenario remains for the economy to grow in the 3¾ – 4 per cent range'.

The full article is available here.

BHP Billiton hobbled by tight labour market, 16/2.

'TIGHTENING labour markets have begun to have a marked impact on BHP Billiton's aggressive growth plans for Western Australia.

'The global mining giant's chief executive, Marius Kloppers, said today that labour and production costs were escalating around the world.

“We have an interesting situation developing in Western Australia on the back of a lot of capital going into the iron ore businesses, but particularly in the oil and gas business,” said Mr Kloppers, when releasing the miner's record half-year profit figures.

“The situation there is not quite as developed as it was pre-GFC, but clearly the labour market has tightened. On the engineering side, we are starting to see some production and cost impacts.”

'The Melbourne-based miner also highlighted that exchange rates and higher input costs were also key issues hitting the bottom line'.

Slower growth, higher inflation, 9/2.

NAB says that its Australian growth forecasts have been reduced to 2.4% in 2011 (was 3.6%), reflecting impact of floods.

'Special flood survey implies 1½% reduction in GDP spread over Q4 and Q1, likely to be followed by investment boost as infrastructure is repaired giving growth of 3.5% through 2011 (was 4%) and 3.9% in 2012. RBA will look through any temporary flood effects on food prices. Next hike to 5% still expected in May, but may be postponed because of flood disruption, with peak of 5¼% by August 2011. RBA will be watching cost pressures during reconstruction phase. Exchange rate to remain around parity (AUD to peak around 1.05 USD). Core inflation around 2¾% through to end 2012'.Cyclone Yasi hits North Queensland, 4/2.

Thanks goodness, it seems as if cyclone Yasi has not done as much damage as it might have, mainly because of the chance of hitting the cost between two large population centres.

Buildings meant to withstand cyclones largely did so, which is a credit to the governments that determined those standards and the builders who implemented them.

This is not to deny massive costs from wrecked buildings and damaged crops, not to mention cars, boats and roads lost, wrecked or damaged.

And what a spirit was shown by those doughty North Queenslanders, led by bob Katter who just before the cyclone hit was on ABC radio telling the nation that there was far too much scary talk in the media.

We thought this was just the 'mad uncle' venting, but it seems Mr Katter had a point.

Southern Cross bids for Austereo, 31/1.
'
'Southern Cross is offering an all-cash alternative of $2 per Austereo share plus a 5 cent dividend announced by Austereo Monday. It will also pay Austereo shareholders an extra 10 cents a share, but only if its offer reaches the 90 per cent complusory acquisition threshold.

'Austero shares last traded at $1.89 each.

'Southern Cross is also offering a share-based alternative of 0.95 Southern Cross share for every Austereo share plus the 5 cent dividend and potential 10 cent payment.

'Austereo owns Australia's Today and Triple M radio networks and has radio stations in all of Australia's mainland state capital cities.

'Southern Cross said the directors of Austereo "have announced that they will unanimously recommend that Austereo shareholders accept the offer in the absence of a superior proposal".

'Shares in Austereo jumped 8.5 per cent after the news, adding 16 cents to $2.05. Southern Cross shares tumbled 7.4 per cent, losing 16c to $2. Shares in both businesses later entered a trading halt'.

Consumer inflation falls in December, 25/1.

Today we get another reading of Australia's rising inflationary storm.  News so far is not yet as bad as the storms that devastated Queensland and much of Victoria in recent weeks, but bad enough.

In particular, the past three monthly 'inflation guage' numbers suggest goods and services (consumer) inflation well above the RBA's target zone, and consumer's inflationary expectations have leapt as well, partly because of the effects of those real world storms.

Treasurer Wayne Swan must have been wielding the garlic and silver crufix to great good effect.  The December CPI rose by only 0.4 % in the December quarter, implying a low 2.7 % for the 12-months to December quarter. (Fruit and vegetable prices rose by up to 16 %, so other prices rose by very little, and some may have fallen.)

Furthermore, 'underlying' inflation in the 12-months to December is a modest 2.3 %; lowest since March 2001 Quarter (2.1%).  The graph shows these latest results in the perspective of the half-century since 1958.

This is unambiguous good news, and provides breathing space for Glenn Stevens, how much depending, of course, on what special factors are revealed by the careful analysis now underway in the bunker at the top end of Martin Place.

Wages pressure building, 21/1.

'THE newly renovated Perth airport is already straining at the seams, overwhelmed by the numbers needing to get to the resources projects of the north west.

'In total, the fly-in, fly-out workforce adds up to 2 million passenger movements a year. That's even though more than a quarter of the workers now bypass Perth when they come from other states.

'That sort of massive shortage of workers for the resources sector, including the myriad of mining services and supply companies, is only going to increase in Western Australia this year.

'Every small shop owner trying to find staff in Perth knows the result. They can't compete with the money on offer. The West Australian Chamber of Commerce and Industry expects the state's average weekly wages growth to be up over 7 per cent a year for the next few years. And that may prove an underestimate. The chamber's latest survey of business conducted last month has found that 40 per cent of its members don't expect to be able to find sufficient staff by March'.

Analyst downgrades to Qantas, Bluescope Steel, 18/1.

'MACQUARIE analysts have taken the knife to Qantas and Bluescope Steel, downgrading recommendations on each due to tough macro environments.

'Russell Shaw and his aviation team today cut Qantas to “neutral” from “outperform” and reduced their target price to $2.78 due to higher fuel prices after the investment bank recently raised its near and long-term oil price forecasts.

'The analysts said this had compounded concerns after the troubled airline’s recent run of engine problems and poor weather on the east coast.

“Higher fuel prices have compounded investor concerns, and whilst the stock appears cheap on a price/book value basis, we struggle to see the share price closing the gap in the near future with concerns over near-term yield pressure domestically,” said Shaw.

'On Bluescope, Macquarie cut the stock to “underperform” - an effective “sell” - with a $2.02 price target due to its “challenging” medium-term outlook.

“While any lift in global steel prices will be a positive for BSL, the recent spike in coal prices as well as sustained strength in iron ore will continue to weigh on Bluescope’s cost base,” said analyst Doug Macphillamy.

“A structurally higher level of raw material costs is likely to drive thinner spreads for BSL, in our view, which will ultimately see a lower level of profitability versus prior periods.”

Inflation trend confirmed in December, 17/1.

'CONSUMER prices rose for the third month in December in an inflationary trend that may force the RBA to lift interest rates by mid-year.

'An estimate of consumer prices in Australia rose 0.2 per cent in December, pointing to increasing inflationary pressures for the economy, according to a report by TD Securities-Melbourne Institute issued today.

'The latest rise in the TD-MI monthly inflation gauge continues a string of rising inflation, after increases of 0.4 per cent in November and 0.3 per cent in October'.

On an annual basis, the measure rose by 3.8 %, the fifth consecutive month it has been at or above the 3 per cent upper band of the RBA's inflation target.

See also Henry's Blog today for more detective work on Australia's possibly slowing labour market. 

Small jobs increase in December, but unemployment falls, 13/1.

This means a substantial number of people fell out of the workforce - maybe just to take a good holiday.

To the extent that one month's jobs growth matters - and 'not much' is the truth of the matter - this data is consistent with slow GDP growth suggested by other indicators, notably soft retail sales.

The government, of course, put the best possible spin on the result.

'In the past 12 months a record 364,000 jobs have been created with more than 80 per cent of these being full-time jobs' said the Workplace Relations minister.

(However, the new figures out today show only 2300 net new jobs were created in December.)

Senator Evans said the "modest" jobs boost took unemployment to January 2009 levels, when the effects of the global financial crisis had first begun to bite.

He said Australia’s unemployment rate was one of the lowest in the industrialised world, and the number of jobless was expected to fall further..

"Our 5.0 per cent unemployment contrasts with 9.4 per cent in the US; 9.8 per cent in France; 7.8 per cent in the UK and 7.6 per cent in Canada," Senator Evans said.

Henry's Blog today provides a guide to what the horrific floods in Northern Australia means for the economy.

RBA sells gold on two false premises, 11/1.

We learn today, courtesy an FOI request by the Oz, that the RBA sold two-thirds of our gold a decade ago because of flat investment prospects (wrong) and because of excessive confidence in the workings of the international financial system. The gold was sold for a far cheaper price than could achieved now, and Henry recalls an earlier discussion not to sell at $800 per ounce, then way above any view of long-term prospects.

While gold can seem, in the words of Keynes, a 'barbrous relic', in the modern world the arguments of the old-timers still hold, indeed are stronger. In a difficult and troubled world, it is gold rather than paper currencies that can be used in an emergency to buy defence equipment, medical supplies, mining equipment and other vital needs of a modern economy in the face of a sufficiently grave global emergency. While this is a diversion from the main point of today's Blog, it is worth being aware of this as it shows how the Reserve Bank is today managed by technocratic young men (and the odd young woman) who fail fully to appreciate the lessons of history. (The relevant article is by Paul Cleary, p4 of today's The Australian, but with no link I can find.)

Henry's Blog today discusses Australia's looming inflationary storm.

Major project inflation, 10/1.

'THE nation's resources sector has been hit by more than $8 billion in mega-project cost blowouts in the past six years.

'And more overruns are expected as Australia enters an unprecedented period of major project approvals amid dwindling supplies of skilled workers.

'Since 2004, only one Australian mining or oil and gas project costing more than $2bn has hit targeted production on time and budget.

'Mining and energy companies show no sign of improving their records on cost blowouts.

'Of the four giant projects due to start in the next two years, not one is on track to meet its board-approved budget and schedule.

'There have been 15 mega-projects approved in Australia since 2000 but only one, ConocoPhillips' $US3.3bn Darwin liquefied natural gas project, has reached production on time and budget'.

Giants of Australian retail fight competition, 6/1.

Having gotten rich by leapfrogging Australian manufacturers in favour of cheap overseas manufacturers, Australia's retail heroes lobby against consumers leapfrogging Australian retailers in favour of cheaper and better on line retailers.

Tought titty, Gerry Harvey.

Read on here.

Labor shortages, wage inflation risk, 5/1.

As Australia's renewed resource boom gathers pace, business leaders are issuing warnings.

* RBA board member Donald McGauchie says the government's spending on stimulus measures and the $35.9bn NBN is forcing the bank to raise interest rates'. (Matt Chambers)

* 'Business leaders are warning of a looming skills shortage and a wages breakout driven by a resurgent economy'. (Matthew Stevens)

Sid Maher and Annabel Hepworth take up the battle: 'More than 140,000 skilled migrants are caught in an Immigration Department processing backlog of up to 28 months.

'Business leaders are warning of a looming skills shortage and a wages breakout driven by a resurgent economy.

'In a secret briefing to Immigration Minister Chris Bowen, the department warned of potential legal action by skilled migrants unable to get a decision on their applications. The department also said that, in order to offset the ageing of the workforce, migration would need to remain at levels that would lead to Australia having a population of 35.9 million by 2050 - the figure that sparked the "big Australia" debate and Julia Gillard's promise of a sustainable Australia'.

Matthew Stevens points out that 'Industrial relations looms as the most anticipated crisis point on the Australian economic landscape over the coming year.

'Unions are likely to leverage amplifying national skills and manpower shortages into substantively improved wages and conditions.

'After some very successful late-season skirmishing through the closing months of 2010, the workers united enter the new year emboldened by Labor's new Fair Work Act and with achievable designs on above-inflation wages settlements across several key sectors such as mining, transport and construction.

'The waterfront union, for example, spent last week muscling-up on Asciano's bulk freight ports in Western Australia as part of what has the look of a national campaign for a 30 per cent wage increase over three years and a push to reduce the level of casual staffing'.

Another story is 'flood inflation'. The big issue is not to discount too much for the shock as prices of fruit and vegetables rocket, as they will.

Mining boom continues, 4/1.

It is the silly season everywhere in this wide brown land, especially in Queensland where the brown is flood water rather than burnt grass.

The mining boom is the chief item of positive news, and is expected to go 'on and on', despite rising interest rates in China and shortages of infrastructure and appropriately skilled labor in Australia.

A wage breakout is a clear and present danger, as Scott Murdoch reminds us.

More here in Henry's blog.