Industrial relations key to Australian prosperity
Date: Wednesday, April 13, 2011
Author: Henry Thornton
Business conditions recovering, with sentiment again 'above trend', reports the National Australia bank.
In summary: 'THE economy is staging a powerful recovery from a summer of disasters and the annual growth rate could reach 4 per cent by the middle of the year.'
The bank reported: • The Australian economy appears to be showing signs of recovery following the flood-induced slowdown, with the NAB business survey reporting a marked improvement in business conditions in March, driven by sharp rises in trading conditions and profitability. The overall business conditions index is now at its highest level since March 2010. Conditions in Queensland improved significantly in the month but are still very poor. Business confidence declined in March, though remains positive and above trend. More broadly, confidence is now more in line with business conditions (or outcomes). • Forwards orders and stocks picked up, and are now in positive territory. Capacity utilisation also edged a little higher. The survey is consistent with annualised domestic demand growth of around 2½% in the March quarter which, given the impact of recent floods on coal and commodity exports, suggests a flat to negative outcome for GDP in Q1. That would imply a 6-monthly annualised rate of around 1½% versus the survey read of 2¾%. Maintaining March monthly readings in Q2 it would imply a return to more than 4% growth. • Labour costs were broadly unchanged but continue to trend down in annualised 3-month-average terms. While price inflation remained relatively low, purchase costs are rising.
The Australian's David Uren spoke to NAB's Chief Economist, Alan Oster, who added the helpful colour that 'all industries registered a huge improvement in March' and that the improvement continued in April.
Oster added: "We're getting the first inkling that we're looking at strong growth in the June quarter," he said. "That is consistent with what the Reserve Bank is thinking."
It is also, incidentally, what Henry has been thinking, with growth again at the 4 % rate that indicates the onset of inflatioary pressures.
The NAB reports that inflation remains low, but purchase costs are rising. Whether the Reserve Bank was right or wrong to hold its fire on rate hikes so far this year will depend largely on whether wages surge.
Under the howard government's WorkChoices legislation there would have been a fair chance of this. After the Rudd-Gillard rollback there is a more than even chance that wages will break out.
Talk of a 'tough budget', immediately contradicted by promises to 'overcompensate' battlers for the carbon tax, will not hold the line.
And there is still no policy for productivity, which has been languishing since the effect of the last big economic reforms of the Howard government wore off, with the slowing also impacted by IR rollabck.
It is no exaggeration to say that Australia's immediate prosperity is in the hands of union bosses. Go for the doctor, comrades, and interest rates will be higher, the budget will be tougher (with a mini-budget after the faux-tough budget we are about to get) and the miracle economy will do more than stumble as it did in Q1, 2011. It will have fallen flat on its face.
Politics, big and small
Date: Tuesday, June 11, 2013
Author: Henry Thornton
The presidents of the world's current and future hyperpower have talked in 'G2' mode for the best part of two days.
'THE first visit by Chinese President Xi Jinping to the US to meet Barack Obama has been hailed as a success, the pair agreeing to "forge new relations" between the world's most powerful nations.
Weekend news suggested China's growth may be slowing, and US jobs were not so robust as hoped and expected.
China's growth slowdown is unambiguously bad for Australia, increasing as it does downward pressure on our terms of trade and export prices, the source of the wonderful growth of our 'miracle economy' in the past decade.
Slower US recovery is a mixed blessing as it may allow the unorthodox monetary policy to run for longer. The effects of this will include increasing the dilemmas facing the RBA, which are now at last are receiving some recognition in the press, especially the AFR - as explained in the Long Weekend Sanity Break immediately below this blog.
The bottom line of both developments is that the Australian economy is in more trouble than Ned Kelly at Glen Rowan, ditto the government.
Aussie politics - the rats that roared, er ... squeaked
'LABOR MPs reeling from a string of devastating polls expect Julia Gillard to be finished as Prime Minister within two weeks' says the Oz.
Sensible political advisors still expect Australia's most stubborn wumman to hold on for dear life.
But a gracious handoever to a less unloved person might leave Ms Gillard with a happier place in Labor history than the smashing defeat indicated by current polls.
Read on here. Do not miss Paul Kelly on video, or several other interesting articles by the team at the Oz.
'All of which points to a vacancy B1 and B2 ideally suit. At least they ask if we're thinking what they're thinking, demonstrating team work, electoral sensitivity and dexterity in reflective logic far outstripping that of the incumbents.
'Moreover, their intimate involvement with the shop on Cuddles Avenue would greatly enhance Labor's appreciation of small business: no tolerance there for debt and deficits!
'But, best of all, they already know the party's current anthem: "I'm a rat, I'm a rat, I'm a clever, clever rat". With that under their belt, how could they possibly go wrong?'
Courtesy The Oz
Long Weekend Sanity Break, 8-10 June, 2013
Date: Saturday, June 08, 2013
Author: Henry Thornton
Finally, Henry's unorthodox ideas about economic policy have gained some traction, as it happens in the Weekend AFR rather than the Oz, where they have been promulgated for months.
Others economists mentioned are Ross Garnaut and Warwick McKibbin, old amigos from Australia's economic glory days of the 1980s.
A large currency depreciation would help, provided (a vital proviso) that domestic costs increases rise by far less than the Australian dollar depreciates.
This was achieved in the Great Depression of the 1930s and again during the 'Banana Republic' crisis of the nineteen eighties, but the adjustment now needed is nearer the former time than during the latter time. Incomplete cost adjustment in the eighties required a severe recession to fix, so hold on to your hats, gentle readers.
And it seems two other former colleagues, Ted Evans and Bernie Fraser, share Henry's concerns. So now its the five amigos, six if you include Ken Henry. How many warnings does this government need?
And reports today say the Greens plan to use their assumed balance of power in the Senate to block Tony Abbott's deliberately mild IR reforms.
Unemployment rising sharply might, of course, cause the Green people to think again, but don't count on it as every Green Senator will have six year's tenure, absent a double-disillusion election.
98 days and counting
Politics heats up again as K Rudd leaps out of his box to explain to all and sundry that he is available to limit the electoral debacle that Gillard-Labor seem to be facing.
Government members are beginning to look like stunned mullets, and even the world's feistiest wummun seems to be losing it. Henry is even tempted to feel just a bit sorry for our Julia, but Mrs Thornton has told him to put such a silly idea aside.
Supporting a bloke for Martin Ferguson's seat of Batman in a partyroom with far too many blokes for political correctness seems like a foolish mistake when there are so many good wummun around.
Peter van Onselen gets Henry's award for political column of the week, with his vision of a busload of innocent Labor members going over a cliff.
He says: '... of the 50 or so lower house MPs for Labor who are strapped in and at serious risk of losing their jobs, remarkably about 35 of them would have voted for Gillard had there been a showdown earlier this year (according to a mash of numbers presented to me by both camps).
'That is how much hold powerbrokers have over grateful Labor MPs.
'I hope they've enjoyed the ride - the cliff is fast approaching'.
On the other hand, Rowan Dean from the fin, writing from some time in the future, reports on Julia Gillard's miraculous victory in Ausytalia's 2013 election.
'During a school visit in mid-June, a student threw a sandwich at the beleaguered Prime Minister. To the astonishment of all, she caught it with one hand. And then she ate it.
'Later that day, a rogue pair of Telstra sub-contractors “digging a quickie” for the national broadband network in the asbestos-strewn streets of Penrith struck, much to their surprise, an unlikely substance. Gold. Within days, rich new seams of gold, platinum and diamonds were being dug up daily in Telstra pits the length and breadth of the country, sparking what has since been called the Second Great Australian Gold Rush. Almost overnight, public and private debt was eradicated, the national accounts flourished and the IMF declared Australia to be the wealthiest nation on earth, awarding the country an unprecedented AAAAA rating. To wide applause, a delighted Treasurer Wayne Swan announced “surpluses to infinity and beyond” and promised no Australian need ever pay tax again. Or ever work again.
'Cheques for $9 million were swiftly sent to every citizen, with a multi-million dollar government advertising campaign explaining: “It’s Yours. Because You’re Worth It”.'
'Before I start to explore the realities of alternative content in cinemas ... Met Operas, top international ballet company productions, world class theatre ... I have to drop a few aesthetic notches to share the latest Star Trek franchise offering: JJ Abrams Into the Darkness.Read on here.
Henry was devastated on Friday night. His beloved Caaaarlton! smashed Essendon in the first half, with Jarrod Waite completely outpointing (out-goaling?) the entire Essenton team to score 5 goals.
Henry and his border Collie Jack were about as happy as they get, and Mrs T and Jack went to bed confident that Saturday morning would be a happy time with Henry.
We do not know what Coach Hird said to his players, or what was in their rehydration therapy, but they came out a different team.
Everything they tried came off, and the fired-up Dons slowly but surely pegged back Caaaarlton!'s substantial lead.
Their halpess full back went to full forward and kicked almost as many goals as Mr Waite had kicked in the first half.
Their hapless full forward, practically useless in the first half, went to full back and limited Mr Waite to two futher goals.
The hapless Mr Kruezer, exhausted by rucking all day, was out-muscled by the Essendon rucks and Caaarlton!'s previously dominant mid-field lowered their colors.
Most puzzling, Eddie Betts' return from three weeks suspension (an unfair penalty in Henry's view) was hardly noticed and Mr Yarran (about the first player Henry would pick) was unaccountably in the substitute's vest and came on only in the last quarter.
The third amigo, Mr Garlett, practically won the match on his own, but having a goal disallowed without even a review might just have changed the result.
Essendon kicked the goal to put them 5 points in front with about 60 seconds to go, but a blatent free kick to a Caaaarlton! forward right in front of goal with about 15 seconds to go failed to be awarded and that was the ballgame, gentle readers.
Image of the week
Courtesy The Oz
Contained global depression ... what`s next?
Date: Friday, June 07, 2013
Author: Henry Thornton
'After almost five years we are still in a contained global depression, struggling with a world record saving rate of 25pc, and a chronic shortage of demand. The US has kept the world afloat by running down its own saving rate to 2.7pc this year. This is not a remotely tenable equilibrium. Hang on to your seats when that snaps back'.
This could have been written by Henry if he had a better way with words, but in fact it is the conclusion of a recent article by Ambrose Evans-Pritchard.
Evans-Pritchard is a doughty fighter, one of Henry's great heros of journalism.
His recent article begins thus: 'Any country that has failed to lock in a self-sustaining recovery by now must expect to pay the price for the failings of its policy establishment, and some risk a slide into outright deflation'.
He is not writing about Australia, but are we not a clear example of such a country.
Not only have we failed to lock in a 'self-sustaining recovery' but we have not even tried to ensure that the non-mining industries are ready to take up the slack as the greatest mining boom on world history goes of the boil.
Such a trick was beyond what passes for Australia's current policy elite who, instead of thinking seriously about what Henry calls the 'realistic worst case', were gloating at their success in guiding the supposed 'miracle economy' to world champion (developed nation class) status. This was due, we have been told repeatedly, to cash handouts to battlers (Treasury's great innovation, much of which boosted the gambling industry), batts in (then out of) the ceilings of said punters, new and mostly unnecessary school halls, or was it classrooms, the NBN (National Bloody Nonsense), which is well advanced at being well ahead of budget and well behind schedule, and now has turned toxic, with no blame attaching to the relevant minister or the government, naturally. Overall, complete failure to maintain the strong budget inherited from the Howard-Costello government, or even to stimulate the economy in ways that provided some boost to national productivity.
In an national atmosphere of self-congratulation, boosterism gone mad and spending replacing international sport as the national obsession, costs rose faster than those in competitor and customer nations and the Australian dollar rose, creating double-barrelled, double-digit disequilibrium that has squezed most industries and has impacted even on the mining industry, which is cancelling or postponing projects as they bunker down for hard times ahead.
Gor blimey, mate, has this thought just come to you? You are the bloke who boasted that you got the most useful advice on tac reform from a fellow drinker in a pub in North Queensland. Now you bewail the fact that 'Australia is ill-prepared for the downturn in the mining boom because it failed to continue with the economic reform agenda of the 1980s and 1990s'.
Did it never occur to you that stimulus, if it was needed when the GFC struck, might be better provided by getting on with the task of investing in the infrastructure that you now say is totally inadequate. Yet it seems the gambling industry that you so zealously promoted in the name of 'stimulus' is one rare bright spot in a nation totally unprepared for the hard times that have already hit most Australians.
'Enough, already', I hear you cry.
So we return to Evans-Pritchard
“We see building evidence of a cyclical downturn,” said Fredrik Nerbrand, HSBC’s global asset guru. “We find it highly troubling that the eurozone is still marred in a recession at the same time as our cyclical indicators appear to have peaked.”
'The bank said there is a market “disconnect” between the world’s gloomy outlook and talk of tapering by the US Federal Reserve, the supposed moment when it starts to wind down its $85bn of monthly bond purchases.
'It is surprising to me that HSBC’s leading indicator has taken so long to buckle, since commodities topped in September and the Dutch CPB index of world trade contracted over the February-March period. Rarely has there ever been such an equity boom on such quicksand. (See the warning about this here, thanks to Mr Evans-Pritchard, in January 2012!)
'Mr Nerbrand said slowing momentum “should send shivers down the spine of any investors that are long risk”. Yet markets are betting that central banks will come to the rescue yet again if need be. This may be so, but only after they have first struck a blow against moral hazard and demonstrated their distaste for asset bubbles. The central banks take their time. Mr Nerbrand says they will not act until the markets have already priced in a “sub-optimal outcome”, Canary Wharf dialect for a nasty sell-off'.
The US Fed has a massive problem on its hands as it tries to end the super-easy monetary policy that it believes saved the world from a great depression.
As discussed here earlier this week, the RBA has serious dilemmas of its own, and in all liklihood will have to wear some of the blame for the coming hard times.
But of all the official agencies, it has the least to apologise for - which will not leave it immune to criticism. After all, achieving 'double-barrelled, double-digit disequilibrium' in Australia's competitiveness has to have something to do with monetary policy.
Economy `at a watershed`
Date: Thursday, June 06, 2013
Author: Henry Thornton
Henry has been trying to ring the bell about the seriousness of Australia's economic situation. (The satiric version of the warning is here.)
The optimists, perhaps merely sleepy, have been taking issue with Henry's view and that of others, like Professor Ross Garnaut who shares the gloom but learned early in life to be more guarded in his comments.
Today we present the views of David de Garis of the nab, whose comments on yesterday's national accounts follow.
In short, its a watershed, folks, and if Henry understands the meaning of watershed, it's all downhill from here. (Watershed: 'A ridge of high land dividing two areas that are drained by different river systems'.)
'The headline 0.6 % GDP growth from today’s March quarter national accounts was only marginally shy of market expectations of 0.7 % and that of our own, revised up yesterday from 0.4 %. Annual growth has now declined back into the 2s, at 2.5 %, from its 3.2 % pace at the end of last year.
'Underneath the overall growth headlines, a couple of stories are emerging.
'First, the tempo of household consumption did not accelerate anything approaching what the retail sales volume data had inferred.
'Consumption grew a still moderate 0.6 % in the quarter to be up 2.0% over the course of the last year, not far above population growth over that period and evidence of a cautious consumer. The 2.2 % growth in retail volumes in the quarter was offset by either outright declines in some other areas of purchases (eg. New cars, car operation costs, insurance), no doubt reflecting the discounting to attract more spending back into shops for once. The consumer was much less upbeat than a bald reading of Q1 retail spending might have inferred. Of course, we’ve seen flatter retail more recently, in March and April, together with brittle consumer sentiment of late.
'Dwelling investment was flat in the quarter, reflecting some increase in new home building and but lower renovation activity. There are some hints of demand coming back of late, especially on the more traditional new home side, but it’s tentative and it’s unlikely other than to be a modest contributor to growth over the next year or so.
'Business investment contracted by 4.3 % in the quarter, now just 2.3 % above year earlier levels. A year ago, business investment was rocketing along at an over 20 % annual rate and that’s now stalled. Technically, while it’s possible that the mining investment growth story may have another quarter or so of temporary re-growth, that’s what it will be, only temporary.
'Mining investment contracted in Q1, reflected also in the large declines in plant, equipment and engineering construction spending and indeed in the outright decline in WA’s State Final Demand of 3.9 % in Q1. WA would have had some buffer by exporting some of that slowdown to producers/ suppliers in other states and economies, also evident in the 12 % decline in capital goods imports.
'Another takeaway is the cushion from better net export volumes. This came – and will continue to come – from declining imports that are very sensitive to shifts in private spending, and over time from higher export volumes, largely from iron ore for now, and later from LNG, but that’s a late 2014 and beyond story. These will provide a big boost to export revenue, but also to measured productivity, new operational projects requiring a lot less manpower.
'On the industry side, the now familiar theme has continued into the March quarter. Mining industry output rises, fuelling a rise in resource export shipments, but manufacturing contracted overall, with machinery and equipment industries and metal products taking the brunt from slower business investment and some pull-back in car sales and of course the still-debilitating competitive headwind from the $A. Service industries were mixed, the transport industries doing better, possibly from higher internet purchase deliveries.
'Now at a watershed moment'.
'The economy is now at that watershed moment as the mining investment boom has either passed its peak or about to, transitioning to a lower growth plane, awaiting signs of a decisive pick up in other elements of domestic spending.
'NAB forecasts have been calling for the economy to grow by around 2¼ % this year, rising somewhat to around 2¾ % for 2014 based on our initial post-report analysis. That growth assumes we get further positive flow through from monetary easing (eg housing) and some net forecast decline in the Australian dollar over time. Even that growth though would be well within the economy’s potential to grow and not threaten overall inflationary pressures.
'We still expect the RBA to cut the cash rate again, to 2½ % in the period ahead, as the economy charts its course through this transitioning period.'
Hard times a`coming
Date: Tuesday, June 04, 2013
Author: Henry Thornton
The RBA board meets today with several, collectively unhelpful, pieces of data to absorb over the tea and scones.
The estimable David de Garis reports on behalf of the economics team at nab.
'House prices gave up some further ground and at a faster rate in May than in April, prices across the capital cities down 1.2%, but remain 2.9% higher than year earlier levels thanks to rising prices through Q1.
'Melbourne (-2.1%/+2.1%) and Adelaide (-2.3%/-1.6%) had the largest falls in the month, despite higher-to-rising auction clearance rates (Melbourne 71.6% last weekend, Sydney 80.3%), evidence of greater vendor discounting to shift properties which across the capital cities is running at about 5% and 8.7% in Melbourne.
'Price changes across the other capitals were: Sydney -1.0%/+3.9%, Brisbane -0.9%/+1.5%, Perth +1.0%/+6.4%, Hobart +2.2%/+2.0%, Darwin -3.5%/+4.7%, and Canberra -1.3%/+2.9%. Rest of state prices (April) showed prices down 1.0%/-0.5%.
'It’s only of some limited relief' asserts De Garis, 'that the AiG PMI Manufacturing index for May was not as bad as the shocking 36.7 April, increasing to a still contractionary 43.8 in May. That’s right in line with the March quarter average (43.4) with both production and new orders both popping their heads back above 40 again, production at 46.1 from 33.1 and new orders at 42.3 from 32.4. Employment too was also less bad at 46.6, up from 39.3.
'The export orders component was only 28.5 after 24.5 in April. Somewhat more encouraging, the sector showing some improvement was in the “Wood and paper products” industry, assisted quite possibly by the some flow through of higher housing activity. Wage costs growth and input prices also eased, as some benefit to manufacturer margins.
'With the Australian dollar declining, inflation will become increasingly watched for signs of any pass through at the consumer level. Today’s TD-MI CPI gauge rose 0.2%/2.2% after 0.3%/2.1%, year to rates still comfortably within the RBA’s 2-3% target range but monthly rates edging higher of late'.
And the late extra concerns commodity prices: 'Rounding out today’s local releases, this afternoon’s RBA commodity price index revealed a 2.6% decline in neutral currency SDR terms in May after a 0.9% decline in April. The index was 8.6% lower than year earlier levels.
'While the big pullback in gold prices since mid-April and a decline over the past month or so in some of the bulk commodities, notably iron ore, have been right in the mix, the decline also reflected other falls, including for coal, base metals and many rural commodities. Note also that for the some of the bulk commodities where there are contracts in place this has delayed the flow through, but this is only for a quarter or so.
'Using spot prices for bulk commodities, the RBA index would have declined by a faster 5.3% per cent in May in SDR terms, down 9.3 per cent over the past year'.
Henry's view is summed up by the lead paragraph of his approximately 121 st monthly paper since 2002 on Australia's monetary policy. (With around 77 written as the RBA's Chief Economist from 1981, it feels a bit like a footballer playing his 198 th game, with a gap for psychological rehab after game 77.)
Australia is no longer the miracle economy, and seems to be heading almost heedless into very difficult times. The Reserve Bank may feel constrained to help relieve the pain by cutting interest rates further but going too far in this direction will just increase the disequilibrium caused by the major difference in costs of doing business in Australia compared to doing business elsewhere.
Trouble is the word 'heedless'. With one or two notable exceptions, most observers seen to be still in 'miracle economy' mode.
Time will tell, comrades, but in Henry's view hard times are coming.
The RBA is on the horns of a difficult dilemma, and I do not envy their task today or in the next year or two.
The final, and key, paragraph in what was a relatively short announcement by RBA governor, Glenn Stevens, was:
'At today's meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target. It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand'.
And for another view of it all, tune in to last week's Clarke and Dawe, courtesy the ABC.
The coming economic crisis
Date: Monday, June 03, 2013
Author: Henry Thornton
Global investors seem finally have cottoned on to the fact that at some stage the Fed, and other central banks, will be withdrawing the massive monetary stimulus that has been firing asset markets.
'THE worst month on the stockmarket in a year has taken the wind out of investors, with confidence retreating from highs earlier this year amid increasing concern about the global economy and the endgame for stimulus from central banks.
'For the fourth year running, the adage "sell in May and go away" held true as offshore investors booked profits from the falling Australian dollar, and yield stocks, such as the banks, were sold amid bets the US Fed may wind back its massive money-printing program earlier than expected'. Read on here.
Australia's housing markets seem to be firing up, although there are many other dismal headlines today.
Here is a list.
* Manufacturing contracts in May.
* Cochlear profit weakens.
* Warning of more falls in ore prices.
* Telstra 'managing risk' of asbestos.
* Markets await China's manufacturing data.
But, clearence rates in both Sydney and Melbourne are high, and last week credit growth and building approvals both rose.
And 'Garnaut charts path to competitive edge'.
Henry and Professor Garnaut spoke the week before last at Melbourne University, as noted here.
The fin reports: 'Eminent economist Ross Garnaut believes the Australian dollar may have to fall to around US70¢ for the non-resources sectors of the economy to regain competitiveness.
'Dr Garnaut also urged income restraint from all levels in Australian society, starting with large executive salaries which had blown out by several hundred per cent since 2000, he told Financial Review Sunday on Channel Nine.
'An Australian dollar around the US70¢ mark would require a much bigger fall than predicted by most currency experts; even the most bearish currency strategies have the dollar remaining in the US85¢ to US87¢ range by next year'.
How to achieve the necessary cost constraint is the key problem, comrades, as I shall explain tomorrow.
Saturday Sanity Break, 1 June 2013
Date: Saturday, June 01, 2013
Author: Henry Thornton
We welcome winter, with rain, hail, chillblains, hot toddies, the really tough part of the footy season plus THE ASHES.With strong fast bowlers and a new, mystery leggie, newly Australian by gummint decree, we should bowl the Poms out often enough. Will the batters do equally well, comrades, that is the question?
The two big events of the week were Labor's failed attempt to increase public funding of election and Eddie McGuire's inadvertant racial vilification of a great footballer.
The footy shows have been all over the second matter, and we think Harry O'Brian from Collingwood was definitive - there is a lot of casual racism in Australia's culture and it is time it stopped.
I feel confident that Caaaaarlton! would take Harry and Adam Goodes like a shot. Playing footy at the highest levels, and playing it better than all comers, is one obvious way to reform Australia's culture. (Caaaarlton! today faces Greater Western Sydney in what should be a percentage booster. Then games in the next four weeks are against Hawthorn, Geelong, Sydney and Collingwood. One win would be a pleasant surprise, two would cheer Henry's year, three would be wonderful and four would be sensational.)
Paul Kelly puts the pollies at the trough story into context.
'THIS week, the Gillard government broke the agreement it signed to obtain a minority government commission from the Governor-General when it wilfully chose to flout the campaign funding reforms embodied in those documents.
'The Labor Party is desperate. It is in dire financial straits, kept alive by funds from a few pivotal unions. This is a threat to the political system. The risk for Labor after an election defeat is that it becomes a total prisoner of union funding. That would be a disaster.
'Yet this week Gillard Labor did it again. It mismanaged a reform because it was badly designed, with no ground prepared, as part of a hasty election-eve push and, would you believe, totally dependent on Tony Abbott.
Much fuss about the state of the investment plans of Australian business. The RBA's rate decision next week may well rest on its interpretation of those plans, but there seems little doubt that the economy is in real strife.
Type Henry Thornton and key word or words in Goole search box, and you get a far more efficient search than using the site’s own search facilities which, to be fair, were installed almost a decade ago.
Eg Henry Thornton Mardi Gras Henry Thornton Fiscal Policy, or Henry Thornton Monetary Policy
Henry's regular contribution on the latter subject will be available here and in The Australian on Tuesday.
You may already know this trick but Henry has only just discovered it.
Business investment wobbles
Date: Friday, May 31, 2013
Author: Henry Thornton
Capital spending fell again in the March quarter and opinions differ in the interpretation of likely future trends.
The economics team at nab reported thus: 'Private Capital Expenditure fell 4.7 % in Q1, weaker than market expectations of a 0.5 % rise, and below NAB’s forecast of a 1.5 % decline. The Q1 fall comes after the 2.1% decline in Q4 2012 and again reinforces the weakening state of business investment as the mining boom eases. The weakness in Q1 was in both Building and structures (-5.5 %) and Equipment, plant and machinery (-3.3 %), while the industry results were also poor. Mining fell 6.2 % and manufacturing fell 0.8 %, while “other industries” were down 2.9 %. The nominal data suggests that only retail and media & communications saw decent capex rises in Q1'.
The nabsters say on capex in the immediate future: 'So while the outlook for non-mining investment appears to be improving, there is likely to be a large negative offset from mining and also manufacturing, which will result in very small overall growth in total capex of 3-5 % in 2013-14'.
Alan Mitchell of the Friday fin says 'stronger than expected investment outlook for the coming financial year and the recent depreciation of the Australian dollar mean the Reserve Bank should leave interest rates on hold next week.
'The March quarter’s official survey of business investment plans provides evidence that the 2 percentage point cut in the cash rate over the past 18 months is gradually being reflected in investment plans. It coincides with an encouraging lift in the number of monthly building approvals.
'The survey of expected business capital spending and the approvals data were greeted by a jump in the Australian dollar on foreign exchange markets'.
'Treasury took an optimistic view of the outlook in the budget, forecasting that investment would rise by 4.5 per cent this year, reaching an all-time record 19 per cent of GDP, with a further 1 per cent increase in the following year.
'Resource investment, it said, would peak in the year ahead at 8 per cent of GDP before easing gradually over coming years, with the fall made up by rising investment elsewhere in the economy. The budget papers comment: "Non-resources-related investment is expected to strengthen over the forecast period, stimulated by low interest rates and a broadening of economic growth."
'Treasury expects these conditions to support manufacturing, with the revival in non-resource investment forecast to lift demand for machinery and equipment by 2.5 per cent in the year ahead, followed by a 5 per cent boost in 2014-15.
'The Reserve Bank does not publish its forecasts in this level of detail, but the review of monetary policy released earlier this month cast doubt on the findings of the last capital investment survey, which suggested that there would be growth in both resource and non-mining investment over 2013-14'.
Make of all this what you will, gentle readers, but it certainly ain't good news.
Building approvals provide happier news. Nab again: 'Some better news for the economy came from the April building approvals data, also released today. Building approvals rose 9.1% in April, and while the 18 % gain in apartments, there was also a 2.5% increase in private housing which is more relevant for the dwelling investment outlook. That was the fourth consecutive monthly gain in private houses, supporting other housing data that point to a slow but steady upward trend in activity, albeit from a low starting point. All states are now trending higher in private housing approvals.
'Housing finance approvals (esp for new homes) and new home sales have also been improving of late, which would give some confidence that the construction sector and also housing related manufacturing and retail will see better conditions later this year and into 2014. Especially if the RBA cuts again, as we expect, later this year'.
Financial markets, on balance, seem to have reduced the odds on another rate cut when the RBA meets next Tuesday.
The quality newspapers did not report the live odds from Tom Waterhouse.
The global recession comes to Australia
Date: Thursday, May 30, 2013
Author: Henry Thornton
Well, bu**er me dead, as Henry's football coach used say when the team did something unexpected. The mighty OECD has discovered that Australia's mining boom is set to end, that the forthcoming election is reducing confidence and the global investors are reassessing Australia's 'resilience'. Must be the recent visit by Adrian Blundall-Wignall that tipped the balance.
Since this is a message delivered by a 'wise man from the North' (the one part of the world economy that is totally stuffed) this is big news, witness the AFR's screaming headline today.
Local prophet's have been delivering this message for months, witness Henry's various attempts to tell the tale. Here is a link to 'Three strikes for a rate cut', published in early October.
And here is a link to a report of the OECD's concern for the world economy from November last year.
Even as recently as this week, two of Henry's regular correspondents were on the case. Louis Hissink told the story of how wage demands are pricing workers out of jobs, and Nick Raffan pointed to the amount of trouble small mining companies are in.
Nick's use of the Baltic Dry Index of global bulk goods shipping presents a telling piece of evidence.
While the USA is doing better than expected, and Japan has had a sugar hit of stimulus, other major economies are mostly struggling. The Baltic Dry Index is back to the levels seen at the worst point of the Global Financial Crisis
There is a long and winding road for Australia to travel now before good times are restored. Trouble is, Wayne Swan has been chirping so loudly about the 'miracle economy' that voters are unprepared for the tough action required to restore Australia to robust health.
Please allow me, gentle readers, to remind you of my summary from almost a week ago at Melbourne University.
'IAustralia's budgets have to be fixed, and this will be hard enough. Increasing competitiveness by reducing costs or increasing productivity is actually a far greater challenge than fixing budgets.
Australia substantially increased competitiveness in the early 1930s and again (to a lesser extent) in the 1980s. So it can be done, but it will only be done with least pain if the government takes the people into its confidence.
There is one powerful point to be noted. Feasible productivity improvements of around 2 per cent per annum would seem like the most that any policy reforms could produce. With Australia’s competitiveness in double digit disequilibrium, realistic policy action will need to focus on limiting the pass through of wage and cost increases generally following a large currency devaluation.
Whether this can be achieved without a severe recession will depend on the response of households, businesses and unions. A sensible response requires at the very least least truthful and sober communication by ministers, especially the Prime Minister and Treasurer, who must be told the facts by a bold, hard-headed Treasury Secretary.
The attached paper by Ross Garnaut contains much with which I agree. We both are trying to awaken Australia from its decade of complacency.
The global economy - bulk commodity shipping tells the tale
Date: Wednesday, May 29, 2013
Author: Nick Raffan
In pondering the state of the global economy, the Raff likes to consider the Baltic Freight Index (BDI), which is essentially depicting the prices for bulk cargoes of iron ore and coal. When global trade is booming the BDI is strong, and when it is not, currently the case, the BDI is weak, probably nearing life support and sitting at the same level it was before China’s economy took off in 2002. Not surprisingly there is a correlation between commodity prices and global trade. Perhaps the following chart is depicting the bottom of the world business cycle, which might well be the case except for worsening economic conditions in Europe.
The Raff only watches the Aljazerra and SBS News where there is good global coverage. Of interest the other day was the free-trade deal Germany is sealing with China which not all German politicians agree with. Some Germans want to impose import duties on imports of manufactured goods from China to protect their domestic industries, and of course jobs. The Raff believes that in years to come, savvy economists will look back on the concept of free-trade and the flat playing field and see those concepts as having been disastrous. All that will have been achieved is social dislocation in the West and piles on piles of human misery as the masses of unemployed fight for their very existence. Only a fool would not recognise the pace of social unrest growing.
Every Wednesday evening the Raff goes for a social session at the local bowling club. It’s a male only affair and mostly guys who have retired. The Wednesday night group is a real cross-section of skills and political allegiances. Every visit something new is leaned from the “Table of Knowledge (TK)” which the Raff will report on from time to time. Most of the group are self-funded retirees and manage their own financial affairs.
The TK is mighty concerned about falling interest rates and the soaring prices of banks and Telstra and any other industrial company offering a decent yield. The Baby Boomers are hurtling towards retirement. Twenty years ago they might have punted junior resource stocks, but with one exception at the TK not any more. This is a huge problem for the junior mining and exploration sector. The number of one cent share prices is scary. This is a market where there is no capital available for juniors, and Canada is apparently worse.
It is unfortunately true to say that some juniors are lifestyle companies paying too high salaries to the CEO and with too many directors chewing up shareholder funds for adding no value to shareholders. Gladly The Raff knows many junior companies with management committed to adding value to their shareholders. It is very sad to see the pressure mounting on some of the CEOs looking down the barrel of insolvency for their companies. Many junior companies will be wound-up later this year when the cash runs out. Already some companies are no longer paying for research cover. The last stage will be the inability to pay listing fees. The number of geologists unemployed is soaring and reported above 8% this year. The figure will probably grow and exceed the Euro Area unemployment rate of 12.1% by year end and move much higher in 2014.
Make no mistake, the junior mining sector is facing the toughest times ever. It is not just the explorers that are affected, but so to are the service companies, drillers, consultants, and stockbrokers etc. But who cares? The current Government doesn’t, if it did it would consider immediate tax deductions for investors subscribing for shares in junior explorers. The Raff seems to recall that in order to support the Australian film industry there was a very attractive uplift for tax deductibility, but that was decades ago.
Type Henry Thornton and key word or words, and you get a far more efficient search than using the site’s own search facilities which, to be fair, were installed almost a decade ago.
Eg Henry Thornton chaos Henry Thornton Baltic Dry, or Henry Thornton Bank of England
(The latter search leads to a nice story on 'The Panic of 1825', which is available here.
The trouble is that the original Henry Thornton died in 1815. Were the governors at the Bank of England in Brad DeLong's story dealing with a spectre, or a clone of the original Henry, or were they just confused?)
You may already know this but I have only just discovered it.