July 31, 2009
Building Approvals
Building Approvals for homes had a good showing yesterday hitting a 4-year high. Permits were up 9.3% in June for new homes as people rushed to take advantage of the First Home Buyer's Grant. The figures will please RBA Governor Stevens who suggested earlier in the week that house prices could rise without extra housing stock.
July 29, 2009
RBA Speech / NAB Qtly Business Survey
RBA SPEECH
There are a number of headline grabbing comments this morning about interest rates rising by Christmas and in my mind that's all they are. I've listened to the RBA Governor's speech (http://www.rba.gov.au/) and he acknowledged the possibility that house prices may rise if there isn't an increase in housing stock and that at some point inflation will rise. He also states that rates will go up "in due course". Well we all know that but some journalists suggesting this might be as soon as Christmas is their own sensationalist interpretation.
It's clear however that with the language he was using there would have to be something very dramatic take place to cause them to ease again now. I've given up my suggestion therefore that there might be another easing. The Governor also acknowledged however that inflation will continue to drop and unemployment continue to rise for the moment. We still have some way to go and the UK and USA are still suffering. China however are our saving grace.
The markets have sold off - particularly in the three year area and there could be some attractive 1 and 2 year rates around soon.
NAB Qtly Business Survey
Adding to the note of confidence was the NAB Qtly Business Survey. This pointed to a sharp jump in business confidence in the 2nd qtr by 20 points to levels last seen just before the Lehman collapse. Business conditions were also significantly better due to improved trading and profit conditions. They are both still negative but getting close to positive.
There are a number of headline grabbing comments this morning about interest rates rising by Christmas and in my mind that's all they are. I've listened to the RBA Governor's speech (http://www.rba.gov.au/) and he acknowledged the possibility that house prices may rise if there isn't an increase in housing stock and that at some point inflation will rise. He also states that rates will go up "in due course". Well we all know that but some journalists suggesting this might be as soon as Christmas is their own sensationalist interpretation.
It's clear however that with the language he was using there would have to be something very dramatic take place to cause them to ease again now. I've given up my suggestion therefore that there might be another easing. The Governor also acknowledged however that inflation will continue to drop and unemployment continue to rise for the moment. We still have some way to go and the UK and USA are still suffering. China however are our saving grace.
The markets have sold off - particularly in the three year area and there could be some attractive 1 and 2 year rates around soon.
NAB Qtly Business Survey
Adding to the note of confidence was the NAB Qtly Business Survey. This pointed to a sharp jump in business confidence in the 2nd qtr by 20 points to levels last seen just before the Lehman collapse. Business conditions were also significantly better due to improved trading and profit conditions. They are both still negative but getting close to positive.
July 23, 2009
Inflation / NAB problem loans on increase
INFLATION
Yesterday Australia's inflation figures came out with the lowest annual rate in 10-years at 1.5%. The quarterly rate was as expected at 0.5%. While the year on year rate was lower that the RBA target we would have to see a few more low quarters before the RBA considered lowering the cash rate to avoid a 'tightening' in real rates (the difference between nominal rates and inflation).
NAB
Figures released yesterday by NAB as part of their capital raising show that problem loans are on the increase. As I mentioned about a week ago there are usually two waves in a recession with the first being large high profile corporates suffering followed by mid-sized corporations.
Yesterday Australia's inflation figures came out with the lowest annual rate in 10-years at 1.5%. The quarterly rate was as expected at 0.5%. While the year on year rate was lower that the RBA target we would have to see a few more low quarters before the RBA considered lowering the cash rate to avoid a 'tightening' in real rates (the difference between nominal rates and inflation).
NAB
Figures released yesterday by NAB as part of their capital raising show that problem loans are on the increase. As I mentioned about a week ago there are usually two waves in a recession with the first being large high profile corporates suffering followed by mid-sized corporations.
July 22, 2009
RBA Board Minutes
The minutes of the July board meeting were released yesterday. While similar to previous minutes it does seem to be a little more optimistic on the growth front. It acknowledges the international economy, while stabilising, remains vulnerable.
Another easing is still a possibility if inflation drops in a sustainable fashion but would be many months off. I always find the concluding paragraphs interesting and have pasted them here.
"In assessing the stance of monetary policy, members observed that the early and substantial easing of both monetary and fiscal policy had been effective in supporting demand, which, if anything, had been more resilient than expected. The full effects of policy measures would still be coming through for some time. Members noted that the current inflation outlook afforded scope for some further easing of monetary policy, if that were to be needed to give further support to demand at a later stage.
Accordingly, members judged the current stance of monetary policy to be consistent with fostering sustainable growth and low inflation, while leaving adequate flexibility to respond to developments as needed over the period ahead."
Another easing is still a possibility if inflation drops in a sustainable fashion but would be many months off. I always find the concluding paragraphs interesting and have pasted them here.
"In assessing the stance of monetary policy, members observed that the early and substantial easing of both monetary and fiscal policy had been effective in supporting demand, which, if anything, had been more resilient than expected. The full effects of policy measures would still be coming through for some time. Members noted that the current inflation outlook afforded scope for some further easing of monetary policy, if that were to be needed to give further support to demand at a later stage.
Accordingly, members judged the current stance of monetary policy to be consistent with fostering sustainable growth and low inflation, while leaving adequate flexibility to respond to developments as needed over the period ahead."
July 21, 2009
Producer Price Index
PPI plunged 0.8% in the June quarter. This is the biggest decline since the series began in 1998. In the March quarter it fell 0.4%. This trend of a drop in prices paid by Australian producers implies that the broader CPI could fall during the year. If it does the RBA may need to drop rates to avoid an increase in real rates.
The CPI, due out tomorrow, is expected to be around 0.5% for the quarter.
The CPI, due out tomorrow, is expected to be around 0.5% for the quarter.
July 17, 2009
China
There are some amazing figures coming out of China. Much of it is as a result of the huge stimulus the Chinese government pumped into the economy. If it can continue, it will help our export sector keep the GDP figures in the positive.
* Their economy grew 7.9% in the year to June 30
* New loans in June rose 360% on loans a year earlier
* China's stockmarket capitalisation surpased Japan's yesterday to become the second largest in the world
* Passenger car sales in June 48% higher than a year earlier
* Property sales up 81% in the half year compared with last year
* Their economy grew 7.9% in the year to June 30
* New loans in June rose 360% on loans a year earlier
* China's stockmarket capitalisation surpased Japan's yesterday to become the second largest in the world
* Passenger car sales in June 48% higher than a year earlier
* Property sales up 81% in the half year compared with last year
July 15, 2009
NAB Monthly Business Survey
NAB's latest monthly business survey was very positive and has given the RBA further cause to maintain the pause stance. NAB, who were at the depth of the crisis forecasting a cash rate of 2.00% by the end of 09 are now suggesting that the current status quo is likely with a reduced possibility of an easing in late 09. They expect tightening not to start until late 10 with a cash rate by year end (2010) of 3.25%.
The two areas to watch closely are unemployment and inflation.
Briefly:
• Business Confidence improves further & turn positive;
• Conditions improve significantly, suggesting a temporary return to moderate growth;
• Orders improve strongly and sales growth turn positive;
• Pace of job shedding eases;
• Capacity Utilisation remains broadly unchanged;
• And wage/price pressures ease.
The two areas to watch closely are unemployment and inflation.
Briefly:
• Business Confidence improves further & turn positive;
• Conditions improve significantly, suggesting a temporary return to moderate growth;
• Orders improve strongly and sales growth turn positive;
• Pace of job shedding eases;
• Capacity Utilisation remains broadly unchanged;
• And wage/price pressures ease.
July 13, 2009
Recession Second Wave - Mid-Corporate?
In past recessions corporate failures have generally gone in two waves. First the big end of town of which our current predicament is a fine example. The second wave sees the mid-corporate sector struggling. As I mentioned last week bankruptcies are starting to increase and businesses seem to be less able to hold onto employees by turning them into part-time workers. As unemployment increases it will on the one hand reflect and on the other hand cause this sector to get into increased difficulties.
What may hold back, or slow down this process will be the strength we're seeing out of China and the resilient consumer confidence reflected in recent surveys.
If unemployment does increase and the mid-corporate sector does find itself in difficulty then another easing will be on the cards and longer (3-5 years) rates will continue to grind down after their premature sell off of last month.
What may hold back, or slow down this process will be the strength we're seeing out of China and the resilient consumer confidence reflected in recent surveys.
If unemployment does increase and the mid-corporate sector does find itself in difficulty then another easing will be on the cards and longer (3-5 years) rates will continue to grind down after their premature sell off of last month.
July 10, 2009
Employment - Part Time Dries Up
Last month I pointed out that "at some point the move to part time employment won't be an option and the headline figure will start to creep up". The figures released yesterday show that this turning point may be upon us now. While there were 21,900 full time jobs lost, for the first time this was not offset by a similar rise in part time. This increased by only 400. The next two months will indicate whether this trend continues. If it does, expect the recent positive confidence figures to turn around. We've also seen the longer yields move down, as predicted, over the last couple of weeks - expect this also to continue.
It's also worth noting that May's figures were revised with the number of full time jobs lost rising from 26,200 to 32,900.
Employment and inflation are the two key factors to watch with respect to the RBA's cash level. I anticipate that both will provide the RBA with room for another easing before this cycle turns.
It's also worth noting that May's figures were revised with the number of full time jobs lost rising from 26,200 to 32,900.
Employment and inflation are the two key factors to watch with respect to the RBA's cash level. I anticipate that both will provide the RBA with room for another easing before this cycle turns.
July 09, 2009
Consumer Sentiment Up Again
Consumer Sentiment
The monthly Westpac-Melbourne Institute survey released yesterday has shown that consumer sentiment has risen for the second month. It rose 9.3 per cent in July to 109.4 points from 100.1 points in June. It follows a 12.7 per cent jump in June, pushing the gauge above the 100-point mark that divides pessimism from optimism.
"This is now the highest level of the index since December 2007," Westpac chief economist Bill Evans said in a statement. "It is 38.5 per cent above its level a year ago and at 109.4 optimists decisively out-number pessimists for the first time since December 2007."
IMF - Recession Easing, Recovery Fragile
In an update of its World Economic Outlook, the IMF said the global economy is likely to contract 1.4 per cent this year, a touch steeper than the 1.3 per cent decline it projected in April.
However, it now sees world economic growth picking up to 2.5 per cent in 2010, compared to an April projection of 1.9 per cent.
The monthly Westpac-Melbourne Institute survey released yesterday has shown that consumer sentiment has risen for the second month. It rose 9.3 per cent in July to 109.4 points from 100.1 points in June. It follows a 12.7 per cent jump in June, pushing the gauge above the 100-point mark that divides pessimism from optimism.
"This is now the highest level of the index since December 2007," Westpac chief economist Bill Evans said in a statement. "It is 38.5 per cent above its level a year ago and at 109.4 optimists decisively out-number pessimists for the first time since December 2007."
IMF - Recession Easing, Recovery Fragile
In an update of its World Economic Outlook, the IMF said the global economy is likely to contract 1.4 per cent this year, a touch steeper than the 1.3 per cent decline it projected in April.
However, it now sees world economic growth picking up to 2.5 per cent in 2010, compared to an April projection of 1.9 per cent.
July 08, 2009
RBA - Rates Unchanged
The RBA has again left rates unchanged but continues to leave the door open for another easing if inflation drops later in the year.
The press release accompanying the rates announcement indicated that China seems to be saving our economy from enduring a deeper contraction at this stage while Europe and the USA haven't enjoyed the same support. It also acknowledged the strength in the housing sector.
Business investment is still weak it concluded though and is likely to weaken further in line with a continued weakening in capacity utilisation. This is one of the key factors that could drag inflation down making way for another easing.
http://www.rba.gov.au/MediaReleases/2009/mr_09_15.html
The press release accompanying the rates announcement indicated that China seems to be saving our economy from enduring a deeper contraction at this stage while Europe and the USA haven't enjoyed the same support. It also acknowledged the strength in the housing sector.
Business investment is still weak it concluded though and is likely to weaken further in line with a continued weakening in capacity utilisation. This is one of the key factors that could drag inflation down making way for another easing.
http://www.rba.gov.au/MediaReleases/2009/mr_09_15.html
July 07, 2009
Job Ads
ANZ employment ads figures released show a further fall of 6.7% in internet ads in June (1/2 the level a year ago) and newspaper ads dropped 1.2% in June (also almost 1/2 a year ago.
The RBA are likely to keeps rates stable today but at some point employers will stop hoarding and will start shedding staff. If this happens down the track the RBA may have to add a little extra stimulus to the economy by dropping rates another quarter of a percent.
The RBA are likely to keeps rates stable today but at some point employers will stop hoarding and will start shedding staff. If this happens down the track the RBA may have to add a little extra stimulus to the economy by dropping rates another quarter of a percent.
July 06, 2009
Bankruptcies
Bankruptcies are starting to increase. figures released Friday showed bankruptcies, debt agreements and Part X insolvency agreements between April and June rose 3%.
The effects of a recession generally take some time to take hold. Due to the sudden collapse last time this is perhaps a little more pronounced. It is about now that business get to the point where they can't hold on any longer and start to collapse and let staff go. In the early 90s recession it took about a year before employment figures started to deteriorate and we are likely to start seeing that happen this time from around now.
The RBA meets this week and will likely keep rates on hold. They will come under some pressure in future months though if figures show a deterioration in the economy.
The effects of a recession generally take some time to take hold. Due to the sudden collapse last time this is perhaps a little more pronounced. It is about now that business get to the point where they can't hold on any longer and start to collapse and let staff go. In the early 90s recession it took about a year before employment figures started to deteriorate and we are likely to start seeing that happen this time from around now.
The RBA meets this week and will likely keep rates on hold. They will come under some pressure in future months though if figures show a deterioration in the economy.
July 03, 2009
US Employment / Australian Trade Deficit
US EMPLOYMENT
At the beginning of the year, at a talk by a group of economists, one of them, Craig James from Comsec, made the assertion that the USA is unlikely to start turning around until non-farm payrolls started consistently dropping by less than 400,000 a month - still a big number. In June they dropped by 467,000 - 100,000 more than expected. It looks like we're still not out of the woods. April was revised to 519,000 and May to 322,000.
The unemployment rate hit 9.5% which is the highest in nearly 26 years. There is no quick recovery from this level of unemployment indicating the US could be in for a long recession, and possibly the rest of the world.
Since the US economy fell into recession in Dec 07, 6.5 million non-farm jobs have been lost and the unemployment rate has nearly doubled.
In Europe the euro zone (16-nations) unemployment hit a 10-year high of 9.5%
AUSTRALIAN TRADE DEFICIT DOUBLES
We are now starting to see the impact of the global recession flow through to our export sector. Contract prices for coal and iron ore, struck in happier times, are starting to be re-priced. This has led to our trade deficit for May deteriorating to $556 million from a revised $282 million in April (previously $91 million).
China seems to be doing pretty well at the moment and their growth will be crucial in ensuring our export performance doesn't slide further.
At the beginning of the year, at a talk by a group of economists, one of them, Craig James from Comsec, made the assertion that the USA is unlikely to start turning around until non-farm payrolls started consistently dropping by less than 400,000 a month - still a big number. In June they dropped by 467,000 - 100,000 more than expected. It looks like we're still not out of the woods. April was revised to 519,000 and May to 322,000.
The unemployment rate hit 9.5% which is the highest in nearly 26 years. There is no quick recovery from this level of unemployment indicating the US could be in for a long recession, and possibly the rest of the world.
Since the US economy fell into recession in Dec 07, 6.5 million non-farm jobs have been lost and the unemployment rate has nearly doubled.
In Europe the euro zone (16-nations) unemployment hit a 10-year high of 9.5%
AUSTRALIAN TRADE DEFICIT DOUBLES
We are now starting to see the impact of the global recession flow through to our export sector. Contract prices for coal and iron ore, struck in happier times, are starting to be re-priced. This has led to our trade deficit for May deteriorating to $556 million from a revised $282 million in April (previously $91 million).
China seems to be doing pretty well at the moment and their growth will be crucial in ensuring our export performance doesn't slide further.
July 02, 2009
Various Economic Indicators
Retail Sales
Sales jumped 1% in May (third month of rises) up from 0.3% in April. The sales reflect optimism coming from the 'green shoots' period and a second round of government handouts. As unemployment starts to trend up however these figures should start to trend down.
Building Approvals
Building approvals however were not so positive. They dropped a big 12.5% in May. This is the worst monthly decline in a year. Compared with a year ago approvals are down 22.4%. Housing finance has however been trending upwards so these figures could be a one month anomaly.
Skilled Job Vacancies
The Dept. of Education, Employment and Workplace Relations skilled vacancies index fell 3.7% in June. It's 61.5% lower than in June 2008. The fall in skilled vacancies was widespread with decreases evident in most professions monitored by the department.
Manufacturing
Manufacturing activity is still contracting but the pace of contraction is slowing. The Australian Industry Group / PWC Performance of Manufacturing index rose by 0.9 index points in June to 38.4 which is below 50 - the crossover point from contraction to expansion.
USA
Manufacturing shrank at the slowest pace since Aug 08 - as above the relevant index went up but is still below 50 so is in contracting.
US housing - there are signs this crucial element of the economy is starting to stabilise. Last week figures showed existing home sales rose 2.4% in May and contract signing (a leading indicator) rose 0.1% in May after previously rising 7.1%.
Respected US economist, Martin Feldstein, stated in a Bloomberg radio interview that "we're going to see a temporary substantial improvement" in the economy but that it will be "going down again" into 2010.
My take on these and other recent figures is that the significant measures taken my governments around the world have stopped the free fall we were in and brought some stability. This doesn't mean that we're growing however and most developed countries will remain in a recessionary state during the course of this year and Australia could very well join them.
Sales jumped 1% in May (third month of rises) up from 0.3% in April. The sales reflect optimism coming from the 'green shoots' period and a second round of government handouts. As unemployment starts to trend up however these figures should start to trend down.
Building Approvals
Building approvals however were not so positive. They dropped a big 12.5% in May. This is the worst monthly decline in a year. Compared with a year ago approvals are down 22.4%. Housing finance has however been trending upwards so these figures could be a one month anomaly.
Skilled Job Vacancies
The Dept. of Education, Employment and Workplace Relations skilled vacancies index fell 3.7% in June. It's 61.5% lower than in June 2008. The fall in skilled vacancies was widespread with decreases evident in most professions monitored by the department.
Manufacturing
Manufacturing activity is still contracting but the pace of contraction is slowing. The Australian Industry Group / PWC Performance of Manufacturing index rose by 0.9 index points in June to 38.4 which is below 50 - the crossover point from contraction to expansion.
USA
Manufacturing shrank at the slowest pace since Aug 08 - as above the relevant index went up but is still below 50 so is in contracting.
US housing - there are signs this crucial element of the economy is starting to stabilise. Last week figures showed existing home sales rose 2.4% in May and contract signing (a leading indicator) rose 0.1% in May after previously rising 7.1%.
Respected US economist, Martin Feldstein, stated in a Bloomberg radio interview that "we're going to see a temporary substantial improvement" in the economy but that it will be "going down again" into 2010.
My take on these and other recent figures is that the significant measures taken my governments around the world have stopped the free fall we were in and brought some stability. This doesn't mean that we're growing however and most developed countries will remain in a recessionary state during the course of this year and Australia could very well join them.
July 01, 2009
Home Values / Finance Figures
It seems home values in Australia have held up pretty well. A gauge of real estate values released yesterday (RP Data-Rismark International) showed they have risen 4% so far in 2009. Sydney has done particularly well rising 5.2% so far in 09. It seems the low interest rates are having a real impact and if these sorts of trends continue I'll have to re-think my expectations for another easing.
In contrast to these figures however are a drop in new home sales where a nationwide slide snapped four months of gains. Sales dropped 5.7% in May hinting that we may be running out of first home buyers.
Further negative indicators were provided by a drop in private sector credit of 0.1% in May following a rise of 0.1% in April. While housing credit rose 0.5% slowing from +0.6% in April personal credit dropped 0.6% and business credit was down 0.7%.
The fall in credit is a clear pointer to potentially soft quarters down the track.
In contrast to these figures however are a drop in new home sales where a nationwide slide snapped four months of gains. Sales dropped 5.7% in May hinting that we may be running out of first home buyers.
Further negative indicators were provided by a drop in private sector credit of 0.1% in May following a rise of 0.1% in April. While housing credit rose 0.5% slowing from +0.6% in April personal credit dropped 0.6% and business credit was down 0.7%.
The fall in credit is a clear pointer to potentially soft quarters down the track.
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