Australian Economic Analysis

[dhukka]

Australian employment data released today shows the economy is still creating jobs a decent rate. 14,600 jobs were added in the month of August on a seasonally adjusted basis. Remember the Australian economy needs to create approximately 15 - 20k jobs per month just to keep up with population growth and immigration. The fall in the unemployment rate reflects a drop in the particpation rate or a drop in the number of people looking for work.

Recession has become a hot topic of debate in recent months. If you are looking for confirmation of recession in the jobs numbers, by the time you get it, the recession will likely be more than half over. As you can see from the chart below, the last two recessions started whilst the 6 month moving average change in employment was still positive. You only got real confirmation once the 6MMA fell below -15k per month. In order to get there you would need a number of consecutive month declines in employment. We are unlikely to see those kinds of numbers until the first half of 2009 at the earliest IMO.

 

[dhukka]

The Australian Manufacturing sector contracted for the 4th consecutive month in September whilst the Services sector contracted for the 6th consecutive month. Combined the current credit freeze I don't see how Australia can avoid a recession. Futures are pricing in a 96% chance of a 50bps rate cut by the RBA tomorrow. Even if that happens, it's doubtful the banks will follow given funding costs.

 

[nunthewiser]

Thanks Dhukka, very informative

 

[dhukka]

Housing commitments continued to fall in August. This is shaping up as the spring selling season that will not be.

 

[Glen48]

Things are changing so quickly by the time the info is collated and sent of to the Feds its out of date.
I predict another 1% drop soon and not during the First Tuesday of the month format.

 

[Aussiejeff]

This is the guts of an announcement by Mount Gibson Iron Ore today - which has seen it's stock price plummet over 25% since open.

Chinese customers are trying to cutback on their orders over coming months.

So much for the politicians and treasurers of Australia pumping up our economic credentials on the back of the "China Miracle". This is just the start....

"Customer and iron ore sector analysis indicates a slow down in demand for iron ore in China due to current economic uncertainty and the tightening of credit facilities, leading to reductions in steel production [size=+1]and the current significant build-up of iron ore stockpiles at Chinese ports"[/size].

 

[MS+Tradesim]

Thanks for your thread Dhukka. I respect your views and thank you for putting me on to Nouriel Roubini last year. His updates are very useful.

 

[dhukka]

This is the guts of an announcement by Mount Gibson Iron Ore today - which has seen it's stock price plummet over 25% since open.

Chinese customers are trying to cutback on their orders over coming months.

So much for the politicians and treasurers of Australia pumping up our economic credentials on the back of the "China Miracle". This is just the start....

"Customer and iron ore sector analysis indicates a slow down in demand for iron ore in China due to current economic uncertainty and the tightening of credit facilities, leading to reductions in steel production [size=+1]and the current significant build-up of iron ore stockpiles at Chinese ports"[/size].

Yep, whilst I am a long term commodity bull, I think this pullback will be longer and deeper than most suspect. Something that flew under radar this week also was the fact that China did not import any oil for the second consecutive month in a row.

 

[Aussiejeff]

Yep, whilst I am a long term commodity bull, I think this pullback will be longer and deeper than most suspect. Something that flew under radar this week also was the fact that China did not import any oil for the second consecutive month in a row.

Yeah. That must have an effect on world oil prices you would think.

Meanwhile, we here in God' Own Country are having to import more and more with a slumping BananBuck. One wonders how badly the falling Banana will prove to be for our spiralling Foreign Account Deficit over the coming months.

Who cares whether the local mini economy is in surplus or not. Pollies can beat their chests about that one all they like. I think the bigger picture is what matters!

 

[dhukka]

Australian job market added just 2,200 in September. In addition August was revised downward to a gain of 10,200. Remember that the Australian economy needs to create between 15 - 20k jobs per month just to keep up with new entrants into the labour force. Thus the unemployment rate rose to 4.3%

Probably the most notewothy data point in today's numbers was that 15,400 full time jobs were lost, the most in 2 years, whilst 17,700 part-time jobs were added. Too early to see a trend and it should also be noted that these numbers are subject to large revisons. That said, given the sharply deteriorating economic picture we can expect the unemployment rate to rise substantially next year.

Employment is a lagging indicator so I would't expect large consecutive monthly drops in payrolls until next year. However I expect the unemployment rate to reach 6% or higher by the end of 2009 as we enter our first recession in 18 years.

 

[pistol72]

Hi dhukka
Great stats,would really like to know how many small businesses started up and folded over the last 6/12 months.Can you or anybody help answer that one or point me in the right direction.
cheersP

 

[Aussiejeff]

The biggest beef I have with the unemployment stats is that now, anything over 2 hours per week is regarded as "part-time employment".

AFAIK "once upon a time" in the not too far distant past, the stats only showed "full-time job unemployed" - small-hour part-time workers were essentially regarded as "unemployed".

So now, the figures are skewed way down (on purpose) to give the impression of "very low unemployment".

It's crap, really.

 

[dhukka]

Hi dhukka
Great stats,would really like to know how many small businesses started up and folded over the last 6/12 months.Can you or anybody help answer that one or point me in the right direction.
cheersP

Hi pistol, those statistics probably exist but I don't know where you could obtain them. One of the great things about the US market is the availability of statistics on just about everything. Unfortunately they are much more scarce in Oz.

 

[dhukka]

The biggest beef I have with the unemployment stats is that now, anything over 2 hours per week is regarded as "part-time employment".

AFAIK "once upon a time" in the not too far distant past, the stats only showed "full-time job unemployed" - small-hour part-time workers were essentially regarded as "unemployed".

So now, the figures are skewed way down (on purpose) to give the impression of "very low unemployment".

It's crap, really.

Yeah good point. You can find the same type of fiddling with statistics in the US as well. You often hear the bromides that unemployment is much lower than compared to the early 1980's but it's a false comparison.

 

[dhukka]

Credit contraction continues apace with the latest lending finance numbers for August. Seasonally adjusted, Housing finance was down -2.1% in August, Commercial finance -7.9% and personal finance -5.2%. From their peaks Housing finance is down -26%, personal finance -18% and Commercial finance a whopping -41%. The decline in Commercial finance is even more staggering considering that it only peaked in January 08 whilst personal and housing finance peaked in Jun 07.

Whilst it has been a precipitous drop, commercial finance has only reverted to levels last seen in October 2005. However, given what happened to credit markets in September and the first half of this month the worst is yet to come.

 

[CAB SAV]

Should see slowing next year. Lost staff member last week, not replacing ATM, Saturday night best mate said putting one person off straight after Christmas(retailing) and review for further cuts approx March. and another mate sat. night said four out of eighteen will be laid off in Jan.(kitchens etc.)With 800,000 odd small business's in Oz, you wouldn't want too many laying off. Will be worse in US.

 

[dhukka]

ANZ job as fell again in September and are showing year over year declines for the first time in 6 years. Job ads are a decent indicator of future employment growth.

 

[dhukka]

A raft of economic data out today on the Australian economy, none of it positive. Recession is looking more of a certaintly, could even begin in the current quarter rather than next year as anticipated earlier. Firstly Retail sales, up 0.2% in September, with downward revisions to prior months. Retail Sales ar up 2.3% yoy, equaling the lowest year over year gain since the abs data began in 1982.

 

[dhukka]

Also out today the ANZ job ad series, showing both internet and newspaper job ads both clearly in negative territory year over year. Newspaper ads are down -34.7% year over year whilst internet job ads (which make up more than 90% of the total) are down -5.5%. Internet job ads are down approximately -15% from their highs of April this year.

 

[dhukka]

Probably the worst looking indicator out today was the Performance of Manufacturing Index which fell to it's lowest reading in 16 years and represents five straight months of contraction. The overall PMI reading hit a level of 40.4, well below the dividing line of 50 that seperates expansion from contraction. The employment index was particulary nasty plummeting to 37.6