Journalist Tarric Brooker is back with charts, to parse the latest economic data, as we look at who is really calling the shots. Truth is, below the headline data there are some important issue to pick apart. And what we are being presented as the truth may be spin.
Tarric’s charts are available at: https://www.burnouteconomics.com/p/dfa-chart-pack-7th-february-2025
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The New Zealand unemployment rate continues to climb, reaching 5.1% in the December 2024 quarter, according to the latest Stats NZ figures – the highest level it’s been since 2020. It’s up from 4.8% in the September 2024 quarter.
Men accounted for 85% of the annual decrease in employment, reflecting substantial falls in the male-dominated occupation groups of technicians and trades workers, and machinery operators and drivers. Within the overall decrease in seasonally adjusted employment for men, there was also a shift from full-time to part-time work. While the number of men in full-time employment fell by 36,000 annually, the number in part-time employment grew by 9000.
While politicians throw rocks across the aisle, the one lever of interest rates at the heart of monetary policy is deeply flawed.
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The RBA has held the cash rate at a 13-year high for more than a year, awaiting further evidence that inflation is irreversibly back to its 2 per cent to 3 per cent target. Markets since Mr Trump returned to the White House are on a roller-coaster ride as I discussed on my live show on Tuesday. Now Beijing has hit back with tariffs on US goods in a swift response to new American levies on Chinese imports. Earlier, Mr Trump suspended his threat of hefty tariffs on Mexico and Canada for a month. So what will the RBA do?
While one factor in play is Donald Trump’s chaotic trade policies, we also have the “adjusted real inflation rate looking though the Government support for electricity, rents and medicals. Is the inflation really well anchored in the 2-3% band, a signal the RBA is seeking?
The December quarter inflation report did little to counter the RBA’s consistent message demand in the economy is still too high.
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With Parliament back after the summer break, if Parliamentary Question Time anything to go by, the issue of costs of living pressures will be front and centre of the upcoming campaigns. Worth reflecting how effective Trump proved to be in the US asking the question, are you better off now, or previously!
Of course words and figures can differ, not least because the data may not all point in the same direction, and can be spun vigorously. For example, inflation may be coming down from its highs, but the accumulated additional costs of pretty everything still hangs heavy on household budgets. And whilst cost of living support, like power rebates or rental assistance can help fudge the headline figures and even perhaps bounce the RBA into a rate cut, data still shows we have a problem.
For example, the latest from my household surveys, looking at financial stress in cash flow terms shows that around 76% of those in the rental sector are under pressure, and just under half with mortgage payments are in the same boat. Others are doing significantly better, so averaging masks the extremes we are seeing.
The latest data from the ABS on Household spending shows that it rose 0.4 per cent in December, seasonally adjusted following a 0.8 per cent rise in November and a 1.0 per cent rise in October. Or in other words a slowing of spending.
Today the ABS published their Selected Costs of Living Cost Indices. Over the twelve months to the December 2024 quarter, the LCIs rose between 2.5% and 4.0% despite all the Government support measures. Of the household types, Employee households had the largest annual rise in living costs, up by 4.0 per cent, with mortgage interest charges up 14.7 per cent over the year.
Cost of Living could be fixed by a stroke of a pen, if the Government reserved east coast gas for Australians, rather than shipping it off shore, (or worse also having to re-import gas at international prices), and also start taxing those exports properly. If politicians are serious about costs of living why not start Question Time with a gas related debate? The answer is simple, neither side of politics wants to admit their policy errors in this space, preferring to gaslight costs of living pressures for political advantage. This will I think come back to bite them as households wake up to the truth. Much of the costs of living pain are self-inflicted due to plain stupid policy and self-interest.
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This is an edited live discussion with Damien Klassen, Head of Investments at Nucleus Wealth and Walk The World Funds. The world has changed, as the international “rules based order” comes under pressure from Trump’s tariffs. What are the implications for investors, and how should we prepare for greater volatility and uncertainty?
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In tonight’s show we catch up on Edwin’s predictions – does NOSTRADAMUS walk among us? We look at the massive rise in Council Tax, and also the rise in listings, but only in some places.
And given the upcoming election we examine some of the early promises being made in the quasi campaign, despite the gap between the promised 1.2 million well sited homes over 5 years and what is happening on the ground.
Edwin also highlights an important issue for a prospective property purchaser – get your paper work in order!
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The news outlets are full of more property news, with some spruiking that the hope of a rate cut in February has spurred people into action after the holidays, with a focus on Melbourne property prices rebounding.
So, let’s look at the data and see what is happening. Actually, the January update on prices from PropTrack showing that nationally prices fell just 0.1% in January, to a median value of $796,000.
Clearance rates are another metric in focus, but as I have discussed before they are also full of holes. Specifically, Preliminary clearance rates generally fall as the results of more auctions are collected. Domain reported a 66.6% national clearance but a year ago it was at 60.6%. CoreLogic preliminary data showed that the combined capitals returned a clearance rate of 65%.
As for wants ahead, well of course no one really knows. Which is why I run scenarios, which will be updated shortly. This week we had predictions from KPMG. As discussed in the AFR, KPMG chief economist Brendan Rynne said Melbourne’s house prices are tipped to climb 3.5 per cent this year, rebounding for the first time since last February, and slightly outpacing Sydney, fuelled by improved housing affordability after five years of sluggish growth, while Sydney’s housing values are expected to increase by 3.3 per cent, which is also higher than the 2.5 per cent gain last year.
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This is our weekly market update, where we start in the US, cross to Europe and Asia, and end in Australia, covering commodities and crypto along the way.
As expected, this was a volatile week, as questions over AI tech, tariffs and inflation all converged to stoke significant volatility across the trading days. Monday saw big falls thanks to DeepSeek emerging with potentially a different economic approach to AI delivery, the Fed held rates during the week, while the ECB and Canada cut their benchmark rates, and late on Friday, President Donald Trump saying he would indeed place 25 per cent tariffs on imports from Canada and Mexico and 10 per cent tariffs on goods from China effective on Sunday and those on imports from the European Union would follow.
Trump said while the new tariffs might cause some disruption short term, he was not concerned about the reaction in markets. He also said there was nothing that Canada, Mexico nor China could do to forestall his plans. “Starting tomorrow, those tariffs will be in place,” White House spokeswoman Ms Leavitt told reporters. “These are promises made and promises kept by the president.”
And in economic news, the latest U.S. prices increased in December while consumer spending surged. The personal consumption expenditures (PCE) price index rose 0.3% last month after an unrevised 0.1% gain in November, the Commerce Department said on Friday. In the 12 months through December, the PCE price index advanced 2.6% after rising 2.4% in November. This mean that U.S. inflation increased by the most in eight months in December amid robust consumer spending on goods and services, suggesting the Federal Reserve would probably be in no hurry to resume cutting interest rates soon.
Gold hit an intra-day all-time high of $2,800.99 in spot trading earlier today, as investors adjusted their positions ahead of US President Trump’s decision on whether to slap 25% levies on Canadian and Mexican imports.
The Australian sharemarket notched its second record high of the week on Friday, capping the bourse’s best month since July. The S&P/ASX 200 closed 0.5 per cent higher at 8532.3 – its largest weekly gain in five weeks. The index rose 4.6 per cent over January.
Bitcoins adoption as a reserve asset by a powerful country could trigger a domino effect, prompting other countries to follow suit. But the path is as yet far from certain.
More broadly, and as expected, markets will remain highly volatile, and global trade norms potentially get reset, and inflation still bubbles along below the surface. Just remember that markets remain in over-valued territory, and Deep Seek is an object lesson in how black swan events can emerge unheralded. Expect a wedge of black swans in the weeks ahead.
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In an interesting alignment of timing, we had Central Bankers at the Fed, the bank of Canada and also the ECB who will turn up today talk about their latest monetary decisions. And whilst it is expected the ECB will cut again, and in Canada they cut rates and announced the end of QT, the FED is firmly on pause for maybe an extended period.
But certainly, the implication how President Donald Trump’s policies — in areas such as immigration, tariffs, fiscal policy and regulation — was the spectre at the feast.
As RBC Economists wrote “The U.S. Federal Reserve says “thank you for calling, please hold” as it keeps policy rates unchanged and makes almost no adjustments to its recent narrative that inflation and the labour market are back to appropriate levels. Unlike the Bank of Canada’s rate cut just mere hours earlier, which was almost uniquely focused on trade conflicts, the U.S. central bank seemed to almost go out of its way to avoid mentioning any potential (however probable) policy changes from Washington D.C.
The Fed’s emphasis is instead that starting places matter and the U.S. economy is in “a really good place”. Federal Reserve Chair Jerome Powell made clear on Wednesday the US central bank intends to hold interest rates in a range of 4.25%-4.5% for the foreseeable future.
Over in Europe. The ECB will announce its decision at 2:15 p.m. in Frankfurt. ECB policymakers are balancing warnings that greater global trade stress could damp exports against lingering fears over services prices still rising at twice the 2% goal.
All up, the zone of uncertainty has expanded, making it more likely Central Bankers will make policy missteps. And whilst the US economy still seems in fine fettle, despite sticky inflation, other countries including Canada, the UK, the Eurozone, China and even Australia are facing into the teeth of a gale. Things could get very interesting….
Australia has been a global outlier in the current easing cycle as most developed world central banks, including the Federal Reserve, have already cut substantially. The Fed is due to announce the outcome of its meeting later today and is expected to stand pat. The RBA, in tackling inflation through 2022-23, opted for a lower peak rate than global counterparts. It worried about the capacity of heavily-geared households to cope with significantly higher mortgage repayments.
But we got a softer-than-expected annual underlying inflation figure of 3.2 per cent for the 3 months to December from the ABS today, and the journos are out in force saying a rate cut from the RBA is February is all but certain now, which of course would be welcomed by households who are mortgaged to the hilt, and music to the ears of politicians ahead of the election. Not so good for savers mind you.
The annual trimmed mean gauge of consumer prices, which shaves off volatile items, rose 3.2% in the three months through December, compared with an expected 3.3% gain and on a quarterly basis, core consumer prices rose 0.5% versus a forecast 0.6%.
Economists at Westpac, Royal Bank of Canada, TD Securities and AMP all brought forward their calls for the first Reserve Bank cut to February. Goldman Sachs which was already predicting February and May rate reductions, now sees an easing in April as well.
But not so fast, because whilst the number landed in a place to make next month’s Reserve Bank of Australia board meeting a cliffhanger, there is still a case to do nothing. And whilst the market has gone all with an 80 to 90 per cent chance of a cut, there is also a reasonable case to hold steady and await more information on the economy. So perhaps it’s more like 50-50.
But given the breadth and depth of government cost of living support, with energy bills credits, rent assistance, 50¢ public transport in Queensland and a revision to a previously mismeasured childcare subsidy even the trimmed mean has been distorted by the huge breadth of government subsidies in the December quarter.
Contrary to common perception, subsidies can affect underlying inflation and could accelerate the RBA cutting interest rates, even if the grounds for doing so may be dubious. Chalmers and Treasury may have outmanoeuvred the RBA. Hence, the lingering doubts about a rate cut relate to whether the RBA board feels confident enough about disinflation based on a sole quarterly number.
So, the key question is, will the politically driven handouts which have been spayed about the place liberally, and sufficient to mask inflation even in the trimmed numbers drive the RBA to cut, in which case politics ahead of the election will have won, at the expense of tax payers, who know the true inflation costs are still way higher than numerwanged. And then of course we have the impact of the lower exchange rate to content with ahead, which could also be inflationary. So a 50-50 call for February, but perhaps politics have won, for now.
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