The data is weaker than many was expecting, but we suspect that’s a direct impact of slowing of high-rise approvals, especially in Victoria, and perhaps the bushfires. The one-offs we saw at the end of last year, were exactly that.
ABS Director of Construction Statistics, Daniel Rossi, said: “The rise was driven by private sector houses, which rose 0.8 per cent, in trend terms.
“Meanwhile, private sector dwellings excluding houses fell 0.1 per cent. A significant fall in the number of apartments approved in January has offset the strength recorded in late 2019.”
Across the states and territories, dwelling approvals rose in Australian Capital Territory (7.3 per cent), Victoria (2.8 per cent) and Northern Territory (2.7 per cent). Falls were recorded in Tasmania (3.7 per cent), South Australia (3.4 per cent), Western Australia (2.0 per cent), New South Wales (0.8 per cent) and Queensland (0.7 per cent), in trend terms.
Approvals for private sector houses increased in Victoria (2.6 per cent), Western Australia (2.0 per cent), Queensland (0.6 per cent) and South Australia (0.4 per cent). Private house approvals in New South Wales fell 2.1 per cent, in trend terms.
The seasonally adjusted estimate for total dwellings approved fell 15.3 per cent in January, driven by a 35.5 per cent decrease in private dwellings excluding houses. This was largely due to weakness in approvals for apartments (which is volatile from month-to-month), especially in Victoria.
The value of total building approved rose 0.3 per cent in January, in trend terms, after falling for six months. The value of residential building rose 0.1 per cent, while non-residential building increased 0.4 per cent.
This week marks a new phase in the coronavirus crisis with the case count outside China accelerating sharply. Via The Conversation.
China’s containment strategy bought global
health authorities time to prepare, but failed to confine the outbreak
to North-East Asia.
In the past week both President Trump and
Prime Minister Morrison have prepared citizens for a rise in the onshore
case count in recognition of the likelihood the virus will spread to
most of the world.
Because it isn’t possible to shut down the
global trade and transport system without causing a global recession,
their strategy has shifted from containment to preparation.
It’ll be important to manage panic
Critical to the process is managing panic.
If consumers around the world substantially reduce their spending
either as a precautionary measure or in response to public health fears,
the impact on businesses will be substantial.
The key economic challenge will be to stop
a vicious cycle of weaker spending and job losses taking hold. Targeted
government spending can help businesses at risk, although some will use
it as an excuse to reset their cost base and scale down in an economic
environment that was challenging even before the coronavirus.
Global share markets have fallen 10% in a week as this new phase has begun to unfold, adding to uncertainty and fear.
Rate cuts are all but certain
Countries that have the capacity to cut
interest rates will do it. In the US, markets are expecting a cut at or
before the next meeting of the US Fed on March 17.
In Australia, markets are expecting a cut
of 0.25 points at the Reserve Bank’s board meeting on Tuesday. There is
some talk of a double cut, of 0.50 points, which would bring the Reserve
Bank cash rate down from 0.75% to 0.25%.
The cuts would be aimed at shoring up
confidence in the economy and financial markets as much as anything
else. Global rates are already low enough to provide economic stimulus.
It will be up to politicians to provide the targeted measures that will
be needed to help keep businesses afloat and people in jobs.
We’re facing a Chinese recession
The trade and travel restrictions in place
in and around China will have major ramifications. Estimates of the
impact of the containment policies on Chinese growth in the first
quarter of the year range from minus 2% to minus 10%, enough to
obliterate growth in the world’s fastest-growing big economy.
A shocking Chinese purchasing managers’ index reading on the weekend showed a fall to a new low not reached during the global financial crisis.
Few countries are as exposed to Chinese purchasing as Australia.
Australia gets GDP figures on Wednesday
for the final three months of 2019. These are likely to show the economy
grew by less than 0.5% in the quarter.
Most of the impact of the bushfires and
the initial impact of the coronavirus will show up in the data for the
first quarter of this year. Many analysts have pencilled in a negative
number.
And possibly an Australian recession
It will leave Australia exposed to what is
known as a technical recession – two consecutive quarters of negative
economic growth, in the three months to March and the three months to
June.
This possibility, Australia’s first recession in 29 years, will depend on how we react to the emergence of coronavirus onshore.
The initial reaction might paradoxically
support measured economic growth as people stockpile supplies. The next
phase would be a reduction in spending as people avoid leaving their
homes. As we are seeing in China, and more recently in Korea and Italy,
shopping districts can become ghost towns.
It would be akin to a nationwide rise in
saving, which drains consumer spending and business activity. Beyond
efforts to maintain perspective and keep calm, little can be done to
prevent people from willingly choosing to remain at home.
We’ll need targeted, clever, government support
It is in this phase that government policy
actions will be critical. A mild technical recession caused by an
external shock would be undesirable but need not be a disaster for the
community if the employment ramifications can be minimised.
Government efforts need to be directed at
stopping a negative shock evolving into a self-reinforcing spiral of
declining spending and lower employment.
Lower interest rates will be of very
little use to start with. Governments will need to target support to
those parts of the economy most under stress with the greatest risk of
job losses.
The challenge will be to identify those businesses at the greatest risk of insolvency.
The Reserve Bank board will need to follow
the lead of the US Federal Reserve and at least issue a soothing
statement to financial markets that it is ready to act if needed.
If it is too early to gauge the impact of
this new phase of contagion of the coronavirus, it is really too early
for rate cuts. And there is a risk that a rate cut this week might
generate more panic and amplify the effects of any consumer and business
panic already upon us.
At most, the bank can support the government. It is our leaders who will bear the biggest responsibility for steering us through what’s to come.
Author: Warren Hogan, Industry Professor, University of Technology Sydney
KiwiSaver default funds have been banned from investing in fossil fuels and certain weapons under new legislation. Via InvestorDaily.
Default
funds will be banned from investing in fossil fuel production to negate
the risk of New Zealanders’ retirement savings being invested in
stranded assets as the world moves to reduce emissions.
“No
New Zealander should have to worry about whether their retirement
savings are causing the climate crisis,” said Climate Change Minister
James Shaw.
“That’s why our government is moving default KiwiSaver funds away from fossil fuels, putting people and the planet first.”
KiwiSaver
members are allocated to a default provider if they don’t actively
choose a KiwiSaver fund when commencing their employment. Around 690,000
people remain in a default fund, with approximately 400,000 of those
having not made an active choice to stay there.
The New Zealand government also believes that the switch to more responsible investment will also improve member outcomes.
“In
2017, the $47 billion NZ Superannuation Fund adopted a climate change
investment strategy that resulted in it removing more than $3 billion
worth of stocks that exceed thresholds for either emissions intensity or
fossil fuel reserves, without negatively affecting performance,” said
Commerce and Consumer Affairs Minister Kris Faafoi.
“So we know that moving away from investments in fossil fuels doesn’t have to mean lower returns.”
The
changes will also prevent default fund providers from investing in
weapons like cluster munitions and anti-personnel landmines (which are
subject to the Convention on Cluster Munitions and the Ottawa Treaty
respectively). While default fund providers were already moving away
from investment in weapons, the changes now enshrine that requirement in
default fund settings.
Another chat with Journalist Tarric Brooker covering finance and politics. Tarric uses the handle @AvidCommentator on Twitter.
We discuss the latest economic and political dynamics as the RBA considers a rate cut tomorrow, and central banks around the world seek to support their financial markets. How might this play out?
Share prices in Asia have risen after Japan’s central bank promised to help protect markets from the impact of the coronavirus.
It comes after data showed Chinese factory activity fell in February at the fastest rate on record.
On Friday the US Federal Reserve made a similar pledge to stop more big falls on the world’s financial markets.
Last week concerns about the outbreak wiped more than $5 trillion from global stocks.
In a rare emergency statement, Bank of Japan (BOJ) Governor Haruhiko Kuroda said the central bank would take necessary steps to stabilise financial markets: “Overseas and domestic financial markets continue to make unstable movements due to heightening uncertainty over the impact on the economy from the spread of the coronavirus.”
“The BOJ will monitor developments carefully, and strive to stabilise markets and offer sufficient liquidity via market operations and asset purchases,” he added.
The language used in the statement suggested the central bank is ready to make full use of its existing tools to inject funds into the market, before considering what other steps it may take.
It follows a similar unscheduled announcement by the chairman of the US Federal Reserve. On Friday Jerome Powell said the central bank is watching developments closely for risks to the US economy and promised to take action if necessary.
Data released on Saturday showed that China’s official Purchasing Managers’ Index contracted in February at the fastest rate on record. The fall, which was even worse than slump seen during the 2008 global financial crisis, highlights the outbreak’s huge impact on the world’s second-largest economy.
Over the weekend senior officials in President Donald Trump’s administration also tried to soothe concerns about the risk of recession, highlighting the US economy’s underlying strength.
US Vice President Mike Pence, who is leading the administration’s response to the coronavirus, said that the stock market “will come back”, adding that “the fundamentals of this economy are strong”.
The ACCC just released their 21st report into the Private Health Insurance Sector, which analyses key competition and consumer developments and trends in the private health insurance industry to 30th June 2019 that may have affected consumers’ health cover and out-of-pocket expenses. This report also continues the ACCC’s focus on adequate private health insurer communications to their consumers, including on detrimental policy changes, as well as potential emerging issues in the use of consumer data.
And in summary the system is unwell. Private health insurance premiums rise faster than income despite growing exclusions. For the first time, the majority of hospital treatment policies held by Australians now contain exclusions with more than 57 per cent of policies containing exclusions, up from about 44 per cent in the previous year. This chimes with our household surveys which shows more younger people are jettisoning their policies, or not signing up in the first place. This is a wicked problem, as more sick people as a total proportion are within the system, meaning that costs are becoming more concentrated.
Plus, the ACCC notes that consumer data collected by private health insurers and other businesses, for example through wellbeing apps and rewards schemes, can be used for a number of purposes such as targeted marketing, including from third parties.
Key industry data used and relied upon by the ACCC includes industry statistics and data collected by the Australian Prudential Regulation Authority (APRA) and private health insurance complaints data from the Private Health Insurance Ombudsman (PHIO).
As at 30 June 2019, 13.6 million Australians, or 53.6 per cent of the population, had some form of private health insurance. This represents a membership reduction of 0.6 per cent from June 2018 (54.2 per cent). The Australian population grew by 396 722, or almost 1.6 per cent, during this period. The decline is sharpest among younger age groups.
The five largest health insurers have a combined market share of almost 79.5 per cent and contributed to almost 77.5 per cent of total health fund benefits paid in 2018–1915, with Bupa and Medibank contributing 26.7 per cent and 25 per cent respectively.
The average premium increase of 4.8 per cent per year over this period has been higher than the average annual growth in the wage price index (2.1 per cent) and the consumer price index (1.6 per cent) over the same period. While the rate of the average yearly premium increases has been decreasing each year over the past five years, and was 3.25 per cent in 2018–19, the average industry premium change for 2020, to take effect on 1 April 2020, will be 2.92 per cent – still well above wages growth.
From June 2018 to June 2019, the proportion of hospital policies held with exclusions increased by almost 14 per cent. For the first time, the majority of policies held now have exclusions.
The number of exclusionary policies held increased by over 650 000 from June 2018 to September 2018, with an equivalent reduction in non-exclusionary policies during the same period. APRA’s statistics did not indicate the reasons for this rise in the number of exclusionary policies during the reporting period. However, analysis by Silvester and others has suggested that less expensive exclusionary policies may appeal both to existing policyholders whose policies have become unaffordable, as well as to young people buying health insurance to avoid LHC loading and the Medicare levy surcharge.
While most in-hospital services are delivered with no gap payments required from patients, this rate has varied in recent years, from a low of less than 85 per cent of services not requiring a gap payment in September 2015, to almost 89 per cent in March 2018, before falling again to under 87 per cent in June 2019.
From June 2018 to June 2019, the average gap expense incurred by a consumer for hospital treatment was $314.51, an increase of 1.9 per cent from the previous year, as shown in table 8. Average gap payments for extras treatment increased by almost 4 per cent to $49.20 over the same period.
A YouGov survey from late 2019 found that, after the cost of premiums and a perceived lack of value for money, out-of-pocket costs were a leading reason given by respondents for no longer holding private health insurance.
Several health insurers offer rewards schemes for their members, some of which involve the use of fitness tracking apps and devices to record activities such as steps and sleep. Some of these apps operate in conjunction with companies other than health insurers. For example, the health insurers MO Health and GMHBA are both partnered with the life insurer AIA Australia Limited, and use the AIA Vitality program issued by AIA.
HCF has also entered into a partnership with Flybuys where new HCF members can collect Flybuys points based on their annual health cover premiums. Qantas, which offers health insurance issued by NIB, also offers frequent flyer points for members who download the Qantas Wellbeing app and undertake certain activities. Its Qantas Wellbeing Program Terms and Conditions state that members must link a tracking device to record their physical activity, and that as members, they consent to Qantas: “collecting, using and disclosing any personal information including health and Wellbeing information submitted by the Member through joining or use of the Wellbeing Program or collected by Qantas through the Tracking Device or the Qantas Wellbeing App”.
Although Australians can receive benefits from rewards and discounts offered by health insurers and other organisations that collect consumer data, the ACCC is concerned that few consumers are fully informed of, fully understand, or can effectively control, the scope of data collected when they sign up for, or use, such services.
While the community rating system for private health insurance in Australia prohibits insurers from charging different private health insurance premiums to individual consumers based on health and other factors, the ACCC notes that the consumer data collected by wellbeing apps and rewards schemes could be used for a number of other purposes, including for targeted marketing (including from third parties), and potentially to create insights that could be shared with or sold to third parties.
The system will continue to be under pressure – and we think the model is frankly broken.
In the latest of our “Fintech Spotlight” series of posts, we look at a new player who is attempting to disrupt Payday lending using a digital platform and smart analytics. As normal, DFA was not paid for this post, and the views expressed are our own.
I caught up with CEO & Co-Founder of Fintech Cheq, Tarek Ayoub, to discuss how Cheq has the potential to prevent thousands of vulnerable Australians from turning to predatory payday lenders, with their sky-high interest rates and fees, and their vicious repayment structures which are designed to keep people trapped in a crippling cycle of debt.
Cheq Founder – Tarek-Ayoub-and-Dean-Mao
In fact, Cheq has just raised $1.75 million in debt and
equity to launch a revolutionary ‘Pay On-Demand’ (POD) solution. This allows
working Australians facing a cash shortfall to access their accrued wages
instantly up to $200. Cheq charges a fixed transaction fee of 5 percent with
absolutely no additional fees or interest, compared to the 52 to 1,000 per cent
annualized percentage rates charged by payday lenders on similar amounts.
We know there are around 5.9 million Australians currently
living paycheck to paycheck who often resort to payday lenders during cash
shortfalls.
Ayoub, an ex-management consultant, with a track record in the finance sector, highlights the rise of the ‘on-demand’ economy. “As our society increasingly embraces the ‘on-demand’ model of consumption, it is only natural that we begin to see this flow over into remuneration. You can get food, TV shows, cleaning services, dog walking, and everything in between on demand. So why is it that we can’t yet access our own money – money we have already physically worked for – as soon as it’s needed?”
Cheq is available via a mobile app, were individuals can register
for the service and link their bank account. Cheq uses the transactional data
from that account to analyse and profile the spending habits of the individual,
using machine learning, AI, and statistical analysis.
As important as the access to cash – up to $200 is, the real
power of Cheq is the personal financial management solutions built into the app
which helps users by predicting upcoming bills, categorising expenses, and
creating budgets for better money management.
As the relationship builds, Cheq is able to offer
suggestions to help manage financial stress. And the $200 advance, ahead of the
next wage, is automatically repaid in one hit, or as stage payments repaid in
2, 3 or 4 wage cycles (which can be weekly, fortnightly or monthly). Money is
only recouped from a user’s bank account once wages are received, so they can’t
exceed their spending capacity or get trapped in debt.
The $1.75m comprised $1.4m equity and a $350k debt facility from investors including VFS Group (an early investor in Grow Super) and Released Ventures. Interest has been received for more funding as the firm has grown to 5 employees and with ambitious plans ahead.
Six hundred users downloaded Cheq from the app store within 2 days of its beta launch and had more than ten thousand downloads in the first month. The typical user of the service is aged 24-35 years, often working in retail, call centres or fast food sectors. 70% of users have also used “Buy Now Pay Later” (BNPL) apps and 60% had also used payday loans. Most funds were used for transport and groceries, though many users left the money untouched in their accounts. But the most fascinating aspect is the fact that Cheq users were often weaned off payday loans in just a few months. This could be a game-changer.
Cheq is quite selective in their customer assessment, with
4,000 rejected so far. Applicants are screened via their proprietary assessment
model, without relying on external credit scores or other financial data such
as property equity or other assets.
By shifting from ‘enterprise first’ to ‘direct-to-consumer’,
Cheq puts the power over accrued wages back in the hands of all workers, says
Mr. Ayoub: “To achieve a future where Australians are free from payday
lender-induced debt traps, the solution must be available to everyone.”
Tarek says Cheq is also aiming to reinvent and pioneer POD
as a new industry category by being first in Australia to offer POD direct to
consumers. And he is eying markets in the US and India, where he believes a
similar solution would have significant take-up.
We think there are some parallels with what AfterPay did
with “Buy Now Pay Later” (BNPL) as a category killer, and once again a
financial services licence is not required, although in practice Cheq says they
would in any case exceed any responsible lending obligations. Cheq is therefore
regulated by ASIC.
On average, individuals who registered and completed on-boarding with Cheq took out their first advance 3 days later, with most users stating they liked the piece of mind they had to know that Cheq is there and can be used only when they have a shortfall in funds, according to Tarek.
The most fascinating aspect of this story is the alignment
to the customer, with the real purpose centred on financial management and
education, rather than turning a quick profit from vulnerable individuals. But it’s an open question whether Cheq is
primarily a data analytics firm, a financial services provider, or a financial
coach. The truth lies within that triangle. Payday lenders are on notice that their
business models are likely to be disrupted.
More evidence of a weakening economy today with the latest Performance of Manufacturing Index (PMI) read for Australia showing a further decline in February.
The Australian Industry Group Australian Performance of Manufacturing Index fell a further 1.1 points to 44.3 points in February. This marked four consecutive months of contraction in Australian manufacturing for the first time since 2014 and was the lowest monthly result in almost five years(seasonally adjusted).
Results below 50 points indicate contraction with lower results indicating a faster contraction in the month. The indices for all manufacturing sectors deteriorated in February and all except food&beverages recorded a contraction in the month (results under 50 points, trend). The production, sales, new orders and exports indices fell further into contraction in February and were firmly negative.
This was the first month in which respondents to the Australian PMI reported the effects of the new coronavirus ‘COVID-19’.
Respondents said that travel restrictions in response to COVID-19 are already denting exports of Australian manufactured goods, particularly consumable items into China. The ‘heavy’ manufacturing sectors (equipment, machinery, metals) reported supply chain disruptions due to factory and freight closures in China.
Locally, respondents remain concerned about drought, weak demand from the construction sector and the generally slow pace of the economy.
Despite weak new orders and production, the employment index improved in February to be broadly stable (and above its own long-run average).
Looking ahead, the new orders index in the Australian PMI plunged to its lowest level since July 2013. This suggests a very sharp deterioration in new orders and even weaker demand conditions ahead for manufacturers
The Australian Industry Group Australian Performance of Manufacturing Index is a national composite index based on the diffusion indices for production, new orders, deliveries, inventories and employment with varying weights. An Australian PMI reading above 50 points indicates that manufacturing is generally expanding; below 50, that it is declining. The distance from 50 indicates the strength of the expansion or decline.
Australian PMI results are based on responses from a national sample of manufacturers. The Australian PMI uses the ANZSIC industry classifications for manufacturing sectors and sector weights derived from ABS industry output data. Seasonal adjustment and trend calculations follow ABS methodology.
I discuss the US election, and the Democratic Primaries with American in OZ Salvatore Babones, Associate Professor, University of Sydney and author of the award winning book The New Authoritarianism: Trump, Populism, and the Tyranny of Experts.
