Recession Saved By The Voice?

Well, now we know, according to official data Australian households are faring worse than the broader economy and are mired in recession. The Australia’s economy slowed in the final three months of last year, growing 0.2%, easing from an upwardly revised 0.3% in the prior quarter, and below expectations. From a year earlier, the economy grew 1.5% and this annual result was the weakest, outside the pandemic, since the final quarter of 2000 and below the decade average of 2.4%.

Wednesday’s data showed government spending and private business investment were the main drivers of growth, outpacing household consumption. Government spending was driven by “benefits for households, with more spending on medical products and services and higher employee expenses across commonwealth departments,” the ABS, said. A referendum for an Indigenous advisory body to Parliament “held during the quarter also contributed to the rise in employee expenses.”

The more important per capita measure, (activity divided by population) showed that the per capita recession deepened as higher rates and rising living costs dragged on household spending, despite record migration for a fourth consecutive quarter. In per person terms, GDP fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn, also outside of the Covid-era, since 1991. Real per capita household final consumption plunged by 2.5% in 2023,

Inflation continued to impact most goods and services. The consumer price index rose 0.6 per cent in the December quarter and was up 4.1 per cent in the past 12 months. This was the smallest quarterly rise since March quarter 2021. Insurance got more expensive, as higher insurance premiums sent prices up 3.8 per cent. Increased tobacco taxes saw the price of cigarettes up 7.0 per cent.

Wage reviews pushed wage growth higher. The wage price index rose 0.9 per cent during the quarter and 4.2 per cent over the year. This was the highest recorded annual growth since the March quarter 2009. Public sector wages grew 1.3 per cent on the back of new workplace agreements, including those for teachers and nurses.

The labour market started to slow. Job vacancies fell slightly by 0.7 per cent during the quarter but remained high. The unemployment rate inched up reaching 3.9 per cent in the month of December, as participation rates stayed close to record highs.

Labour productivity rose again. We worked similar hours to last quarter, with the amount of time we spent at work remaining historically high. Overall labour productivity rose 0.5 per cent during the quarter, which was the second successive quarterly rise following a period of falling labour productivity. While the increase pushed labour productivity back to late 2019 levels, the RBA has warned that growth must be sustained at an annual rate of about 1 per cent to prevent current rates of wage growth from fuelling high inflation. NAB group chief economist Alan Oster said the strength of the underlying pace of productivity growth remained uncertain.

One of the biggest pressures on household budgets is personal income tax, which ate up a record 16.5 per cent of earnings over the past year as wage inflation pushed workers into higher tax brackets. Because tax brackets are not indexed to inflation, increases in nominal wages lead to increases in average taxes, since a greater proportion of a worker’s pay is pushed into the highest bracket applicable to them.

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Recession Saved By The Voice?
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Recession Saved By The Voice?

Well, now we know, according to official data Australian households are faring worse than the broader economy and are mired in recession. The Australia’s economy slowed in the final three months of last year, growing 0.2%, easing from an upwardly revised 0.3% in the prior quarter, and below expectations. From a year earlier, the economy grew 1.5% and this annual result was the weakest, outside the pandemic, since the final quarter of 2000 and below the decade average of 2.4%.

Wednesday’s data showed government spending and private business investment were the main drivers of growth, outpacing household consumption. Government spending was driven by “benefits for households, with more spending on medical products and services and higher employee expenses across commonwealth departments,” the ABS, said. A referendum for an Indigenous advisory body to Parliament “held during the quarter also contributed to the rise in employee expenses.”

The more important per capita measure, (activity divided by population) showed that the per capita recession deepened as higher rates and rising living costs dragged on household spending, despite record migration for a fourth consecutive quarter. In per person terms, GDP fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn, also outside of the Covid-era, since 1991. Real per capita household final consumption plunged by 2.5% in 2023,

Inflation continued to impact most goods and services. The consumer price index rose 0.6 per cent in the December quarter and was up 4.1 per cent in the past 12 months. This was the smallest quarterly rise since March quarter 2021. Insurance got more expensive, as higher insurance premiums sent prices up 3.8 per cent. Increased tobacco taxes saw the price of cigarettes up 7.0 per cent.

Wage reviews pushed wage growth higher. The wage price index rose 0.9 per cent during the quarter and 4.2 per cent over the year. This was the highest recorded annual growth since the March quarter 2009. Public sector wages grew 1.3 per cent on the back of new workplace agreements, including those for teachers and nurses.

The labour market started to slow. Job vacancies fell slightly by 0.7 per cent during the quarter but remained high. The unemployment rate inched up reaching 3.9 per cent in the month of December, as participation rates stayed close to record highs.

Labour productivity rose again. We worked similar hours to last quarter, with the amount of time we spent at work remaining historically high. Overall labour productivity rose 0.5 per cent during the quarter, which was the second successive quarterly rise following a period of falling labour productivity. While the increase pushed labour productivity back to late 2019 levels, the RBA has warned that growth must be sustained at an annual rate of about 1 per cent to prevent current rates of wage growth from fuelling high inflation. NAB group chief economist Alan Oster said the strength of the underlying pace of productivity growth remained uncertain.

One of the biggest pressures on household budgets is personal income tax, which ate up a record 16.5 per cent of earnings over the past year as wage inflation pushed workers into higher tax brackets. Because tax brackets are not indexed to inflation, increases in nominal wages lead to increases in average taxes, since a greater proportion of a worker’s pay is pushed into the highest bracket applicable to them.

Inflation Drifts Lower For Now, But…

The CPI data out today was meaningless, in terms of guiding a rate cut decision. So today I will explain why this is the case, as we go over the numbers. Alongside the main release, there was a second report on revised weights which were applied.

The Australian Bureau of Statistics (ABS) released its monthly inflation indicator for January, which were based on revised weights to the index, and we should also highlight that the first month of the quarter data is at best partial, as while it does provide us with an update on household durable goods the services data apart from garments repairs, hire and maintenance and repairs to dwellings.

Or in other words, the Numberwangers are at it again, despite the rather triumphant tones in some of the media about the prospect of rate cuts.
While the RBA still considers the quarterly CPI as the best gauge of inflationary pressures, the new monthly indicator factors into the central bank’s interest rate decisions when it delivers an unexpected outcome.

The result was a 3.4% rise over the year, below economists’ expectations of a 3.5% rise. 3.4% in the year to January, is in line with the outcome recorded in December to remain the equal softest print for monthly inflation estimate since November 2021.

When excluding volatile items from the monthly CPI indicator, the annual rise in January was 4.1%, down from 4.2% in December” and annual inflation when excluding volatile items has been declining since the peak of 7.2% in December 2022.

The Trimmed mean (core) inflation also fell to 3.8% in the year to January (prior 4.0%).

The RBA does not expect inflation to return within its 2 per cent-to-3 per cent target band until December 2025. And there is not enough here, in my view to lead the RBA one way or the other, though the door remains open, possibly for a rate cut towards the end of the year, unless we see a second surge in good prices due to higher transport costs, and higher wages pushing though to higher goods and services costs.

The bottom line is while the figures were a little lower than market expectations for inflation to increase to 3.6 per cent, they are unlikely to alter the outlook for monetary policy due to the volatility of the monthly consumer price index.

And by the way, the Aussie Dollar dropped a bit – but only after the Reserve Bank of New Zealand held the cash rate there, and signalled rate cuts, eventually.

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Unemployment Wobbles Higher In January, But Don’t Expect Quick Rate Cuts!

Last month Australian employment surprisingly tumbled in December, snapping four months of gains and sending the currency lower as traders boosted wagers on the Reserve Bank switching to policy easing this year. The economy had shed 65,100 roles, led by the biggest monthly drop in full-time employment since the height of pandemic, but unemployment held at 3.9%, cushioned by a sharp fall in the number of workers seeking jobs.

Now we got the next update from the ABS which showed that the economy added just 500 roles in January, confounding expectations for a 25,000 gain and well shy of numbers needed to hold down the jobless rate.

Unemployment advanced to 4.1% from 3.9% while the participation rate was steady. The number of people considered officially unemployed increased by 22,000.

“This is another sign of moderation in jobs demand,” said Diana Mousina, deputy chief economist at AMP Ltd. “I still don’t think that you can justify a near-term rate cut right now because the labor market still looks tighter than before the pandemic. It’s loosened, but not enough to get worried about.”

NAB’s Tapas Strickland noted the labour market was still tight and said the central bank would likely wait for next month’s data before drawing any firm conclusions. “If the lift in the unemployment rate is sustained, then that would suggest a softening in the labour market is occurring faster than the RBA’s track, which could give the RBA greater confidence in their forecasts of inflation heading back to the mid-point of the band,” said Mr Strickland.

But frankly, the numberwanging is all over the shop.

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Unemployment Wobbles Higher In January, But Don’t Expect Quick Rate Cuts!
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Australian Inflation Wobbles Lower But…

The ABS released the quarterly inflation read today, together with the monthly update. Overall the Consumer Price Index (CPI) rose 0.6 per cent in the December 2023 quarter, lower than the 1.2 per cent rise in the September 2023 quarter and 4.1 per cent annually, This was the smallest quarterly rise since the March 2021 quarter. The RBA’s preferred measure of underlying inflation (the trimmed mean), which strips out irregular or temporary price changes, rose 4.2 per cent annually, down from 5.1 per cent in the September quarter.

Remember of course this still means that prices continued to rise for most goods and services, though annual CPI inflation has fallen from a peak of 7.8 per cent in December 2022, to 4.1 per cent in December 2023.

Markets reacted by pushing the ASX 200 to a new all-time high, closing at 7,680.70 on Wednesday, 50 points higher that its previous peak set in August 2021 on the assumption that this CPI result will mean the RBA holds interest rates when they meet next Tuesday. Falls however are not expected until later in the year, or into 2025, depending on which economists you chose to listen to.

Money market traders are now fully pricing the first 0.25 of a percentage point cut to the 4.35 per cent cash rate in August, from September before the inflation data. A second rate cut is fully factored in by December.

Westpac chief economist and former RBA assistant governor Luci Ellis said the RBA was “unlikely to raise rates further this cycle”.

there is certainly some more positive news in these numbers, though of course real felt inflation is way off the official reported average numbers for some households.

But that said, domestic-generated inflation remained firm due to strong price rises for new dwellings (5.1 per cent), rents (7.3 per cent after extra rent assistance), insurance (16.2 per cent) and electricity (6.9 per cent after bill subsidies).

The inflation for so-called non-tradable goods and services, which are mostly influenced by domestic factors, rose 5.4 per cent, down from 6.2 per cent.

ANZ economist Catherine Birch said non-tradables inflation was “still very strong” and could make the RBA retain its “hawkish” tone on monetary policy at its meeting next week.

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Australian Inflation Wobbles Lower But…
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Australian Inflation Wobbles Lower But…

The ABS released the quarterly inflation read today, together with the monthly update. Overall the Consumer Price Index (CPI) rose 0.6 per cent in the December 2023 quarter, lower than the 1.2 per cent rise in the September 2023 quarter and 4.1 per cent annually, This was the smallest quarterly rise since the March 2021 quarter. The RBA’s preferred measure of underlying inflation (the trimmed mean), which strips out irregular or temporary price changes, rose 4.2 per cent annually, down from 5.1 per cent in the September quarter.

Remember of course this still means that prices continued to rise for most goods and services, though annual CPI inflation has fallen from a peak of 7.8 per cent in December 2022, to 4.1 per cent in December 2023.

Markets reacted by pushing the ASX 200 to a new all-time high, closing at 7,680.70 on Wednesday, 50 points higher that its previous peak set in August 2021 on the assumption that this CPI result will mean the RBA holds interest rates when they meet next Tuesday. Falls however are not expected until later in the year, or into 2025, depending on which economists you chose to listen to.

Money market traders are now fully pricing the first 0.25 of a percentage point cut to the 4.35 per cent cash rate in August, from September before the inflation data. A second rate cut is fully factored in by December.

Westpac chief economist and former RBA assistant governor Luci Ellis said the RBA was “unlikely to raise rates further this cycle”.

there is certainly some more positive news in these numbers, though of course real felt inflation is way off the official reported average numbers for some households.

But that said, domestic-generated inflation remained firm due to strong price rises for new dwellings (5.1 per cent), rents (7.3 per cent after extra rent assistance), insurance (16.2 per cent) and electricity (6.9 per cent after bill subsidies).

The inflation for so-called non-tradable goods and services, which are mostly influenced by domestic factors, rose 5.4 per cent, down from 6.2 per cent.

ANZ economist Catherine Birch said non-tradables inflation was “still very strong” and could make the RBA retain its “hawkish” tone on monetary policy at its meeting next week.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Falling Trend Hours Worked May Signal Interest Rate Peak!

Economists got a surprise today as employment fell 65,100 in the month, compared with an average expected rise of 15,000, as hours worked and participation both fell. That said, the prospect of the RBA delivering one final rise in February appears over. Only a big surprise in the December quarter inflation numbers, which will be released on January 31, could force economists to revise their near universal forecast for rates to remain on hold next month. And the monthly inflation data doesn’t point to a shock.

The ABS Labour Force statistics for December was based on surveys run from Sunday 26 November to Saturday 9 December, and collected over the period from Sunday 3 December to Wednesday 20 December. They also rotate the sample, with the new incoming group showing a higher unemployment rate than the outgoing group.

The results from the survey showed that in seasonally adjusted terms with employment dropping by 65,000 people, along with a small fall in the number of unemployed people (1,000), the unemployment rate remained steady at 3.9 per cent in December.

Actually, the falling participation rate stopped the Unemployment rate from climbing as hiring eases, though perhaps most concerning is the trend in hours worked, which has been falling for the better part of a year. How much of this is summer holiday related is an open question, but it seems more structural to me. We also need to note the loss of 106,000 full time jobs, compared to 41,000 part time roles, especially among part-time women. And remember given the current migration settings we need more that 30,000 additional jobs just to stand still.

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Falling Trend Hours Worked May Signal Interest Rate Peak!
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Falling Trend Hours Worked May Signal Interest Rate Peak!

Economists got a surprise today as employment fell 65,100 in the month, compared with an average expected rise of 15,000, as hours worked and participation both fell. That said, the prospect of the RBA delivering one final rise in February appears over. Only a big surprise in the December quarter inflation numbers, which will be released on January 31, could force economists to revise their near universal forecast for rates to remain on hold next month. And the monthly inflation data doesn’t point to a shock.

The ABS Labour Force statistics for December was based on surveys run from Sunday 26 November to Saturday 9 December, and collected over the period from Sunday 3 December to Wednesday 20 December. They also rotate the sample, with the new incoming group showing a higher unemployment rate than the outgoing group.

The results from the survey showed that in seasonally adjusted terms with employment dropping by 65,000 people, along with a small fall in the number of unemployed people (1,000), the unemployment rate remained steady at 3.9 per cent in December.

Actually, the falling participation rate stopped the Unemployment rate from climbing as hiring eases, though perhaps most concerning is the trend in hours worked, which has been falling for the better part of a year. How much of this is summer holiday related is an open question, but it seems more structural to me. We also need to note the loss of 106,000 full time jobs, compared to 41,000 part time roles, especially among part-time women. And remember given the current migration settings we need more that 30,000 additional jobs just to stand still.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Households Spend Less But Borrow More, What Could Possibly Go Wrong?

The ABS reported that In November 2023, new loan commitments (seasonally adjusted): rose 1.0% for housing, fell 5.6% for personal fixed term loans, fell 4.8% for business construction (a typically volatile series) and rose 0.6% in trend terms and fell 6.4% for business purchase of property (a typically volatile series) but was flat in trend terms. So housing credit is still relatively strong despite higher interest rates, and potentially signalling that the RBA will need to dampen demand further in its inflation battle.

Also on Friday, the rather meaningless Monthly Household Spending Indicators was published by the ABS. As these are based on current prices, they are not adjusted for the impacts of inflation. The indicator is produced using aggregated and de-identified card and bank transactions from banking and financial institutions. They reported that Household spending increased 3.1% through the year on a current price, calendar adjusted basis.

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Households Spend Less But Borrow More, What Could Possibly Go Wrong?
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Households Spend Less But Borrow More, What Could Possibly Go Wrong?

The ABS reported that In November 2023, new loan commitments (seasonally adjusted): rose 1.0% for housing, fell 5.6% for personal fixed term loans, fell 4.8% for business construction (a typically volatile series) and rose 0.6% in trend terms and fell 6.4% for business purchase of property (a typically volatile series) but was flat in trend terms. So housing credit is still relatively strong despite higher interest rates, and potentially signalling that the RBA will need to dampen demand further in its inflation battle.

Also on Friday, the rather meaningless Monthly Household Spending Indicators was published by the ABS. As these are based on current prices, they are not adjusted for the impacts of inflation. The indicator is produced using aggregated and de-identified card and bank transactions from banking and financial institutions. They reported that Household spending increased 3.1% through the year on a current price, calendar adjusted basis.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.