November 2009

Andrew Pegler - 20 November 09

Like mine it’s probably not great but knowing how to say “can I have a job please?” will become handy pillow talk as we crawl out of bed with the US and into bed with China.

It used to be that when the US sneezed we got a cold. So intertwined were our economic fortunes that, while not quite conjoined Bangladeshi twins, we were very much kissing cousins. But that was then and this is now and today China leads the global recovery, not the US. The American drawl that has been the back-drop to our economic fortune is fast becoming a Mandarin mutter to a Bollywood back beat. This waning influence of the US economy on ours is known as decoupling by economists and can be traced back to 2001 when the wheels fell off the dot com boom and it became the dot gone wash-out. The US went into recession, and Western Europe and Japan struggled. We were expected to follow but didn’t.

The economic indicators talk for themselves. For starters, unemployment here is 5.8% while in the US it’s around 10%; housing affordability here remains a big issue while US house prices are either paralysed or falling. Other indicators like budget deficits, trade surpluses etc. all tell the same tale of decoupling economies. In other words while the US may be up excreta creek we have a paddle and are floating down crystal clear waters.

But what does this mean for you? For starters you can expect to be dealing with more Chinese clients and as more Chinese companies set up shop here more of you will be working for Chinese companies. This is already happening in the mining industry. This shift will be felt in other parts of the economy like the arts and popular culture as Chinese movies start to rival US ones and the Chinese aesthetic begins influencing fashion.

But as the RBA governator Glenn Stevens explained at a recent dinner in Melbourne, it’s not all beer and chop sticks because the more income Australia draws from China and India the more we’re exposed to their property bubbles and exchange rate dramas. But as they say, no risk no gain.

So with all the signs pointing to us being sucked along the slipstream of a surging China and India it may be idea to take a leaf out of Kev’s book and brush up on your Mandarin, learn to throw a Peking duck on the barbie and take a few Bollywood dancing lessons. You never know where it may take you.

And in other news… with the extremely low interest rates and the billions pumped into the economy, inflation has been a chief concern of the US Federal Reserve. However, the latest data out has seen US October prices increase less than expected, easing concerns that inflation would rain on the recovery parade. Stay tuned for more US data over the coming weeks.

Andrew Pegler - 13 November 09

With the release of October’s unemployment rate expect a deluge of jargon that’ll leave you scratching your head. Well stop scratching and join me in Employment 101.

As you probably know by now the jobless rate has just increased slightly to a “seasonally adjusted” 5.8%. What is seasonally adjusted? Ever noticed there’s less building in winter, more retail jobs over Christmas and no work for professional services in January? These are seasonal factors and the ABS takes them into account when working out the unemployment rate.

You may also read the participation rate remained steady at 65.2%. This refers to the number of people who want to work, are working, or are actively looking for work. It excludes those with no interest in working, which sounds like me most Monday mornings.

The next question is why is unemployment rising when the economy is improving? Well employment is a “lagging indicator” i.e. it lags behind other indicators as a recession lifts. In fact it’s often the last thing to recover as businesses usually don’t hire until they’re sure the economy is back on track.

Some other terms to look out for include:

The “hidden unemployed” and the “underemployed”

The ABS defines someone as unemployed if they are over 15 and not working but are looking for work. So if you have given up looking, are between jobs or not working as many hours as you wanted then you’re not counted. You are the “hidden unemployed” and the “underemployed”. With this in mind many economists claim the “real” jobless rate can be twice the official figure. In the US for example the official rate is around 10% but if you include the hidden and the underemployed some estimate that it’s closer to 17.5%.

Cyclical unemployment

This refers to unemployment that goes up during bad times and down during good times. In other words it varies with the cycle of economic growth followed by recession followed by growth followed by recession etc.

Full employment

This is when everyone who wants to work is. Surprisingly it doesn’t mean everyone is employed as there are always some people who don’t want to work or are between jobs. Any good government is always aiming for full employment and we came pretty close just before the GFC.

Class dismissed. Run along now.

In other news… well actually in the same news but in more detail - a surprise gain of 24,000 jobs has added to the likelihood of a December rate rise. However, these jobs did not cover the new entrants to the work force so that’s why the rate went up. Underemployment is up across most age groups, with hours worked falling slightly. Oh and the news is good for the yoof because teen unemployment fell 0.8 to 15.5%.

By Andrew Pegler 06/11/2009

Let me start by offering my hearty congratulations to the mortgage holders of Australia on the “good news” that interest rates have gone up a notch. What?!, you say. Is he mad?, you say. While my sanity has been questioned before I ask that this time you show a little faith and read on.

Back in May the Budget papers told a bleak, gloomy tale, heavy with the dire predictions of an impending Armageddon. Basically we were going to get smashed and Kev and Wayne had done all they could. Well that was then and this is now and Australia is the only rich nation to have avoided recession.

And it only gets better.

Revised predictions in the 2009-10 Mid-Year Economic and Fiscal Outlook (MYEFO to the pointy heads) read like news from a parallel universe. Our debt and deficits will be way smaller thanks to improved economic conditions that are expected to boost government coffers by $5 billion. In addition, our GDP has been magically revised from May’s forecast of a contraction of 0.5 per cent to growth of 1.5 per cent, which will magically transform into 2.75 per cent next year. With all this magic it’s no surprise the economy is now forecast to hit full capacity in 2014-15, two years earlier than expected. Abracadabra Wayne.

Then there are those home prices that are best described as going, going, gone. They hit new highs in the September quarter thanks to the ongoing housing shortage, Australia’s growing population, our miraculous economy and the final shake of the First Home Buyers Grant money tree. The inflation genie meanwhile seems happy in its bottle being tempted to stay there by an irresistible mix of low oil prices and a flood of cheaper imports thanks to the high AUD.

And just when it couldn’t get better, unemployment is shrinking. September saw 40,600 new jobs come on line, dropping the rate from 5.8 to 5.7 per cent. Unemployment is now expected to peak at 6.75 per cent this financial year, rather 8.5 per cent predicted in May. That means 250,000 fewer people will lose their jobs and you could be one of them!

With such stellar news the RBA hike was inevitable and I argue a welcome alternative to the carnage of the US, UK et al where there is monetary policy is not even an option because interests rates are so low and there is little activity to hold back anyway. And that’s my point. We should all be very pleased with ourselves for being so lucky to live in county that’s doing so well we need to raise rates. So congrats we, he, she, they and you. Oh and stay tuned because there’ll be more “good news” over the next few months.

And in other news… the US Federal Reserve has decided to keep interest rates at close to zero. It hopes low rates will keep the dollar weak and thus reduce the US trade deficit, increase export competitiveness, and hopefully put a dent in that 10% unemployment figure. In its accompanying statement the Fed’s reiterated its intention to keep rates “exceptionally low” for an “extended period”.

As always I welcome your feedback and any ideas for subjects I can tackle. So go on, let us know what’s on your mind - log in and post your comments below.

By Andrew Pegler 30/10/2009

During a week when a race stops a nation I thought it appropriate we break out the champagne, don the fascinator and head trackside to watch the inflation race build speed.

Right now the field is tight and the bookies are stumped. Inflation is still boxed in on the rails but it’s itching to break out as bank lending, production prices, house prices and CPI all start their run. Horse whispering RBA governor Glenn Stevens has suitably handicapped the field with his monetary policy whip, helped by the influx of cheap imports care of the high $AUD and the dampening effect of low oil prices.

So to the form guide in this week’s Inflation Stakes…

Last month’s data from the Housing Industry Association revealed the number of new homes sold jumped to highs not seen since 2006 as a flood of first home buyers joined the property race. With that form you can expect September to follow suit as house prices continue their climb.

Bank lending is the main driver for creating new money in the economy and hence inflation and it’s also on the rise. With the economy bouncing back business is throwing off the shackles of the recession we never had and looking for money. This has the Big Four competing aggressively to drive down costs and win business.

Meanwhile after six months of falling producer prices - an indicator of price trends and pressures on business costs and prices - September prices rose thanks to domestic price pressures on business and industry. This adds credence to the belief Glen Stevens has backed the right horse in putting up rates to combat emerging inflationary pressures.

Finally consumer prices in Australia jumped in the three months to September led by energy and water costs. Consumer price index, or CPI, came in a tad stronger than expected at 1%, giving an annual rate of 1.2%. Rising CPI is a key factor for the RBA when it sets official rates so this will not be welcomed by borrowers. I reckon a 0.25% rate rise on Melbourne Cup Day would be a good bet.

While the inflation stakes is an evenly rated race right now, there’s a ways to go. This is no regional race meeting over 1500 metres; it’s more like a Melbourne Cup over 3200 metres. Keeping the inflation fillies boxed in on the rails needs a long-term strategy that artfully mixes monetary policy with the impact of the high $AUD. Let’s hope Glen Stevens backs the right horse eh?

In other news… The Economist predicts that in 2009 emerging economies will attract more direct foreign investment than developed ones for the first time: “Flows to poorer economies, especially Asian ones, are proving more resilient than flows to rich economies which are suffering the worst recession in several decades.” Is this further proof of the seismic, unstoppable shift of wealth from western industrialised nations to emerging economies? Rio internship or Shanghai MBA anyone?