According to data released the other day, the Australian economy created around 70,000 positions recently which apparently is very good according to most economists. This is despite the fact that most of the jobs were part-time roles and I saw no breakdown regarding what type of jobs were created. That doesn’t seem to matter, once the media and assorted experts say it’s time to cheer then we are suppose to cheer.
Of course an economy that is creating jobs is better than one that is shedding jobs, but I feel we should always look at such data calmly and not get carried away by the hype. No single data set or statistical snippet tells us the full story and it’s a lot harder to read the economy than many would make out.
To illustrate my point, I am going to quickly look at some of the charts recently issued by the RBA and highlight the glass half full and glass half empty view of each one. First up – dwelling prices.
The property bulls will look at the chart above and probably say that the residential property market has bottomed-out with prices now on the way up again. The property bears will probably say it simply indicates that low interest rates are keeping the real estate bubble inflated for now but prices will fall again. My view is that is is too early to make a call either way, although do I believe the recent rises in prices will not be sustained this year.
Now a look at household wealth which I feel is more useful than just looking at dwelling prices.
The glass half-full view could be that household wealth is now being rebuilt after the shock of the GFC. The glass half empty view could be that household liabilities are still high by historical standards and that households are over-exposed to the fortunes of the residential property market. In this case I am leaning towards the glass half empty camp.
The retailing sector probably wouldn’t like to see households savings on the rise but I view this as a positive development, although as I wrote in 2010 in The unbalanced economy and household savings we need to be careful not to read too much into this economic indicator. So the glass half full view could be that households are now better prepared to deal an economic downturn whereas the glass half empty assessment could be that this chart indicates households are not as keen to spend as they were in the run up to the GFC. (hence indicating a lack of consumer confidence) Most likely both views are correct to some extent.
Nothing quite highlights the impact of the mining boom or mining investment boom as the chart above. Clearly investment in the mining sector has taken off over the last decade and some would say that boom will go on for many more years to come along the lines of Ken Henry’s (ex head of Treasury) so called ‘Golden Age’. The glass half empty view is the boom is coming to an end and under-investment in other areas of the economy over the last decade are going to cause problems in the decade ahead.
Now onto something I have been watching and commenting on for some years – commodities prices.
I was writing about a commodities price bubble and impending downturn in prices back when it was all the rage to excitedly rant on about the mining boom ad nauseam. So it should not surprise anyone that I am a glass half empty person when it comes to commodities prices and view the recent falls as just the beginning of a longer slide downwards in the prices for coal, iron ore & copper for example. But on the other hand the glass half full view would be that prices are picking up and that the rebound in the Chinese economy is on track.
Finally a chart which for me, highlights how over exposed to the China the Australian economy has become over the last 5 or so years.
One view could be that this chart highlights how Australia has benefited from the explosive growth in China and that our economy is set to benefit from continued growth in the Chinese economy in the years ahead. On the other hand this chart could raise a big red flag in the minds of those who see it as highlighting that the Australian economy is over dependant on exports to China. At this stage we just don’t know how this story will unfold.
So even with just these few charts it is possible to form two very different views regarding the state of the Australian economy. However I have not attempted to analyse each chart or the data behind them in any detail. Rather my aim was to simply highlight that one chart or even a few charts don’t give us a clear insight into how the economy has performed or is performing, and that this information can be interpreted in many different ways.
Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital. He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp