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The Australian economy: Are the charts half full or half empty?

March 15th, 2013 · Greg Atkinson · 26 Comments

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

26 responses so far ↓

  • 1 Greg Atkinson // Mar 21, 2013 at 7:20 pm

    This could make things interesting since the Euro Area is China’s largest trading partner.

    “Euro-area services and manufacturing output contracted more than economists estimated in March, adding to signs the currency bloc’s economy is struggling to emerge from a recession.

    A composite index based on a survey of purchasing managers in both industries fell to 46.5 from 47.9 in February, London- based Markit Economics said today. Economists had forecast a reading of 48.2, according to the median of 23 estimates in a Bloomberg survey. A reading below 50 indicates contraction.”

    Source: Euro-Area Manufacturing, Services Contract More Than Estimated

  • 2 Lachlan // Mar 21, 2013 at 9:44 pm

    I agree we all tend to use the same charts to back different views Greg. However for now it is still true in anybody’s language that the upward trends toward mining investment, higher household savings (whatever that really is) and exports to China are still valid for today. I admit there have been cutbacks in mining money over the last few months in particular from my own vantage point.
    I had a decent week this week and hope for more improvement as we head through this year. I guess that’s hardly surprising of course.

  • 3 Lachlan // Mar 23, 2013 at 4:57 am

    It’s been a very pleasant time here in Australia since 08/09 happened as far as I can detect. But just giving an on ground view today it sure seems to me that people are getting less work and income in the last year or so. I don’t know anyone who does not see that around me. I will admit you would have to be in denial to cheer these labour stats. I do travel in a bit of range and talk to people across that area so i guess that counts a little. Hopefully things will turn up.

  • 4 Greg Atkinson // Mar 23, 2013 at 8:09 am

    Lachlan I get the feeling we are either on the cup of a recovery or the cusp of an extended downturn. Some sectors of the economy appears to be struggling but others appear to be doing well.

    Of all the charts above I reckon the RBA Index of Commodity Prices is the one to keep a close eye on. If commodities prices trend down this year then the Oz economy will struggle.

  • 5 Lachlan // Mar 25, 2013 at 7:21 am

    Here is a chart with a long history to help give prognosticators a solid basis for their assumptions. Though trends may change we still need to start somewhere.

  • 6 Greg Atkinson // May 1, 2013 at 9:11 am

    The manufacturing PMI for April come in today at 36.7. That is worse than the figure for Greece. Anything under 50 represents a contraction so clearly the Australian manufacturing sector is in a recession.

    I expect it will even get worse once the TPP comes into effect and I would go as far as saying that within 5 years at least one of the car makers based in Australia will close down domestic production.

  • 7 Lachlan // May 1, 2013 at 12:45 pm

    Our manufacturing is being gutted Greg and nobody can tell us what the TPP will really involve.
    I still believe the AUDUSD will go higher. After they drop rates and we shake out the bulls we are headed for a blow off top somewhere above 1.20 against the usd….based on interest rate differentials, lack of any else much to buy, price technicals etc.

  • 8 Greg Atkinson // May 7, 2013 at 6:59 am

    Today Lachlan we will find out what the RBA will do regarding interest rates. Personally I believe they will sit on their hands and there will be no change today but the pressure seems to be mounting for another cut.

    Even if they do cut rates it will not help the manufacturing sector much but will probably send more money heading towards yield stocks.

    Another rate cut may also give the housing market a slight lift although I don’t expect any boosts from such a cut to last long.

  • 9 Biker // May 7, 2013 at 2:09 pm

    I’m not so sure. The ‘Rent vs Buy’ margin will influence the property market in areas undergoing extreme rental shortage issues (and rising rents).

    If today’s cut doesn’t bring a boost, the next one probably will… . 😉

  • 10 Matthew // May 7, 2013 at 3:07 pm

    Cut is it, and NAB on the front foot in record time.

    Home owners will obviously be the big beneficiary, but I dont see a massive swing, perhaps those who needed one more to get in will now do so, but if they needed this cut to get in and are not prudent in their budgeting they will face some pressures in the medium term as we know.

    It certainly appears to be putting a floor under prices.

    I think that the RBA are clearly trying to stimulate investment and retail spending, but the fact that we are at a record low already shows most people are happy to take advantage of the lower rates and pay down debt as opposed to loosening the purse strings.

    Side note, am I the only one sick of the government spruiking reduced revenues as the need to cut costs as opposed to their wasteful spending?

    ABS data shows tax reciepts in 2011/12 to be 18.8% or $50.3bn above those of 2 years ago.

    It appears to me that government incompetence is as much to thanks for this as any global uncertainty!

  • 11 Stillgotshoeson // May 7, 2013 at 3:19 pm

    I do not see any significant boost for the property market with any further cuts in the RBA rate.

    It will help those existing mortgage holders whom are struggling for sure but I do not see any great stampede coming for homes now with the lower rates. Nor do the RBA I expect, it is why they felt they could move on rates.

    Whilst they do not wish to see house prices collapse, nor do they wish to see them run up any signifigant amount either.

    Rates at a now record low for the RBA are bringing us much closer to Keens 0% call and with the global economic situation still not showing signs of self sustaining recovery and calls for mor stimulus, the unemployment situation remains tenuous at best.

    With continued softening commodity prices and expected further weakening in Chinas once booming economy the pressure is on to weaken our dollar.

    Hockey has targeted middle class welfare WHEN the coalition become government, this could well negate a couple of rate cuts for many.

  • 12 Greg Atkinson // May 7, 2013 at 3:29 pm

    I thought the RBA may have waited and perhaps cut next time so I was a little surprised by the move today. I imagine the RBA is trying to wean the economy of the mining CAPEX boom which is not something they can do needs the government to also play along.

    Mathhew I agree that the government’s budget woes are mostly self-inflicted. The MRRT has been a dud, spending is out of control & much/most of the GFC stimulus money was wasted. I also hope the Treasury have thrown out their crystal ball because their forecasts and modelling have been way off the mark..even for economists 😉

    Over the next 6 months I will be watching unemployment closely. If this remains fairly stable then maybe the economy will hold up relatively well even if the Chinese economy comes back a notch or two.

  • 13 Biker // May 7, 2013 at 3:51 pm

    So we’re calling 0% interest rates now? Is there no end to extremist punts here? 😀

  • 14 Matthew // May 7, 2013 at 4:38 pm

    My concern is that with tax receipts increasing (which is fact) against a backdrop of claims of reduced income (which is a lie but seems not to be challenged in the media), increases to taxation or restructuring of taxation (think Medicare levy and NDIS) becomes a plausible argument to the uneducated masses.

    He was slammed for it, but the head of Myer is spot on – attempts to stimulate the economy through spending will indeed be scuttled by increases in taxation.

    Shane Wright wrote a very interesting article in yesterdays West regarding Negative Gearing which I can not find online. The principle behind what he was saying is true and correct in the face of the increasing deficit, yet ignores entirely the root cause being inefficient government spending.

    Abolishing negative gearing would be an outstanding move in times of economic prosperity, above average inflation and an upward cycle of interest rates. Doing so now to plug a budget shortfall and fund a $600 school kids bonus would be financially irresponsible.

    As for unemployment, in his notes GS stated that the rate of unemployment is being impacted by increasing participation rates I would be inclined to watch the actual participation rate and job creation data in the coming 6 months more so than unemployment statistics.

    I foresee some big moves in the resources sector with construction projects ending or facing delays, and would anticipate some of the marginal gold mines in WA moving to Care & Maintenance if the prices do not rebound in the immediate future. These couple of thousand positions will not have a material impact on employment figures, but there will be an impact felt.

    With that in mind more interesting than the next round of CPI data will be the wage index.

  • 15 Biker // May 7, 2013 at 5:34 pm

    “Side note, am I the only one sick of the government spruiking reduced revenues as the need to cut costs as opposed to their wasteful spending?”

    While travelling in the US we were amused to be offered around US$12K cash, to ease ‘our housing debt’. The offer came direct from the Big O himself!

    There’s no doubting the excesses of the present government, but I really wonder whether the next mob will fare much better in this global climate. Let’s hope so!

    Any move to abolish NG can’t be retrospective. Being entirely cash-flow-positive, I’d view such an initiative with interest, primarily because I believe rents would go utterly ballistic. I’ve read many opposing arguments… and would be fascinated to watch the fun.

    Some long-range estimates by experts, related to the housing sector, ‘mature’ in a month or so. It could be interesting to see how far-out-of-whack these prophets-of-doom are, mid-year… .

  • 16 Lachlan // May 7, 2013 at 6:46 pm

    The action of late leads me to cement my hunch of further upside to the main ASX indexes…another few hundred points or so.
    I am going to add to that another down draft in gold which will shake up the market commentary I’m sure. I think the AUD prices will touch 1250 intraday but that generally the realistic support area will be 1300. As a gold bull I would hope to see a significant bottom there and also add to my position which I did not do in the recent washout. From a technical perspective this would complete and abc retrace from the consolidation area breakdown when those stops blew up.
    I am very bullish on the AUD still. Since the GFC the action has been super bullish and calls for a significant break higher. I think the action might shake out first with the markets at some point. This reflects a paradigm which will stay strong imo until a very significant event changes everything everywhere. No matter how much we ease here the major CB’s are gunning it harder. I’m not sure about Mr Keens zero percent idea (although we still have room to move down i believe). CB’s have a lot on their plate.

    Does anyone here think that higher AUD values are unlikely? Everywhere else i read people all say its going to crash soon with mining capex due to crash (i doubt that)…they might ease for a bit. I think these cycles typically end in extremes.

  • 17 Lachlan // May 7, 2013 at 6:54 pm

    So also building a miners position over the next few months might be good shopping. I see you’ve started your collection with RIO Greg. It seems counterintuitive i guess with everybody screaming for a mining crash. The shares are just ahead of the game maybe and the dip in capex will not be so great before heading off again or consolidating? The capex chart did suggest we were going nuts and needed a break at least.

  • 18 Biker // May 7, 2013 at 7:58 pm

    Our inflation(?!) figures are interesting, aren’t they, Lachlan?

    Is it possible that the inflationary effects nearly all of us predicted, due to monetary easing, may never occur at all, I wonder(?)

    Gold thrives in an aura of fear, yet we see little of that in effect, in WA.

  • 19 Stillgotshoeson // May 7, 2013 at 8:27 pm

    I am not too sure on Keens 0% call either Lachlan, just brought it up in context of were we seem to be heading. We have never been at this RBA rate before, previous low was 2.89%.

    We have moved closer to Keens 0% call and we are a few years into the GFC and things obviously are not improving. Wordls economy is still not too great and fractures are becoming obvious in the Australian economy. Some the governments fault, others from the mercy of being part of a global economy.

    Overseas monies are here because of higher interest rates and perceived strong economy, if rates continue to fall and the perception is lost then our dollar will fall against the USD.

    If reasonable growth figures can be retained and some sort of improvemnet occurs that will be positive for our dollar. (not so positive for local manufacturing and tourism though)

    A reasonable fall in the AUD will be good for the local gold miners.

    As for the inflationary effects (or lack thereof at the moment) Biker, I put that down to not much of that money has made it down to the middle class and lower classes yet. The rich have got richer but no “trickle down” of this money as yet.

    Only a few months out from the election too, so will be interesting what moves the parties make in the interim period.

    From all reports it is paper gold that has been sold off, bullion is still very much loved by the bugs.

  • 20 Biker // May 7, 2013 at 9:04 pm

    “…bullion is still very much loved by the bugs…”

    What an opportunity to add gold bullion to one’s online portfolio!~

  • 21 Lachlan // May 8, 2013 at 3:06 am

    Our inflation(?!) figures are interesting, aren’t they, Lachlan?

    We do have a significant debt increase upstairs as you know BP. But you are talking about price inflation. My personal price inflation sensors tell me things have been cool for two years (after Rudd’s free candy wore off). It obviously helps that many people in Average Joe Land have their own deleveraging paradigm to contend with.
    I can see that much inflation can be neutered but there are limits so it probably won’t stay quiet forever. Looks like it could be quiet for a little while yet however.

  • 22 Lachlan // May 8, 2013 at 3:09 am

    Anyhow lets get macro! Everything goes up in a straight line. Investing made easy 😉

  • 23 Lachlan // May 8, 2013 at 7:29 pm

    Shoes, just to elaborate, and just gut instincts but I feel that the RBA wont destroy the nominal interest rate differential. This explains to me why the the AUD is so bullish and of course there is plenty to go wrong with any hypothesis.
    Having said that there are several economists who have suggested letting the Fed produce negative nominal rates. If that were to happen in the US then I guess you might want to live in a fortress or preferably move to another country.

  • 24 Greg Atkinson // Jun 24, 2013 at 7:45 pm

    All the charts I posted above could get quite a shake up if the financial markets in China get a bit of a shake-up and the credit growth slows considerably.

    Right now it looks like commodities are on quite a slide as are gold and stocks. Could dwelling prices be next?

  • 25 Stillgotshoeson // Apr 23, 2016 at 9:43 am

    “”Men worry about money, supporting their families, being the breadwinner. Women worry about interpersonal men.”
    Data from 2014. A couple of years after I posted we could expect to see a rise in the number of suicides.

  • 26 Biker // Apr 23, 2016 at 10:20 pm

    Behind every dark cloud, a silver lining: ” Life expectancy for Australians increased in 2014, reaching 80 years for men and 84 for women.”

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