Economic Rigor

Go the Fed! Under intense pressure, Ben Bernanke has been able to create some decent numbers regarding the employment situation. A reduction of 0.3% isn't too bad in the situation today. However, there were a couple of early indicators that the employment situation in the US was starting to improve. Firstly, Labour Force Productivity was up (including an increase in hours worked). Labour Force productivity is the Output/no of hours worked. Traditionally, during a downturn, productivity goes up naturally as people are laid off. Hours worked decreases because of the layoffs causing the increase. However in the most recent figures, hours worked increased as well as the productivity. This meant that people were starting to hire again. Secondly, we have had a couple of quarters of economic growth. Unemployment is a trailing indicator of economic growth (i.e it follows growth, not precedes it). The reasons for this is due to the participation rate increasing when growth increases (peop...

There has been a lot of articles about the high price of Sydney housing and how we are in the middle of an asset bubble, comparable to Japan in the 80's. One definition of an asset bubble is asset prices increasing at far greater rates than the CPI (or rate of inflation). So, using the latest stats from the ABS, I have charted the percentage changes in the Sydney housing price index from the quarter to the corresponding quarter of the previous year Vs the Sydney CPI index percentage changes from the quarter to the corresponding quarter of the previous year. I ended up with the following graph from March 2003 to December 2009 (the only stats available) So definitely the Sydney House Prices have been more volatile than the CPI changes, but definitely not greater. In fact, if you calculate the average house price change, it equals to 3.1%. This compares extremely well with the average Sydney CPI change of 2.7% Melbourne on the other hand is a different kettle of fish. See the graph b...

Maybe the Reserve had this data before the Interest rate decision. Reduction of retail turnover in price was -0.7% (However it did increase 1.1% in volume terms). These were both in seasonably adjusted terms. Not great news for the economy. Household Consumption makes up around 52% of GDP (including the government, it increases to 70%) so impacts to retail figures affect the GDP quite dramatically Speaking of which, here are the other factors affecting the GDP Federal Government spending = 6.4% of GDP (defence is 1.4%) State and Local Government Spending = 10.1% of GDP Private Fixed Capital Spending = 23% of GDP Public Corporations Capital Spending = 1.9% of GDP Government Capital Spending = 5% of GDP Exports = 19% of GDP Imports = 20 % of GDP Net Exports = (-1%) of GDP

Well it appears no one can pick the Reserve Banks Intentions. Will be interesting to see the minutes when they are released in a couple of weeks. All the data seemed to lean towards an increase in rates (data that has been reported here) US GDP up in December: +1.4% for the quarter Aus CPI up in December: +2.1% Aus PPI down in December: -1.5% Car sales up in December: +3.3% House Price Index up in December: +5.2% in the quarter, +13.6% over the year. The only factors that went against the increase was the PPI going down and the CPI being moderate. In fact, using the preferred measures of the weighted mean (down 0.1%) and trimmed mean (no change) means that inflation was obviously not enough to excite the mandarins at the Reserve. Also the fact that the big banks increased their rates higher than the Reserve bank change seemed to stay the Reserves hand. For example, Westpac increased its standard variable mortgage rates by 0.45% (as opposed to the rise of 0.25 on the cash rate by t...

GDP figures for the US came out today. They recorded an increase of 5.7% in Real GDP over the December Quarter (Annualised). While this is definitely cause for celebration , statistically it is a bit dodgy. The Australia ABS does not annualised its GDP figures. The quarterly change in the figures is just that; they take the GDP figure for this quarter, they subtract the GDP figure from the previous quarter and then divide by the GDP from the previous quarter. So it is (GDP(now) - GDP (previous))/GDP(previous). This produces the quarterly growth. The US bureau of Economic Analysis however use the same formula above, but then convert it to an annual rate (by dividing by the number of months in the quarter and then multiplying by 12). This gives you the annualized rate (which will be higher than the percentage change from month to month). So based on the ABS methodology, we have the US Real GDP growing 1.4% over the quarter. (and only 0.1% over the year to date, from December 08 to Dece...

ABS released their inflation numbers....CPI increased 0.5% over the month to produce a 2.1% rise over the year. Not a bad result....(Reserve likes to keep inflation between 2-3%) and most of the rise was in the fruit category. The reason for this was environmental...apparently weather condition resulted in some fruits having reduced harvests, thus raising prices. Pure supply and demand dynamics. Still, it is an increase. So while I did get my prediction wrong, I think these figures are not out of control just yet.

The December '09 figures for the PPI came out today, showing price weakness for third stage Production of -1.5% (a very low figure). Basically this index measures the costs of materials involved in the production of goods and services. -1.5% is the lowest figure on record in 10 years. This can only be good for manufacturers, but no so good for raw material suppliers. Also bodes well for the inflationary figure, due to be released on Wednesday of next week. As shown by the graph below, the PPI and CPI usually follow the same trend (though the CPI isn't as volatile ) Based on the PPI , I would suggest that inflation will remain constant or decrease slightly. The only danger with this prediction is that the prices of goods and services also take into account wages (or human resource cost). There have been indications in the press that wages might be on the rise again; though the trend increase was only at 0.7% over the September '09 quarter. As Wages make up a large percent...

Sales of new automobiles have been maintained over a difficult year. Seasonally adjusted, car sales are up by 3.3% over the December month and 17.2% for the year. This growth was mainly in NSW and SA, both of which increased by 22.1% for the year. SUV's (36.7% growth over the year) and "Other Vehicles (38.6% growth over the year) lead the charge However further investigation of the figures ensure that the growth is mainly coming through SUV's and "Other Vehicles" (which include commercial trucks, vans etc). This can be tied to the government's stimulus 50% tax rebate for plant and vehicles that was implimented to hold up business investment. By contrast, passenger cars have been growing at a much smaller rate over the years (decreased 1.6% in december, increase of 3% over the year). But this is an ongoing trend over the years. Check out the graph below detailing changes in the purchase of automobiles over the last 20 years

Kevin Rudd, Prime Minister of Australia, recently made a comment saying that Australia's Productivity had to increase to ensure economic growth increased with a gradually aging population. But it appears many of the journalists have misread what productivity is. Firstly, Productivity is defined economically as GDP per hour worked. So it involves making the most effective use of each labour hour. (i.e increased hours of work or employment doesn't necessarily result in greater productivity...in fact it can lead to the direct reverse). Production is just the growth in GDP. Australia in recent years has been a bit mixed in it's GDP per hour worked performance. If we graph the GDP and GDP/hour from 1978 to today (using ABS figures) we get the following:- It seems that getting anything over 1% growth in productivity is quite rare. Has only happened a few times recently; 1981, 1983, 1985, 1991, 1996-1999, 2001 and 2007. In fact Average productivity growth is only 0.4% compared to ...

The US Department of Labour released their CPI figures on Friday. The CPI was up 0.1% for December which resulted in a full year Inflation rate of 2.7%. This was up from the previous year 2008-2009 of 0.8%. Is this a good or bad thing? Well, like most things economic, it is a combination of both. It is good that the CPI is growing. It means that demand for certain goods is starting to increase. 2.7% is not high inflation by any means, so I'm sure the Federal Reserve will keep interest rates low in the short term. However, if you look at the detail, we find it is mainly the Energy portion of the CPI that has resulted in the increase. Gasoline prices increased by 53% over the year....probably due to the US dollar decreasing over the year. This will improve as the US dollar increases over time. The next highest increase in the CPI was the cost of automobiles, no doubt due to the "Cash for clunkers" Government program. But if this has resulted in an increase in demand for th...

For those wondering if the Government's infrastructure spending is still continuing, we have these figures from the ABS released yesterday regarding construction activity in September The value of total construction over the quarter increased by 2.7% (seasonally adjusted). However it was the construction activity for the public sector (or Government) that was the real driver for this growth, up 13.2% for the quarter (or 27.4% for the year). Private sector construction activity actually went down over the quarter by 2.2% (but was still up by 13.6% for the year). So without the Government spending, the construction activity would not be as positive. The Liberals need to find a new subject to attack the government. Another interesting stat from this release is the fact that NSW Government spends more on construction activity than any other state government. Living in NSW , my question is, what the hell are we getting for our dollars! I presume it's the Federal Government school s...

Good news for the Australian Economy once again. ABS has reported that the unemployment rate fell to 5.5% in December from 5.6% in November (seasonally adjusted). Main reasons for this reduction; an increase in part time employment for 27,900 people (taking part time employment to 3.271 million. Full time employment also increased by 7,300 people (full time aggregate employment is now at 7.6 million people). However it is important to understand what the definition of what is being measured here. The ABS conducts a survey to 0.33% of the population of Australia (over the age of 15) and asks whether the respondent has worked for 1 hour for pay or profit in the last week (or are employed to do so). If so, they are counted as employed. Unemployed people are defined as people 15 years and over who are not employed but have actively searched for work in the past week and could start work in that reference week if required. Full time work is defined as working over 35 hours, Part time is an...

The ABS released their most recent National Accounts and once again, the Australian economy is growing. Woo - hoo . 0.2% seasonally adjusted. Once again, Kudos to the Rudd Government for keeping the economy in the black during a pretty difficult economic climate. Drilling down into the figures released by the ABS, we have the major contributors to growth being:- Government Final Consumer Expenditure ( GFCE ) : +0.1% Household Final Consumer Expenditure ( HFCE ) : +0.4% Private Gross Fixed Capital Expenditure ( GFCE -Private) : -0.3% (+0.3 housing, -0.3 investment housing, -0.3 machinery/equipment) Public Gross Fixed Capital Expenditure ( GFCE - Public) : +0.3% Inventories : +0.8% GNE (without Net Exports) = 1.4% Exports: -0.5% Imports: +1.1% Net exports = -1.6% GDP growth = 1.4-1.6 = -0.2% (without Statistical Discrepancy of 0.4%) GDP growth with statistical discrepancy = 0.2% So what can we read from these figures. Firstly, its the house hold consumption, housing and Inventories th...

The ABS released the November Australian Housing Finance stats today. Housing in Australia seems to be one of the most discussed topics when commenting on the Australian economy. It also is one of the most misunderstood. Various commentators, the most prominent being Steve Keen from the University of Western Sydney, talk up "asset bubbles", especially in regards to housing and lament the fact that households have so much debt. In fact Steve Keen believes that debt is driving up property prices. So lets examine whether that statement is true. Firstly, it does appear that the average mortgage loan did go up last month. According to the ABS, the average loan for housing was $279,900, up from $272,000. While only an increase of 2.9% a month; annualized, this works out to 34.5% (or 8.7% per quarter). So we are definitely taking on more debt. But the question is whether this is growing at a higher rate than the asset price securing this debt. When looking at the ABS House price in...

The RBA today published the monthly stats on their official reserves. Shows that Australia has $41 billion (US) in official reserves; $33 billion (US) in foreign currency, $4.9 billion (US) in SDR (or special drawing rights with the IMF), $2.8 billion (US) in Gold and the rest in IMF reserves. So all looks good for the solvency of Australia. But the size of a country's reserves don't necessarily give an indication of how well their economy is performing. According to the website of the IMF, Japan is the number two country in regards to size of central bank reserves ($1 trillion US) and their economy is experiencing negative economic growth. China is number 1 with over $2 trillion US in foreign reserves (however, is not a member of the IMF and hence isn't reported there) What is interesting is the growth in SDR's in Australia. In August 09, Australia's value of SDRs went from $174 million to $3.9 billion. This was due to the IMF allocating more SDRs to member co...

I read with interest, this article in the Age ( http://www.theage.com.au/national/education/indian-student-visa-applications-fall-by-half-20100106-lubt.html ), talking about a reduction in applications for student visa's in Australia; particularily from South Asian countries like India. The article states that the violence against international students in Melbourne as well as the strength of the Australian dollar has resulted in a reduction of interest from students from countries like India and Nepal This, as it appears, is rubbish. According to this source ( http://economictimes.indiatimes.com/news/news-by-industry/services/travel/visa-power/Australia-refuses-student-visa-to-33-Indians-for-fraud/articleshow/5406731.cms ), 21,120 student visa's were applied for from India during July to September 2009, but a large percentage (33.2%) were rejected due to a crack down by the department on dodgy documentation supplied by applicants. The other country with a large amount of rejec...

To use economic data and quality analysis to decipher the state of the Australian economy.