US Unemployment drops - Down 0.3% to 9.7%

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 (people re-enter the workforce and are recorded in the unemployment stats, causing a bump in numbers) and the productivity increases (employers try to deal with increased demand with existing employees initially rather than hire).

Is Sydney Housing Overpriced?

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 below

Melbourne Housing Price has increased at an average rate of 8.7% every year Vs the Melbourne CPI increasing at 2.7% Close to a bubble there I believe.

Retail figures for Dec '09 : -0.7% seasonably adjusted

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

Shock Horror! - Reserve Bank keeps rates at 3.75%

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 the Reserve). This might have given the reserve pause. Indeed in the press release about the non change, the Governor of the Reserve Bank alluded to this commercial bank action. From the rba website

"With the risk of serious economic contraction in Australia having passed, the Board had moved at recent meetings to lessen the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point. Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being."

Thanks Westpac!

US GDP data - Increase of 5.7% over December quarter...or is it?

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 December 09). Better to be growing than contracting, but still not great numbers over the year.