NAB’s Chief Economist, Alan Oster provides his thoughts on the Australian and Global economy.
If there was any take away from last week’s January labour force report it was that a gradual trend rise in Australia’s unemployment rate remains in place. And this is despite some modest increase in the underlying pace of new job creation.
If there was any take away from last week’s January labour force report it was that a gradual trend rise in Australia’s unemployment rate remains in place. And this is despite some modest increase in the underlying pace of new job creation, notwithstanding the reported 12,200 job losses in January that were as much payback after December’s over-stated 42,400 rise.
In trend terms, employment in January rose by 15,200, an annualised growth rate of 1.6%, not low but not sufficient to match the 1.8% growth in the working age population and avert a rise in unemployment. In January, the trend unemployment rate was 6.3%; a year earlier the trend rate was 5.9%. It’s been rising now since 2011-12 when the rate was 5%.
NAB’s expectation is that this trend will remain in place this year. NAB forecasts that the unemployment rate will get to 6.5-6.6% in the second half of this year, by which time the RBA is expected to have cut the cash rate again to 2.00% (NAB expects the next cut in May) and then leave rates on hold to review the growth impact on the economy.
The Australian dollar opens the week at a familiar level in the high 0.77s. The market was alert during Governor Stevens’ testimony Friday to any clarification/ justification of the post RBA rate cut view that it “remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices” and that “a lower exchange rate is likely to be needed to achieve balanced growth in the economy”.
No such negative $A view was forthcoming. His comments Friday more guarded and conditional, the Governor saying that the outlook depends on the terms of trade and the outlook for US Fed funds rate.
There’s been some press coverage this morning about the rate cuts and the property market, the AFR suggesting this morning: “The February Reserve Bank rate cut put more heat into the property market over the weekend with CoreLogic RP Data recording a national preliminary clearance rate of 70 per cent compared with 67.3 per cent last week”.
Fair enough but clearance rates are one thing and sale prices are another. And the weekend CoreLogic RP Data property price report prices shows that property prices this last weekend – the second since the RBA rate cut – eased a little. Residential property prices for the five largest capital cities as a group fell 0.3% (Sydney +0.1%, Melbourne -0.3%, Brisbane fell 0.9%, Adelaide -0.7% and Perth -1.3% with these latter three cities seeing prices flat or down so far this year. (See table from the CoreLogic RP Data report below.)
The 0.3% dip follows a 0.2% rise in the rate cut week (when Sydney rose 0.4%, Melbourne by 0.1%). So, after a solid start to the year in January, to the extent you can read anything into what is a seasonally low month last month, prices since have been flat. It’s a long road ahead, but you can’t say that the rate cut has been the catalyst for any further step up in house prices. Not yet anyway.
As Eurogroup finance ministers prepare to hold another meeting tonight to discuss Greece before their political leaders meet tomorrow, they have been greeted with encouraging news on the state of the EZ economy.
Germany was the standout, its economy growing by 0.7% q/q in Q4 (+1.4% y/y), supporting the zone’s overall growth of 0.3% q/q. Growth was driven by domestic demand, especially private consumption, equipment and construction investment. Growth came against a background of economic sanctions against Russia which hit German exporters disproportionately hard, so the numbers are extremely good.
German export volumes contracted by 2.0% in the December quarter. The German stock market responded by pushing the DAX index to an all-time intra-day high of 11,013. German real wages rose 1.6% last year, aided of course by falling oil prices.
For the rest, the figures were not dramatically good but the key point is that they stopped being bad and were nearly all actually better than anticipated. France grew +0.1% q/q, Spain +0.7%, Netherlands +0.5%, Italy was flat, Portugal +0.5% but Greece fell 0.2%. The Slovak economy grew 2.4%.
It’s an extremely light data week with only motor vehicle sales data for January and the weekly ANZ-Roy Morgan Consumer Confidence weekly update.
As for motor vehicle sales, being released on Monday, while there is no forecast, sales have been flat overall this past year and for the past three years. Sales rose 3.0% in seasonally adjusted terms in December to be 1.0% lower than December 2013 sales levels.
With the Australian dollar lower and some softening in the labour market over time, macro factors are likely to be something of a headwind to sales overall, unless business sales pick up. And that’s dependent on non-resource business investment showing signs of growth.
Tuesday sees the ANZ-Roy Morgan Consumer Confidence index for the week of February 15. Last week, the weekly index showed no bounce in the wake of the RBA cut, unlike the counterpart monthly Westpac-Melbourne Institute index that rose 8.0%. It will be interesting to see the reaction of consumers to last week’s rise in the unemployment rate. Some hit would not surprise.
The RBA Minutes from this month’s Board meeting are also due on Tuesday. While usually trawled through to glean the very latest economy, policy and $A nuances, it’s hard to see this one adding to much over and above the quarterly statement and Friday’s Semi-Annual testimony from the Governor and his senior team.
Offshore this week, it’s a quiet start with the US Presidents’ Day holiday today and the Lunar Year sees China out this week. Focus at least initially on Europe with EU Leaders meeting Greece over debt talks. Markets will also be paying attention to the Ukraine ceasefire.
NZ has several pieces of data, along with RBNZ Governor Wheeler and Finance Minister Bill English speaking. The US data includes NAHB Housing index, housing starts, industrial production, and Empire State (NY) and Philly Fed manufacturing surveys, along with the Minutes of 27-28 Jan FOMC meeting, out Thursday morning our time.
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