The economy in need of a boost?

The latest stream of data doesn’t give much hope that the economy will be able to work its way out of a slowdown without outside help. So is there an interest rate cut coming in August? The Reserve Bank Board minutes reveal it certainly looks like the board is leaning that way.

This is what the RBA said: “The Board noted that further information on inflationary pressures, the labour market and housing market activity would be available over the following month. This information would allow the board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.”

Well we’ve seen the unemployment numbers and while not alarming they don’t seem to be heading in the right direction.

JOBS SLOW DOWN 

Employment rose by 7900 in June after gaining 19,200 people in May. Full-time jobs rose by 38,500, while part-time jobs fell by 30,600. None of that is cause for celebration because it actually signals a slowdown in employment. Full-time jobs growth has gone backward so far in 2016 compared with jobs growth of almost 74,000 in the same period last year.

Most economists were predicting that the historically long election would slow things down but it’s also showing up in consumer confidence numbers and sluggish consumer spending.

The ANZ/Roy Morgan consumer confidence rating fell for the fourth straight week, down by 0.3 per cent to 114.9 in the week to July 17.

And the Commonwealth Bank Business Sales Indicator (BSI) rose by 0.1 per cent in June after similar gains from March-May. In 2015 spending lifted by an average of 0.5 per cent a month in trend terms. The only real bright spot was spending in clothing stores and that was attributed to the weather suddenly turning cold.

CARS AND PROPERTY HOLDING UP

The other bright spot in the economy seemed to be the car market, where new vehicle sales rose by 3.1 per cent in June. Over the year to June a record 1,174,121 new vehicles were sold. Maybe everyone who can’t afford a house is out there buying a new car?

And speaking of houses, the housing market is still steaming along with no apparent slowdown in sales despite the federal election and tightening credit.

The supply-side equation in Sydney and Melbourne will finally catch up with the market and the upcoming spring selling season will be a real test for the market. All this could be softened, of course, if the RBA moves on rates. Mortgage rates are becoming even more competitive.

Inflation numbers key to next move on interest rates

The RBA will be looking at all these factors when it meets on August 2 by which time it will have the latest inflation figures, and the country will be returning to normal after the election. And if the inflation rate is above, say 0.5 for the quarter, then all bets are off.

The strength of the Australia dollar will also weigh heavily on the RBA board as the $A currency heads back toward the high 70c to the $US. The continual recovery in export numbers is critical to maintain economic growth and the key to that is a low dollar.

 EUROPE BEST FOR RETIREMENT

Norway, Switzerland, and Iceland are the world’s best places to retire. They won the top three spots in Natixis Global Asset Management’s fourth annual index rankings.  As reported on Bloomberg, Norway joins a number of top 10 countries in having a compulsory workplace savings program with 2 percent of a worker’s earnings annually going into a retirement fund. Of course that pales next to Australia, which came in at No. 6, where employers must kick in at least 9.5 percent.

The retirement leaders with scores of 77 percent or better were Norway, Switzerland, Iceland, New Zealand, Sweden, Australia, Germany, the Netherlands, Austria, and Canada. The US, with a score of 73 percent, moved up into No.14 out of 43 nations in the global retirement index.

SMITH ON THE MONEY

Former ANZ CEO Mike Smith had a few pointed things to say to the AFR’s Smart Investor mag about analysts who have been highly critical over his Asia expansion policy while at the ANZ: “These analysts are interesting, I mean none of them run anything and their own organisations don’t use them for advice so you wonder why the market does. As I wrote recently many analysts would be more believable if they either had previous management experience or better still had skin in the game.

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