Still a lot of work to do on economy

So many good numbers and they are all positive!

Can it be that the Reserve Bank is right and there are green shoots appearing in the economy? Are consumers now so confident they’re readying themselves for a spending blitz this Christmas? And what about those job numbers? The biggest fall in unemployment in six years?

You’d be tempted to think the economy is entering it’s long-awaited recovery mode, but if you look at the stockmarket you’d have to think again. Down at the market investors are facing their  first negative year since the end of the Global Financial Crisis.

There is no doubt that the economy is transitioning from the resources boom to a more services based one, helped along by a low $A and underpinned by the large-scale construction of new housing fuelled by those low interest rates.

But everything takes time. The reality is that both the RBA and the boffins down a Treasury have downgraded their growth forecasts for the economy. Not by much but enough to know the economy is ‘underperforming’ the long-term growth trend.

Here is what I considered the key component on what the RBA had to said post its –steady as she goes – recent meeting on interest rates:

“However, (board) members recognised that there was still evidence of spare capacity, including the relatively high unemployment rate, low wage growth and the lower-than-expected inflation outcome in the September quarter. The gradual nature of the pick-up in domestic growth suggested that spare capacity would persist for some time. Inflation was forecast to be consistent with the target over the next one to two years, but somewhat lower than earlier expected.”

But you can feel that optimism everywhere because of the ‘Malcolm effect’. This refers to the optimistic and professional tone of our new PM, but he hasn’t really done anything yet apart from unwinding some of the more stupid decisions of his predecessor.

If Malcolm Turnbull can put up a positive case for reforming the productive components of the economy, albeit like Hawke and Keating, and take the electorate with him then we would really see Australia take off in the early part of this century.

But it will take time.

So let’s take a look at those lovely numbers and see how good they were.

National Australia Bank’s regular survey, showed business conditions are improving and are trending well above average. The NAB business conditions index was unchanged at +8.9 points in October. But the business confidence index eased from +5.3 points to +2.1 points.

This is interpreted as business, which is sitting on a pile of cash, getting ready to spend. However so far they haven’t and while there’s been quite a bit of takeover chatter, all the deals are coming from overseas. I’d say business is still ‘cautious’.

Consumer confidence is also on the rise, recording its biggest jump in the weekly ANZ/Roy Morgan consumer confidence rating to a near two-year high, lifting by 1.4 points (1.2 per cent) to 116.6 in the week to November 8.

This triggered media predictions that struggling retailers were going to clean up this Christmas. However consumers can be very fickle, particularly when household debt is the highest it’s ever been. It doesn’t take much to undermine that confidence.

And then there’s those job numbers. Job ads had already indicated a shift in the marketplace but October’s numbers were unbelievable. Employment rose 58,600 in the month with fulltime jobs rising 40,000. CommSec estimates 315,000 jobs have been added over the past year, the strongest gain in more than seven years. The jobless number is back at 5.9 per cent. The participation rate rose from 64.9 per cent to 65.0 per cent meaning more people are looking for work.

However everyone expects these figures will be revised for November. The jobless series are notoriously unreliable but its indisputable that the trend is heading in the right way with jobs being created in the housing industry, tourism, health and exports outside minerals and energy.

Countering that is the fact that a lot of industries are cutting costs instead of looking for growth and nowhere is this more evident that in the banking industry. The last figure was well over a 1000 people let go with plenty more to come.

Most large companies are going through a redundancy program of some sort with names like Telstra, BHP and EnergyAustralia in the headlines. And that doesn’t take into account further downsizing in the coal industry, a rerating of the real estate sector post-boom, and the fast approaching end of the Australia car industry. That’s a lot of jobs to absorb next year

I’d have to say that the economy is finely balanced and yes there is a lot resting on Malcolm Turnbull’s shoulders.

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