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Video: Examination of Australia’s Economy Through its Macro Indicators

Nick Nasad \ 2:38 PM EDT \ March 14th, 2011

Australia’s Economy

Breakdown of Economy:

–services: 75% (2010 est.)

–goods producing: 21%

–agriculture: 4%

Important Indicators

Figures on Trade

China is Australia’s largest merchandise export market, accounting for $46.5 billion in 2009-10 (free on board, value terms). This is followed by Japan ($37.1 billion), the Republic of Korea ($16.5 billion), India ($16.2 billion) and the United States ($9.5 billion).
Total industry exports (current prices) totaled $242.7 billion in 2009–10:
–Agricultural exports accounted for 4.3 per cent of total exports in 2009-10.
–Mining exports accounted for 41.1 per cent of total exports in 2009–10.
–Manufacturing exports accounted for 32.9 per cent of total exports in 2009–10.
–Services exports accounted for 21.7 per cent of total exports in 2009-10.

Trade Balance

Commodity Prices

RBA Commodity Prices – It’s a leading indicator of the nation’s trade balance with other countries because rising commodity prices boost export income;
–47.8% (Jan)
Reuters/Jeffries CRB Index –An un-weighted geometric average, the CRB index was created in 1957 and currently contains 17 commodities. The index covers energy, grains, industrials, livestock, precious metals, and agricultures.

CRB Index (1 year)

How to Manage the Mining Boom - RBA Governor Stevens

”Once-in-a-century commodities boom”.
RBA forecasting growth of 4% or more for each of the next three years.
An increase in resource investment already underway and expected to pick up further.
Mr Lowe – another RBA official – said the latest survey of businesses suggested investment spending by miners could rise by 50 per cent in 2010/11, and account for over one quarter of all investment in the economy
As rising commodities prices and surging demand from China, India and other Asian countries continues for iron ore and other Australian resources, the country is in a unique position to benefit.
Stevens noted the rise in prices of food, energy and minerals in Asia are all driven by a shift in demand that will continue in the long term.
Stevens said the main factor behind the surge in prices is rapid economic growth in Asia, and not an increase in speculative investors.

How To Mange the Mining Boom

In the most recent past, the benefits of a prior surge in mining revenue were returned to Australians through tax cuts, in a move that drove core inflation above 4%.
Australia’s government had proposed a tough tax on the mining sector last year, though a pushback from that industry killed the tax and partly led to the ouster of then Prime Minister Kevin Rudd.
The impact of a rising currency–the Australian dollar is up more than 20% since the middle of last year–as well as an increased household savings rate is working in the central bank’s favor.
Since there was little overall spare capacity in the economy not all sectors would be able to grow rapidly. Some, like tourism and manufacturing, would likely have to settle for below-trend growth as the structure of the economy changed.
While mining employment had risen around 20 per cent in 2010, the sector still only employed about 2 per cent of the total workforce.–

Housing Sector

Building Approvals – It’s an excellent gauge of future construction activity because obtaining government approval is among the first steps in constructing a new building.
-15.9% (Jan), 10.0% (Dec) – impact of recent floods
Home Loans (ABS) – It’s a leading indicator of demand in the housing market – most homes are financed, so it provides an excellent gauge of how many qualified buyers are entering the market.
-4.5% (Jan), 2.1 (Dec)
HPI q/q (ABS)
–0.7% (4Q), -0.3% (3Q) considerable slower.

Housing Approvals

Housing Prices Q/Q

Housing Bubble?

Consumer Measures

Retail Sales – It’s the primary gauge of consumer spending, which accounts for the majority of overall economic activity.
–0.4% (Jan), 0.2% (Dec)
WMI Consumer Confidence –Survey of about 1,200 consumers which asks respondents to rate the relative level of past and future economic conditions, employment, and climate for major purchases.
-2.4% (Mar), 1.9% (Feb)
NAB Business Confidence – The National Australia Bank’s monthly survey of business confidence measures current performance of the non-farm business sector and is based on a survey of around 350 small to large sized companies.
–14 (Feb), best reading since March 2010, 4 (Jan).

Retail Sales

Unemployment Rate

At 5%, which is close to/at “full employment” it is usually a trigger for inflation.

Inflation

TDMI Inflation Gauge m/m – This data provides a monthly look at consumer inflation and is designed to mimic the quarterly government-released CPI data.
-0.2% in Feb., 3.6% in annual terms
MI Inflation Expectations – Percentage that consumers expect the price of goods and services to change during the next 12 months.
–4.3% (Feb), 4.6% (Jan)
CPI q/q,
–0.4% (4Q), 0.7% (3Q)
Wage Price Index
–1.0% (4Q), 1.1% (3Q)

CPI (annual pace)

RBA Interest Rates

Australia Summary

Country is experiencing a 2-speed recovery. Those in mining are benefitting, outside mining remain cautious.
Higher interest rates can curtail consumer spending. (retail sales, confidence)
What if housing suffers a slowdown? (approvals, loans, prices)
What if China slows demand for exports (trade data)
If RBA stays put, other central banks will play a bit of catch-up. AUD can lose some support there.
Some possible headwinds to be aware of, and why AUD has trouble climbing above recent highs, but not falling either.
Continue to follow inflation trends.
With labor market at “full employment” will consumers demand higher wages, and not just in mining sector?
That can cause RBA to have to raise rates again. While that can help AUD, will slow consumer spending, can harm housing sector.
Balancing act for the central bank.