The Reserve Bank board has flicked the switch to higher interest rates effectively ruling out further cuts as house prices and retail sales soar toward record highs.
The Bank's announcement mid-afternoon pushed up the Australian dollar 1 complete cent to more than 0.84 US for the first time since the start of the financial crisis. The share market climbed another 1 per cent to its highest point since November.
Tuesday's Reserve Bank board statement was the first in six months to announce neither a cut in rates nor the contemplation of a further cut.
Instead the board expressed concern that improving conditions might "impinge on prospects for sustainable growth and achieving the inflation target," enough to make the market price-in an even money chance of a rate hike in November...
...and a total of 2 percentage points of rate hikes by end of the next year.
Such an increase would push standard variable mortgage rates back up above 7 per cent by late next year and add $300 to the monthly cost of servicing a $300,000 loan.
Adding weight to the Bank's contention that "the risk of a severe contraction in the Australian economy has abated," retail figures released as the board met showed spending in NSW climbing to yet another record high. National spending slipped 1.4 per cent in June but remained more than $1 billion above where it was before the onset of the financial crisis.
Discounting associated with winter sales meant that the amount of goods bought continued to climb even though the total spent spent slipped with the Bureau of Statistics estimating that the volume of goods sold climbed 2 per cent between March and June.
Discretionary or "luxury" purchases climbed the fastest, with sales of watches, jewelery and flowers up 6 per cent, sales of sports goods, toys and cameras up 5 per cent and spending at cafes and restaurants up 3 per cent.
"It's a turnaround," said Commonwealth Securities economist Savanth Sebastian. "At the height of the crisis households were largely focused on spending on necessities and saving for a rainy day. Now they are treating themselves to life’s little luxuries."
Also released as the board met was official confirmation of private surveys showing house prices soaring back to pre-crisis levels. The Bureau's weighted average of Sydney house prices jumped 4.9 per cent between the March and June quarters, its biggest jump since the height of the real estate boom in 2003. The Sydney index is now just 2.8 per cent short of its all-time high.
Every city recorded solid house price gains in the quarter, even the previously ailing real estate markets of Perth and Brisbane. Melbourne house prices recorded the biggest gains, jumping 5.2 per cent.
Deutsche Bank economist Tony Meer said that far from welcoming the higher prices, the Reserve Bank would be concerned and pointed to last week's speech by Governor Glenn Stevens who said it would be "very disappointing, indeed quite disturbing" if the recovery merely boosted house prices without providing many more dwellings".
Published in today's SMH and Age
Saturday, August 8, 2009
test hiking soon
test dreamin unemployment
Unemployment forecasts are being dramatically downsized and forecasts of interest rate hikes brought forward after news that employment has stabilised in the past three months with Victoria and NSW leading the nation, piling on an extra 22,000 and 29,600 jobs. But full-time jobs are being replaced by part-time jobs at the fastest rate in almost two decades. In the three months to July around 74,000 full-time jobs were replaced with part-time ones, the biggest switch since the early 1990's recession. Employment Minister Julia Gillard hailed the switch as a victory for unions and Labor's commitment to industrial co-operation. "It's reflection of the fact that many employers working co-operatively with employers and trade unions are striking innovative arrangements to keep people attached to work during these difficult days," she told a Melbourne press conference... Victoria's unemployment rate fell from 6 per cent to 5.8 per cent in July and the national rate held steady at 5.8 per cent, while the number of hours worked slid a further 6.5 million. Over the year to July the numbers of hours worked fell 2.9 per cent while the number of people in jobs climbed 0.1 per cent, meaning that roughly the same number of Australians were employed, but working 3 per cent less. Ms Gillard said the shift showed employers had learnt from their mistakes in earlier downturns and hanging on to staff. "In past downturns we have seen employers end up making people redundant and then as the economy has turned to growth desperately look for new employees," she said. "Employers have learnt from that are doing everything that they can to keep their valuable employees attached to their businesses." But employment expert Bruce Chapman from the Australian National University said it wasn't that simple and there was no evidence that the workers being taken on in part-time jobs were the same ones who were losing their full-time jobs. "We don't know whether people are being kept on. We don't have the evidence," he said. The state-by-state breakdown shows that the Australians gaining jobs are in different states to the Australians losing them with Victoria and New South Wales gaining 51,600 jobs during three months in which West Australian and Queensland lost 28,400. The former boom states have experienced a rapid reversal of fortune as Western Australia's unemployment rate has climbed from 2.3 per cent to 5.7 in a matter of months as Queensland's has shot up from 3.3 to 5.8 per cent, closing the gap with Victoria. The Deputy Prime Minister was keen not to draw attention to the rapid improvement in Australia's two biggest states, stressing that "no part of the country is immune". She said "even the most optimistic" forecasters expected unemployment to continue to climb, at that the government was still expecting 8.5 per cent by mid-2001. But the pundits themselves yesterday hastily wound back their forecasts with IPAC Securities' Adam Carr saying the peak now looked like being "materially lower than the official 8.5 per cent forecast, and even mine of 7.25 per cent". CommSec's Craig James saying he now thought the rate might even not hit 6.5 per cent. "Corporate Australia is hiring, but cautiously," he said. "It's clear that Australia’s economists need to spend more time on the road listening to businesses than crunching numbers in their ivory towers." ANZ economist Riki Polygenis said the Reserve Bank would now be "increasingly uncomfortable with its current cash rate, which is set for severe economic recession". UBS economist Scott Haslem said his view that the Bank would wait until mid next year before hiking rates was now "under pressure". The jobs news pushed the Australian dollar up above US 84.5 cents for the first time since September. It helped boost the share market by 1.4 per cent. The Bank will update its quarterly economic forecasts this morning. Sydney leads the way as NSW pours on the jobs NSW +29,600 Victoria +22,200 Tasmania -3,400 South Australia -6,000 Queensland -12,500 Western Australia -15,900 Employment growth April - July Seasonally adjusted ABS 6202.0 JOBS: THE FACTS * Australia’s unemployment rate of 5.8 per cent is the tenth lowest among the 33 developed countries. Norway has the lowest at 3.1 per cent, and Spain the highest at 18.1 per cent. * In seasonally adjusted terms, the number of jobs rose 0.1 per cent in the year to July — yet the numbers of hours worked fell 2.9 per cent, as firms cut back overtime, put workers on short hours or told them to take leave. * The unemployment rate hit bottom at 3.9 per cent in February 2008. Its record low was 1.6 per cent in November 1970, its record high was 10.9 per cent in December 1992. Published in today's SMH and Age
test two rates quarterly
That's what the Bank expects The Reserve Bank has broken with tradition and laid out a road map for future interest rate rises indicating it expects to push up its cash rate from 3 per cent to nearer 5 per cent over the next two years. Such an increase, which the Bank stresses "in no way constitutes a commitment by the Board" would add thousands of dollars to annual cost of servicing a typical mortgage. Until now the Reserve Bank has prepared its economic forecasts using what it called a "technical assumption" of steady interest rates. But the quarterly forecasts released yesterday for the first time broke with the past and penciled in a specific path of rate hikes because, in the words of the Bank, "in the current environment it is not particularly realistic to assume the cash rate remains at its historically low level of 3 per cent." The Bank has instead factored in a series of increases to "return the cash rate towards a more normal setting" by late 2011. Bank officials have previously described a normal setting as a cash rate at between 5.5 and 6 per cent. Friday's statement also says mortgage rates are now 1.80 percentage points below their post-1993 average, suggesting that the Bank is penciling increases totaling 1.80 points. Such a series of hikes would add $110 to the monthly cost of servicing a $100,000 mortgage... ...$331 to the cost of servicing a $300,000 mortgage and $662 to the cost of servicing a $600,000 mortgage. 
The statement is at pains to point out that households and businesses should be easily able to afford such increases, describing mortgage rates as their lowest since 1964 and pointing out that most households pay far less than than the standard variable rate of 5.81 per cent, with discounts making the average rate charged 5.17 per cent. Although risk margins charged to businesses have climbed, the Bank says the average rates charged to small and large businesses are still 2.30 and 3.35 points lower than they were before the financial crisis. The Bank is forecasting a rapid return toward economic health next year and then a return to normal growth the following year after growth averaging a little above zero for the rest of this year. The new 2009 forecast is a big improvement on the Bank's previous forecast released ahead of the May Budget that had the economy sliding 1 per cent. The 2010 forecast has the economy growing at 2.25 per cent, up from 2 per cent. The faster recovery stands to boost tax collections by around $6 billion, knocking down the forecast budget deficit from $57.6 billion to around $52 and cutting projected government debt. Treasurer Wayne Swan said he was "encouraged" by the Bank's assessment and that the Treasury itself would be revising up its forecasts in the Budget update to be released later this year. He said now was not the time to wind back the government's stimulus programs and that the Reserve Bank's forecasts were "predicated on the full implementation of economic stimulus". The Bank warns consumer spending is likely to slow as the boost from the bonus payments fades but says home-building is set to pick up along with "stimulus-related expenditure on schools, home insulation and public infrastructure". It says Australia’s exposure to "China, India and elsewhere in Asia" will stand it in good stead and notes that Chinese steel production has jumped 20 per cent since the end of last year, boosting demand for Australia's iron ore and coking coal. While not revealing its unemployment forecast the Bank points to indicators that "the pace of deterioration is easing" and says the unemployment rate should rise by less than it had expected.
Monday, May 4, 2009
blog post test
Maybe. It's been underspending on infrastructure: (click to enlarge)
Victoria's transport, electricity, water and communications infrastructure may be in the worst condition of any state's other than South Australia's according to a new landmark study conducted by Engineers Australia.
The study examines spending on ew engineering construction adjusted for population and inflation over the last 20 years.
It finds that while Victoria's annual infrastructure spending has climbed 121 per cent in real terms since 1988, the national total has soared 190 per cent.
"When normalised by population, Victoria's infrastructure expansion path began below Australia's in 1988 and tracked consistently below Australia's throughout the two decades since," says policy analyst Andre Kaspura in the report...
Engineers Australia conducted the study because it found it was almost impossible to tell from most budget documents how much infrastructure each state has.
"Somewhere within the Victorian government the answers would be known, but the information isn't public," said Mr Kaspura.
New South Wales is the only state to make public its estimates of its infrastructure stock each year in its budget time, along with the ACT.
"We have had to cobble together a national picture using Bureau of Statistics figures on new engineering construction each year and adjusting them for population and prices."
Mr Kaspura conceded that his picture could be misleading because it took no account of the fact that Victoria was more compact than other states and so needed fewer kilometres of roads, pipes and wires.
He said even so Victoria's relative underinvestment was profound and the gap was widening.
In 1988 Victoria accounted for 19.8 per cent of Australia's engineering construction. By 2008 Victoria's share had fallen to 15.3 per cent.
In the last two years Victoria's spending on infrastructure had shrunk 8 per cent while national spending grew 17 per cent.
"Victoria's spending on roads per 100,000 people has been lower than national spending in all but one of the last 20 years while its spending on water and sewerage facilities and on bridges, railways and harbours has been below the national average for each of the last 20 years.
Its spending on electricity and gas infrastructure kept pace with national spending until 2002 when it fell sharply below accelerating national spending.
"There is now a substantial gap between Victoria and the rest of the nation," said Mr Kaspura.
The gap has widened as infrastructure provision has been privatised. In 1988 more than 80 per cent of Victoria's new engineering construction was publicly funded. By 2008 it was more than 60 per cent privately funded.
Queensland and Western Australia have invested in infrastructure much faster than the rest of the nation with Queensland distinguished from the other states by having most of its infrastructure publicly funded.
NSW kept pace with the rest of the nation until 2005 when it began to fall sharply behind.
The Rudd government has before it a report from an Infrastructure Australia committee chaired by Sir Rod Eddington examining more than 90 projects submitted for Commonwealth funding including Victoria's massive $38 billion transport plan.
It hasn't yet indicated when it will announce the winning projects.
Victoria's budget is next Tuesday May 5. Australia's is the following Tuesday May 12.
