A coming wave of diseases in Australia

Australia has been lagging in infrastructure construction since I arrived in the late 1950’s.  We have been playing catch-up for all that time, but we have fallen even further behind since 2007.

In addition to the transport infrastructure backlog, particularly public transport, we now need to significantly increase investment in health in order to avoid a big increase in the prevalence of several diseases.

Australia’s population growth rate has increased substantially since 2007.  Net migration increased and so did births.

The peak age of net migration is 20 to 24 and so there is now a large increase in the number of people aged 30 to 34.  This coincides with an increase in the Australian-born population with ages centred around 30, due to an increase in the number of births in the late 1980’s.

There is a large peak in the population aged 25 to 34 and as they age over the next 10 to 20 years, they will be of an age where the onset of several diseases increases.  This includes type 2 diabetes, prostate cancer, breast cancer, and multiple sclerosis.

At the same time, the oldest of the large baby boomer generation will reaching the age where the prevalence of cardiovascular disease, Alzheimer disease, and several others increase.

Accordingly, Australia needs to invest significantly more in disease prevention as well as cure and treatment.

For details, see my report.

Charlie Nelson


Retail sales outlook for Australia

Retail sales growth in Australia has been very weak for several years.  There is little chance of improvement over the next 18 months.


All four main economic drivers are currently either not supporting growth or negatively impacting growth.  Consumer spending sentiment is quite good, but there is insufficient income growth for consumers to respond.

Then there is the imminent federal election – what impact will that have?

Scenarios for growth over the next 18 months are provided.

Retailers are facing challenges, but there is also opportunity.  The report is available from foreseechange.

Charlie Nelson


The arrival of black swan events suggest a weaker Australian economy

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Economic forecasts by the Reserve Bank of Australia and in the federal budget would have us believe that our economic growth rate is improving, from around 2.6% over the past five years to 3% plus over the next three years.  The run of data in July and especially August has cast doubt on this rosy outlook.

The first shock, received in the first few days of August, was that new vehicle sales fell by 7.8% in July, compared with July 2017.

Then there was the political shock.  On Monday August 20 the Fairfax-Ipsos poll reported that the ALP was ahead of the Coalition parties with a two party preferred lead of 55% to 45%.  By the end of the week Malcolm Turnbull had been deposed as Prime Minister.  Newspoll (38 of them) had put the ALP ahead but mostly with a lead of only two percent.

I had already noted in July that tracking data from foreseechange had shown that the proportion of adults who felt they had few financial concerns had dropped to a record low – and the data has been collected since 2003.  The figure was lower than at the worst of the GFC in late 2008, so this was a shock to me.

As more data has arrived, it has tended to confirm the hypothesis that was forming in my mind – Australia’s economic growth rate was not picking up as predicted by the official forecasters.  Instead the growth rate might actually be falling!

Last week, National Australia Bank released the June 2018 quarter survey of its consumer anxiety survey.  It showed a very large increase in anxiety compared with the March quarter.  The index is composed of several factors such as job security, cost of living, and ability to fund retirement.  The anxiety index had been falling for a year, so this too was a shock.

Today, data released by the ABS showed that private capital investment fell in the June quarter, against all expectations.  Another release showed that dwelling approvals, which peaked in June 2016, were falling after a sub-peak in late 2017.

Automotive fuel price inflation is up sharply with a big rise in the price of oil and a drop in the Australian dollar against the US dollar.  This is reducing consumer discretionary spending power, adding to the misery of continued very weak wages growth.

Employment growth has slowed sharply after the biggest boom in history in the year to January 2018.

Business confidence and conditions, to July, have been trending down since April.

The first week of September is a big one for economic data releases – July retail sales data and June quarter GDP data.

Stay tuned!

Charlie Nelson


What voters want politicians to achieve

In September 2017, in a regular survey of the Australian general public, foreseechange asked respondents about the likelihood that particular events would occur in the next year.

One of those was that Malcolm Turnbull would be replaced as Prime Minister.  The Wisdom of the Masses estimated likelihood was a 53% chance.  As a federal election was unlikely in the following year, this result means that it was perceived to be a slightly better than 50/50 chance that Turnbull would be dumped by his own party.

Just under a year later, this seems almost certain to happen today.

Another component of the foreseechange survey is canvassing opinions on the issues people feel they will be most concerned about in the foreseeable future.

Number one in June 2018 was the cost of living.  Despite consumer price inflation being only 2%, at the bottom of the Reserve Bank of Australia’s target zone, consumer price expectations are over 4% and wages are only growing by 2%.  Politicians have to do something about this gap if they want to be popular (so to for employers!).

Of course, there are many other issues that segments of the population are concerned about, such as housing affordability, traffic congestion, and climate change.

Malcolm Turnbull’s likely replacement as PM seems unwilling to do anything about climate change, for example.

If politicians do not understand, and act on, the concerns of all Australians then the revolving door for Australian prime ministers since 2009 looks set to continue at a fast pace.

Charlie Nelson



Housing slide predicted to be short-lived?

CoreLogic-Moody Analytics latest Home Value Index Forecast says that the strength of the economy will push up Australian home prices soon (The Australian Financial Review, 22 June 2018).

Don’t count on it!

“Employment is growing around 3.1 percent year-on-year, which is comfortably above its 1.9 per cent long-term trend” the report says.

Not any more!  The annual growth to May 2018 was actually 2.5% and slowing rapidly.  Over the six months to May, the annualised growth rate was 1.5%.  Over the four months to May, the annualised growth rate was 0.8%.

Wages growth is barely keeping up with inflation.  Consumer spending growth is anaemic.  How are people going to be able to push home prices up if their incomes are stagnant?

Interest rates are accommodative, but mortgage interest rates can only go up from here due to rising global interest rates.

There are also two demographic factors which suggest that demand growth will slow in the next few years.

None of this is to say that there will be a crash in house prices.  But the house price boom is well and truly over for some time.

My updated analysis will be available in late July.

Charlie Nelson


Australia’s Bureau of Meteorology needs a new model

On May 8th 2018 the Bureau’s forecast for cumulative rainfall in Melbourne over the following five days was between 35mm and 144mm. The actual received was 39mm. This was, of course, within that wide band but towards the lower end. The mean of the range was 89.5mm so on that basis, the forecast error was quite large. That may have been disappointing for farmers but a relief for emergency services planners. The largest forecast error for any of those days was for the Friday: the forecast was for 25 to 80, but only 8.4 was received.

It would be helpful for planners to have a probability distribution. For example, was the upper limit of the five day forecast (144mm) a one in 100 chance or a one in ten chance?

This forecasting error might be understandable if it was an isolated incident. Melbourne is a difficult location to forecast due to high variability. But this was not an isolated incident.

Only a few months earlier, in December 2017, an unprecedented rainfall event was predicted but did not materialise. In January 2015, another such prediction was made and did not materialise.

These seem to be systematic failures rather than random errors, suggesting that the Bureaus models are not sensitive to an important driving force.

What is that driving force? Find out in my book “Forecasting: the essential skills”. It describes these incidents in more detail and contains my suggestion as to what the Factor X is. The book also reviews forecasting skill in economic forecasting and political forecasting as well as weather and climate forecasting.

Charlie Nelson


Australia’s population growth may be about to slow

Australia’s population growth (to September 2017) is growing at 1.67% per year, which is considerably higher than the rate in the early noughties (1.2%).  The growth rate may be about to slow.

Births have increased from just under 250,000 per year in the early noughties to a peak of 311,000 in 2016.  The number of births has declined only slightly since then but are unlikely to increase in the short-term.  Fertility rates peak at the age groups 25 to 29 and 30 to 34.  The fertility rates in these age groups have declined to a record low since 2008.  This may be due to a decline in housing affordability.  Furthermore, the growth rate of the population aged 25 to 34 is slowing due to a plunge in the number of births in the 1990’s – following the last recession in Australia.

Meanwhile, the number of deaths has been increasing steadily and reached 159,000 in 2016, up from 129,000 in 2001.

The result of these changing numbers of births and deaths means that natural population increase (births minus deaths) peaked in 160,300 in 2013 and has been declining since.  This is expected to continue.  Currently, natural population increase is adding 0.6% to the population each year.

Net migration is currently rising, reaching an expected 258,000 in 2017.  There is a cyclical component to net migration, which hit a record high of 316,000 in 2008.

Permanent migration is declining slightly at present due to more stringent vetting.

Temporary resident visas represent the major component of net migration and this is the cyclical component, averaging over 100,000 per year and peaking at 200,000 in 2008.  Many of these visas are for students.

The next downturn in the number of temporary visas may coincide with lower permanent migration and slowing natural increase.  If this happens, Australia’s population growth rate could decline to around 1.4% or even less.

UPDATE:  Clear signs of the slowing population growth rate evident now.  See my report.  3 July 2018

Charlie Nelson


An early federal election for Australia

It seems likely that Malcolm Turnbull will call an early election for August 2018. While losing 30 Newspolls in a row, the gap is not large and could easily be closed. In fact, the recent Fairfax IPSOS Poll has the two party preferred vote close to even – depending on how preferences are allocated.

The Turnbull government has made it clear that there will be personal tax cuts in the May 2018 budget. This will make some voters more happy and will tend to boost the economy. Employment growth has been very strong, but seems to be weakening (growth has been temporarily boosted by the National Disability Insurance Scheme rollout). A tax cut fillip may just extend the good employment news for another few months. Good old Keynesian fiscal stimulus

Today Malcolm Turnbull announced $5 billion to build the airport to city rail link we have been waiting for these last 50 years. The funding has to be matched by the Victorian State government who face the polls in November 2018. How can they refuse?

Today there are reports that Malcolm has asked the party machine to have all pre-selections finalised soon.

The timing of the federal election is constrained by the timing of state elections in Victoria (November 2018) and New South Wales (March 2019) and by the need to have a half Senate election within the next 12 months.

Prime Ministers tend to call elections when they expect the economic news to be best and that will probably be in August 2018.

On the subject of political opinion polls, they are becoming less accurate. See my article in my book Forecasting: the essential skills.

Charlie Nelson

A recurrent pattern of errors by economic forecasters

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This sequence of optimistic economic forecasts was discussed in the New Scientist magazine in 1992 (“Why the chancellor is always wrong”, 31 October 1992).

All these years later, these sequences of economic forecasting errors are still happening.  It is a case of the tail trying to wag the dog!

More examples in “Forecasting: the essential skills” a book aimed at improving forecasting accuracy.



Charlie Nelson