The arrival of black swan events suggest a weaker Australian economy

black swan 50

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


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


A recurrent pattern of errors by economic forecasters

chancellor 004crop

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