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


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