The Australian economy is right where the Reserve Bank wants it to be. Forget the rate-cut talk ahead of next Tuesday’s March RBA meeting.
The resources boom is well and truly, well, booming, home building is offsetting it with weakness and manufacturing is alive and expanding, contrary to all those eulogies that were spat out of laptops and think tanks late last year and in January and February as a succession of companies cut staff.
Manufacturing grew by for a third successive month, according to the Performance of Manufacturing survey by the Australian Industry Group and PricewaterhouseCoopers. The PMI was 51.3, only 0.3 index points down on the January reading (above 50 indicate an expansion in activity).
Australian Industry Group (Ai Group) chief executive designate, Innes Willox, said in a statement that the result suggests manufacturing remains resilient in the face of the high Australian dollar and “the movement of new orders into positive territory for the first time since the middle of 2011 is also encouraging”.
So manufacturers are still doing it tough, but there seem to be signs of adjustment under way.
That should be the focus of current economic policy — enabling the adjustment of manufacturing to the harsher environment of a high dollar, not shielding it with handouts. It will result in a higher productivity, more competitive sector, in a way the pre-GFC years of easy living for employers and employees alike never could.
And the resources boom continues. This morning we saw the private investment figures from the ABS showing a 0.3% fall in seasonally adjusted terms in actual spending in the December quarter (to a near record $37.9 billion). Estimates of forward spending for this year eased 0.7% to a massive $164.15 billion. And the first estimate for private investment in the 2012-13 financial year were revealed at an even larger $172.88 billion.
Manufacturing investment this year is forecast to rise 3.4% to $13.334 billion, but the first estimate for 2012-13 shows an 8.1% drop to $10.6 billion as the impact of the cuts and high dollar take their toll.
Yesterday the ABS said the value of construction work done in the December quarter dipped 4.7%, but that was after the record 12.5% surge in the three months to September. Spending in this area remains more than 9% above where it was in 2010.
Building approvals showed a small rise in total approvals in January, thanks to a big rise in NSW in non-private dwellings. That means there was a surge in council approvals for apartments and townhouses as backlogs were cleared from the end of 2011. The Australian Bureau of Statistics said the number of dwellings approved rose 0.9% in January 2012, in seasonally adjusted terms, following a fall of 0.8% in December.
Yesterday we saw retail sales up 0.3% in January, seasonally adjusted, lending data from the RBA showing sluggish growth for the same month, and weak new home sales.
In fact the economy is right where it was at the end of last year when the RBA described it as growing “around trend”. Plenty of jobs seem to be disappearing by the day, but not too many people are concentrating on finding out where the new jobs are until the monthly jobs reports from the ANZ bank and then the Australian Bureau of Statistics.
The retail sales report for January coincided with the release of a very poor sales and profit report from Harvey Norman yesterday. In fact, so weak was the sales effort (down 6% for the half year and more on a same store basis, with a big fall of 10% registered in the December quarter), that the company held back making the sales data public for two weeks until the profit could be released. In 2011, the interim sales figures were released two weeks ahead of the half year profit; yesterday, both together. The media missed this bit of jiggling by the company and its management.
The profit figure showed a 37% fall from the company’s core franchise retailing business, and a higher property profit and contribution managed to limit the slide to around 2% overall. On the Fairfax websites this morning, a story on the very poor interim profit result from Harvey Norman quoted Gerry Harvey that Australians had to start spending if more retail businesses were to escape going bust. “Give us the money or our employees will cop it,” the ever-popular Harvey seemed to be saying. Gerry’s comments, which always go down well with the punters produced well over 270 comments, overwhelmingly adverse, by noon.
It seems many people have a different view of retailing’s future than Gerry Harvey, and that he and his company do not feature in these views. That’s a message to all the moaners and groaners in retailing, in the media, unions and consultancies: consumers are not in a generous mood to hear stories of woe and warnings about worse to come. This is an economy in transition — the task is to get on with the adjustment, not whinge about it.