The key question about today’s economic forum in Brisbane is whether the government is in transmit or receive mode. We suspect the former, that it’s a combination pep talk and marketing exercise. That’s certainly how it started last night.
In fact it’s probably fair to say that very few, if any, of the 130 participants is there in listen-only mode; everyone wants to transmit these days.
Yesterday, I did interviews with a variety of small and medium-sized business people. Most said they are doing it tough at the moment, almost as tough as during the GFC. The business confidence survey from NAB yesterday carried the same message — the index is at a three-year low. Consumer confidence surveys tell the same story.
Is this real or is it imagined? Is it all because certain people (whose initials are Tony Abbott) are talking the economy down?
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Oh that it would be so easy that we could simply talk the economy up or down. Every business person and unionist at the Brisbane Stamford Plaza today is an optimist who spends their lives talking things up, trying to persuade their stakeholders to back them. Unfortunately, as they are all only too aware, sometimes it just doesn’t work out and things just turn out crap anyway.
The Prime Minister, the Treasurer and other government ministers will be doing that today too – talking things up, that is, not to mention just talking. And after last week’s national accounts and employment data, there is a confidence in their voices and a spring in their steps.
And fair enough too: it was really good data and the economy seems to be flying, or at least it was three months ago. Unhappily, things are starting to turn to crap a bit now.
The economy is severely unbalanced, with the mining states (Western Australia, Queensland and the Northern Territory) growing strongly and the non-mining states growing at between 1.5% and 2%. National household income looked OK but it was pushed up not only by 14.5% growth in WA but also a spike in redundancy payments elsewhere.
Real growth in household spending was strong, as the Prime Minister pointed out last night, but nominal spending was flat, indicating that volume growth was due to price discounting. There was also strong growth in overseas travel.
The terms of trade fell by 4.3% in the quarter thanks to big falls in bulk commodity prices. Some are calling an end to the mining boom, and while that’s a bit premature, the boom definitely isn’t what it used to be.
Gross domestic income has fallen by 0.7% over the past two quarters as a result of the weakening terms of trade. As Gerard Minack, of Morgan Stanley, says: GDP growth between 2003 and 2008 was “calorie-rich” (that is, high income growth as well); this time it’s calorie poor.
What’s more, while employment was strong in May, the trend is soft. Even though average unemployment is still not much above 5%, job insecurity is rising.
And finally, house prices are falling and have been for two years, with the decline accelerating recently. And in a way, so they should fall: Australian land prices are absurdly high for our population density, but the adjustment will sap confidence.
Partly because of the above, and partly because of what’s going on in Europe and America, plus the developing slowdown in China, there is now a stark disconnect between the numbers and how Australians feel about them.
Also, there is little sense that, first, decision are being driven by economics rather than politics, and second, that anyone really knows what they are doing.
The carbon tax will have minimal impact when it starts next month, but many people are worried about it and think the government is just doing it for politics. The mining tax was botched, as was the very good Enterprise Migration Agreement policy. And nobody has any confidence that the government is budgeting for a surplus for good economic reasons, as opposed to political ones.
Will talking in Brisbane today change of any of that? Unlikely, but it can’t hurt either.
*This article was first published at Business Spectator