State & territory economic performance report

• How are Australia’s states and territories performing? Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.
• Just as the Reserve Bank uses decade averages to determine the level of “normal” interest rates; we have done the same with the economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the “normal” performance.
• Western Australia remains the top-performing economy in the nation with no slippage in the ranking over the past three months. The ACT has maintained its position as the second-best performing economy. But the big changes have been below with now little to separate Northern Territory, Queensland, NSW and Victoria, although in that order. There is then a gap to South Australia and another gap to Tasmania with both states clearly under-performing other economies at present.
• Western Australia comes out on top now on only one of the eight criteria – retail spending.  Western Australia is still second on five of the eight indicators, third on unemployment and fourth on dwelling starts.
• The jump in the rankings of Queensland to equal fourth is due to improvements in business investment, unemployment, housing finance and dwelling starts. The Northern Territory has lost ground in dwelling starts, population growth and business investment.

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  Sate of the states, July 2013

  How are Australia’s states and territories performing? Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.

• Just as the Reserve Bank uses decade averages to determine the level of “normal” interest rates; we have done the same with the economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the “normal” performance.
• Western Australia remains the top-performing economy in the nation with little slippage in the ranking over the past three months. However the big change has been the lift in the ranking of the ACT to second while the Northern Territory economy has slipped to third strongest. There has been little change in the ranking of other states with South Australia and Tasmania under-performing other economies at present.
• Western Australia comes out top on three of the eight criteria – housing finance, retail spending and equipment investment. Western Australia is still second on three of the eight indicators, third on dwelling starts and fifth on unemployment.
• The switching in the rankings of the Northern Territory and the ACT is largely due to weakening in the performance of the job market in the Northern Territory and improvement in the job market in the ACT. NSW is the fourth strongest economy from Victoria and Queensland. Then there is a gap to South Australia and then another gap to Tasmania.

Western Australia still on top; then the ACT and Northern Territory

• Western Australia remains Australia’s best performing economy, while ACT is now second strongest from the Northern Territory.
• Western Australia leads the way on retail trade, equipment investment and housing finance. It is second strongest on economic growth, construction work done and population growth; and finished third on dwelling starts and fifth on unemployment.
• The ACT economy is now the second strongest economy with the main strengths being housing finance, equipment investment and population growth. The ACT is now third strongest on unemployment, up from eighth in the past report.
  • The Northern Territory finished first on three indicators: economic growth; dwelling starts and construction work done and was second strongest on retail trade. But the job market has weakened over the past three months and it now ranks seventh on this indicator rather than first.
  • There is still little separating NSW, Victoria and Queensland in terms of relative economic performance. NSW is strongest on unemployment, and third strongest on population growth. Victoria is second strongest on housing finance and unemployment. And Queensland has high rankings on economic growth, equipment investment, construction work done and retail spending. But it lags on population growth and dwelling starts.
  • There is then a gap in the rankings to South Australia. While the state is middle ranking on unemployment and construction work, it lags on economic growth, retail spending and equipment investment.
  • Tasmania remains locked at the bottom of the Australian economic performance table. Tasmania lags all other economies on all of the eight indicators. The economy is still growing – economic growth and retail spending are growing faster than ‘normal’ or decade-average levels. But stagnant population growth is reducing activity in home building and home purchase, as well as commercial and engineering construction and business investment.

How was performance judged?

• Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.
• The aim was to find how each economy was performing compared with “normal”. And just like the Reserve Bank does with interest rates, we used decade-averages to judge the “normal” state of affairs. For each economy, the latest level of the indicator – such as retail spending or economic growth – was compared with the decade average.
• While we also looked at the current pace of growth to look at economic momentum, it may yield perverse results to judge performance. For instance retail spending may be up sharply on a year ago but from depressed levels. Overall spending may still be well below “normal”. And clearly some states such as Queensland and Western Australia consistently have faster economic growth rates due to historically faster population growth. So the best way to assess economic performance is to look at each indicator in relation to what would be considered ‘normal’ for that state or territory.
• For instance, the trend jobless rate in the ACT of 3.7 per cent is lower than all economies. But compared with its ‘normal’ or decade-average rate of 3.4 per cent, the jobless rate is actually higher in percentage terms than NSW and Victoria, thus restraining activity in the retail sector. Trend measures of the economic indicators were used to assess performance rather than more volatile seasonally adjusted or original estimates.

Retail trade

• The measure used was real (inflation-adjusted) retail trade in trend terms with March quarter data the latest available. If monthly retail trade was assessed instead (May data available), there would be no change in the rankings. This provides added confidence about the overall results on consumer spending.
• Western Australia retains top spot on the retail rankings with spending in the March quarter 25.2 per cent above decade average levels. Solid population growth, a lift in home purchases and firm wage growth underpin the relative strength in consumer spending.
• Northern Territory was next strongest, again courtesy of low unemployment, with spending just under 19 per cent above decade-average levels.
• Queensland was next strongest, with spending 15 per cent above decade averages, followed by Victoria (up 11.5 per cent).
• Tasmania has the weakest result on retail spending, up just 2.7 per cent on the decade average (but up from 1.4 per cent in the December quarter), and below South Australia with growth of 6.6 per cent.
• In terms of the monthly retail trade series, Western Australian spending is 4.3 per cent higher than a year ago, just in front of Queensland with 4.2 per cent growth, the ACT with 3.4 per cent growth and NSW, up 3.2 per cent. At the other end of the scale, Tasmanian spending is 1.9 per cent down on a year ago and South Australian spending is lower by 1.0 per cent.

Equipment investment

• Western Australia continues to be well above other states and territories when it comes to equipment investment. Spending in the March quarter was almost 75 per cent above “normal” – or decade-average levels but down from 103.2 per cent in the December quarter. Next placed were the ACT (up 36.6 per cent) and Queensland (up 33.4 per cent) followed by NSW (up 15.7 per cent), Victoria (up 5.2 per cent) and Northern Territory (up 4.5 per cent).
• By contrast, new equipment spending in South Australia was in line with its decade-average while Tasmania had business investment 1.3 per cent below its longer-term average in the March quarter.
• On a shorter-run analysis, equipment investment in the March quarter was lower than a year ago in five of the state and territory economies. Currently equipment investment is down on a year ago in Tasmania (down 33.6 per cent), Northern Territory (down 26.9 per cent), South Australia (down 15.5 per cent), NSW (down 6.2 per cent) and Victoria (down 0.1 per cent). By contrast new equipment investment in the ACT is up 50.4 per cent on a tear earlier followed by Queensland (up 10.4 per cent) and Western Australia (up 0.1 per cent).

Unemployment

• NSW and the ACT arguably have the strongest job markets in the nation. While its trend unemployment rate of 5.5 per cent is not the lowest in the nation, the NSW jobless rate is just 5.1 per cent above the “normal” or decade average level.
• In the ACT, trend unemployment has fallen from 4.5 per cent to 3.7 per cent over the past four months but this is 9.3 per cent above its decade average rate of 3.4 per cent.
• In Victoria the 5.7 per cent jobless rate is 9.2 per cent above its decade average.At the other end of the scale Tasmania’s 8.1 per cent jobless rate is the highest in the nation and up 36 per cent on the decade average. The Northern Territory job market is next weakest – a significant turnaround over the last report. In the past six months the jobless rate has lifted from 4.0 per cent to 5.3 per cent and it is now 23 per cent above its decade average level of 4.3 per cent.

Construction work

• The measure used for analysis was the total amount of residential, commercial and engineering work actually completed in trend terms in the March quarter.
• In all states/territories except Tasmania construction work is higher than decade averages. And there remains a large gap between the strongest states (the resource states) and weakest states (Tasmania).
• In Tasmania, overall new construction work completed is 3.5 per cent below its decade average. By contrast construction work done in Northern Territory was almost 80 per cent above its decade average followed by Western Australia (up 66 per cent) and Queensland (up almost 53 per cent).
• Next weakest to Tasmania is Victoria where construction work is 15.8 per cent above decade averages, followed by NSW (up 19.4 per cent on the decade average).
• In terms of annual growth rates, Northern Territory construction work done in the March quarter was up 55.7 per cent on a year ago, followed by Queensland (up 7.7 per cent) and NSW (up 6.4 per cent). Four of the states and territories had weaker construction work than a year ago.

Population growth

• To assess population performance we looked at the current annual growth rate and compared it with each economy’s decade-average growth pace. And the good news is that population growth is above ‘normal’ in six states or territories while growth has also picked up in five jurisdictions over the past quarter.
• Western Australia is the clear leader in population growth. Not only is the annual growth rate of 3.47 per cent the strongest in the nation, it is also almost 46 per cent above the decade average. But the actual leader in the rankings is the ACT. Annual population growth of 2.31 per cent is the highest in 21 years and is almost 57 per cent above “normal’.
• In NSW current annual population growth of 1.25 per cent is 18 per cent above the decade average.
• At the other end of the leader-board is Tasmania where the annual population growth of 0.08 per cent is the weakest in over 11 years and a massive 90 per cent below the decade average rate of 0.77 per cent.

Housing finance

• The measure used was the trend number of housing finance commitments and this was compared with the decade-average for each respective state and territory.
• Housing finance is not just a lead indicator for real estate activity and housing construction but also is a useful indicator of activity in the financial sector. It would be useful to compare figures on commercial, personal and lease finance, but unfortunately trend data is not available for states and territories.
• In all but three states and territories, trend housing finance commitments are below decade averages – an improvement on the previous report when all economies had activity below decade averages. And encouragingly commitments in May were above year-ago levels in all but the Northern Territory.
• In the strongest state of Western Australia, the number of housing finance commitments was 10 per cent above the decade-average level and commitments in May were 16.5 per cent higher than a year ago.
• Victoria was in second spot for housing finance, with the number of commitments 2.3 per cent above the long-term average. And importantly the market has momentum with home lending 5.7 per cent higher than a year ago in trend terms to a 42-month high.
• The ACT remains in third spot on housing finance, up 1.4 per cent on the decade average followed by NSW (down 4.4 per cent).
• Tasmania is the weakest economy for housing finance with trend commitments 27.7 per cent lower than its decade average, but encouragingly commitments were up 4.9 on a year ago. Next weakest was the Northern Territory with trend commitments down 23.8 per cent on the decade average.

Dwelling starts

• The measure used was the trend number of dwelling commencements (starts) with the comparison made with the decade-average level of starts. Starts are driven in part by population growth and housing finance and can affect retail trade, unemployment and overall economic growth. However any over-building or under-building in previous years can affect the current level of starts.
•  The outlook for housing construction has improved, underpinned by state government grants for new construction and low interest rates. Dwelling starts are above decade averages in five of the states and territories and again starts in five states and territories are above levels of a year ago.
• The Northern Territory is in the strongest position for new housing construction, with starts almost 54 per cent above decade averages. In addition in the March quarter the number of dwellings started was 27 per cent higher than a year earlier, although down from the 61.6 per cent annual growth in the December quarter.
• In second spot was NSW, with starts over 16 per cent above decade averages. And there is plenty of momentum with starts in the quarter up 33.4 per cent on a year ago – the best growth in three years. In Western Australia, dwelling starts in the March quarter were up 11.2 per cent on the ‘normal’ or “decade average” level with starts in Victoria up almost 6 per cent and ACT starts still 2.3 per cent above decade averages.
• At the other end of the scale, Tasmanian dwelling starts were 38.6 per cent below decade averages, while starts in the March quarter were 25 per cent down on a year earlier. Next weakest was Queensland (down 20.5 per cent), followed by South Australia (down 12.5 per cent). However encouragingly Queensland starts were higher than a year ago, albeit modestly, up just 2.3 per cent. And South Australian starts in the March quarter were up 14.4 per cent over the year.

Other indicators

• Real wages were positive in all economies in the March quarter except for the Northern Territory. Strongest growth occurred Tasmania at 2.2 percentage points, followed by Western Australia (1.3 percentage points) and the ACT (1.2 percentage points).
• Even using “underlying” inflation than “headline” inflation, real wages are growing on average by around 1.0 percentage points.
•  Home prices are now higher than a year ago in all but Hobart (down 1.8 per cent). Strongest growth in home prices was in Darwin (up 6.1 per cent) followed by Perth (up 6.0 per cent) and Sydney (up 5.6 per cent).

Implications and outlook

• The good news is that economic performance didn’t become more polarised in the past three months. While Western Australia is still the best performing economy, it has seen some slippage in indicators such as unemployment. The Northern Territory also lost ground but the ACT lifted in the performance rankings courtesy of strong population growth, driving housing activity and leading to a stronger job market.
• There has been little change in the performance rankings of the three largest states: NSW, Victoria and Queensland.
• Tasmania remains at the bottom of the relative economic performance rankings. The economy is growing in a number of key areas such as demand for home loans but there isn’t enough momentum to catch the other state and territory economies. Encouragingly real wage growth is strong and this could serve to lift retail spending and consumer spending, boosting prospects for the business sector.
• In South Australia, government infrastructure spending is providing valuable support for the economy. Encouragingly new home loans are up 9.5 per cent on a year earlier to the highest levels in 40 months.
• All economies should lift once the uncertainty of the Federal Election is finally out of the way later in 2013.
• While new investment in mining and engineering construction is easing, the housing sector is providing a source of new growth, especially in regions where population growth is strongest.

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• The biggest contributions to growth came from business equipment spending (+0.4 percentage points), followed by inventories (+0.3pp), household consumption (+0.2pp), and net exports (+0.2pp). The biggest drag on growth was by public investment (-0.4pp), the statistical discrepancy (-0.2pp) and government consumption (-0.1pp).
• The best description of the performance of States and Territory economies is state final demand plus net exports. The Northern Territory had the fastest annual growth in the September quarter (up a staggering 60.2 per cent), followed by Western Australia (up 10.3 per cent), ACT (up 5.6 per cent), NSW (up 3.8 per cent), Victoria (up 2.5 per cent), South Australia (up 1.5 per cent), Queensland (up 1.1 per cent) and Tasmania (down 5.3 per cent).
• Just seven of the 19 industry sectors contracted in the September quarter. Mining contributed 0.4 percentage points to economic growth with Manufacturing and Health care & social assistance both contributing 0.1pp. Biggest drags were by Agriculture, Transport and Professional services (each taking around 0.1pp from growth).
• Gross value added per hours worked in the market sector rose by 0.4 per cent in the September quarter. Annual productivity growth is a respectable 2.5 per cent.
• Eight of the 17 sectors recorded weaker spending in the quarter. Household spending rose 0.3 per cent in the September quarter.
• Household saving ratio eased from 10.9 per cent to 10.6 per cent; a measure of inflation – the household spending implicit price deflator – rose by 2.3 per cent over the year; real unit labour costs fell by 0.6 per cent in the quarter.

What does it all mean?

• Firstly, we should never get too excited by the quarterly economic growth figures or national accounts. While serving as a great report card on the economy, there is little in the way of forward-looking guidance for policymakers. Largely the figures allow the Reserve Bank to recalibrate their forecasts by plugging in the latest historical data and numerous revisions.
• Aussie consumers and businesses should be encouraged by the latest data. The record-breaking expansion continues, although the pace of growth is a touch weaker than the longer-term average. The good news is that growth is being driven by investment, not consumption; inflationary pressures are clearly contained; and productivity growth has lifted.
• The latest data confirms that Australia has the strongest economy of any advanced nation. The expansion is continuing and shows no sign of ending. And while the pace of growth has eased modestly, the Reserve Bank is attempting to lift momentum with the latest interest rate cut.
• The outlook for the economy is encouraging. There are no major imbalances to speak of, inflation is contained and recent rate cuts should serve to boost the pace of growth. Today’s data justifies yesterday’s decision to cut rates.
• CommSec expects the Australian economy to grow around its longer-term growth path of 3.0-3.25 per cent over the coming year.
• The main risks to the economy come from the external environment although domestically consumers and businesses need to become more confident and embrace the strong fundamentals. Further, residential and construction investment need to lift over the coming year as investment in the mining sector tapers off.

What is the importance of the economic data?

• The quarterly National Income, Expenditure and Product release (national accounts) from the Bureau of Statistics is the most complete assessment of Australia’s economic performance. Detailed estimates are provided on incomes (wages, profits), spending (such as household, dwelling investment and trade (exports and imports) and production (comparing industry performance). Other data includes household saving and the economic performance of States and Territories.
• The main use of the national accounts figures is as a historical record of economic performance. The information has little forward-looking value for currency, interest rate or share markets.

What are the implications for interest rates and investors?

• The national accounts data is backward looking. However the softer growth trend over the past six months justifies Reserve Bank decisions to cut rates since May. Inflation is not a risk, momentum has been flagging, so the economy was deserving of stimulus.
• The latest data further confirms the ‘haves’ and ‘have nots’ across the economy. Western Australia and Northern Territory are in good shape and, arguably, so is the ACT. But Tasmania continues to struggle while growth is weak in South Australia and Victoria. The Federal Government needs to be mindful of the sharp disparities in economic performance as it attempts to withdraw government stimulus from the economy.
• The good news is that productivity is healthy, private investment is driving growth and inflationary pressures are restrained. The concern is that dwelling investment is soft, consumers remain cautious and there are sharp disparities in performance across the states and territories.
• There is sufficient monetary stimulus in the economy but more may need to be applied to offset the retreating public sector and insulate the economy from global jitters. The Reserve Bank has plenty of ammunition available.

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• In 2011/12, the economy grew by 3.4 per cent, slightly above the long-term average of 3.25 per cent.
• The economy grew by 0.6 per cent in the June quarter to stand 3.7 per cent higher than a year ago.
• The biggest contributions to growth came from exports (+0.5 percentage points), followed by household spending (+0.3pp), government consumption (+0.3pp), and non-dwelling investment and public investment (each +0.2pp). The biggest drag on growth was by inventories (-0.3pp), imports (-0.2pp), the statistical discrepancy and dwelling investment.
• The best description of the performance of States and Territory economies is state final demand plus net exports. The Northern Territory had the fastest annual growth in the June quarter (up a staggering 32.0 per cent), followed by Western Australia (up 13.3 per cent), Queensland (up 7.5 per cent), ACT (up 6.8 per cent), NSW (up 4.2 per cent), Victoria (up 1.8 per cent), South Australia (up 1.2 per cent and Tasmania (down 2.4 per cent).
• Just seven of the 19 industry sectors contracted in the June quarter. Mining and manufacturing each detracted 0.1 percentage points from economic growth while a raft of sectors equally added around 0.1pp to growth.
• Gross value added per hours worked in the market sector fell 0.2 per cent in the June quarter after stellar growth of 2.0 per cent in the March quarter. Annual productivity growth is a respectable 2.7 per cent.
• Over 2011/12, consumers spent 12.7 per cent more on electricity and gas with tariffs ups 10.2 per cent and real demand up 2.4 per cent. We spent 10.1 per cent more on water & sewerage rates. 

What does it all mean?

• Well finally the 2011/12 year is all wrapped up and now we can officially state that Australia has completed its 21st year of economic growth. And while the record breaking performance is of little practical benefit for many sections of the economy, it does provide a boost to consumer and business confidence. And in these uncertain times, that is highly valuable.
• The national accounts are basically an historical document. And while the 0.6 per cent growth for the quarter was a touch below forecasts, the 3.7 per cent annual growth was in line with forecasts. In short, no major surprises. The data is ancient history but it also provides a base for forecasts and for analysis of prospects for individual sectors of the economy.
• The economy is growing, consumers are saving, productivity is strong and labour costs are growing only modestly. Certainly it is beautiful set of numbers.
• We expect another year when economic growth is more likely to be in line with longer-term averages or slightly above, rather than something approaching the below-average outcomes from 2009-2011. Growth around 3.5 per cent is expected in 2012/13. Business investment in resource sectors should again be the mainstay of growth, but dwelling construction is expected to lift from depressed levels and household spending should continue to grow in line with longer-term averages.
• Hopefully we will hear less bleating about productivity. Productivity has predictably rebounded as business beds down the tremendous employment and capital spending growth of 2009-2011.
• Broadly, consumer spending is OK. Consumers saved more in the June quarter and spent less. But the job market remains in good shape, real wages are rising, home prices have stabilised and share prices are trending higher, albeit with a pronounced zig-zag shape.
• CommSec still sees the risk that the Reserve Bank will have to cut rates again to support economic growth. Europe faces the prospect of a long, slow path of economic recovery; the US is experiencing a jobless recovery; and China is hesitant about stimulating growth given the risk of over-stimulating the property sector.

What do the figures show?

• Economic Growth: The economy grew by 0.6 per cent in the June quarter, after upwardly-revised growth of 1.4 per cent in the March quarter (originally reported as a 1.3 per cent rise). Annual economic growth slowed from 4.4 per cent to 3.7 per cent, still well above the long-term average of 3.25 per cent.
• In 2011/12, the economy grew by 3.4 per cent – the fastest growth in four years.
• The non-farm economy grew by 0.6 per cent in the June quarter after a 1.3 per cent rise in the March quarter. Annual growth stands at 3.6 per cent.
• Farm GDP rose by 0.4 per cent in the quarter and was up 7.0 per cent over the year.
• At current prices, GDP grew by 1.0 per cent in the quarter and by 3.2 per cent over the year.
• GDP per person rose by only 0.2 per cent in the quarter to be up just 2.2 per cent over the year.
• Growth drivers: The biggest contribution to growth came from exports (+0.5 percentage points), followed by household spending (+0.3pp), government consumption (+0.3pp), and non-dwelling investment and public investment (each +0.2pp). The biggest drag on growth was by inventories (-0.3pp), imports (-0.2pp), the statistical discrepancy and dwelling investment.
• Inflation: The best measure of domestic price pressures, the household consumption implicit price deflator, was up by 0.7 per cent in the June quarter after a 0.1 per cent increase in the March quarter with annual growth at just 1.6 per cent. Real non-farm unit labour costs rose by 0.2 per cent in the quarter and were up 2.0 per cent over the year.
• Productivity: Gross value added per hours worked fell by 0.2 per cent in the June quarter after stellar growth of 2.0 per cent in the March quarter. Annual growth stands at 2.7 per cent. GDP per hour worked rose 0.2 per cent in the June quarter to be up 2.9 per cent over the year.
• The best description of the performance of States and Territory economies is state final demand plus net exports The Northern Territory had the fastest annual growth in the June quarter (up a staggering 32.0 per cent), followed by Western Australia (up 13.3 per cent), Queensland (up 7.5 per cent), ACT (up 6.8 per cent), NSW (up 4.2 per cent), Victoria (up 1.8 per cent), South Australia (up 1.2 per cent) and Tasmania (down 2.4 per cent).
• Consumers still spending. Household consumption rose by 0.6 per cent in the June quarter, after gains of 1.8 per cent in the March quarter and 0.5 per cent in the December quarter. Annual growth stands at 4.0 per cent. Strongest growth of spending in the quarter was recorded by Purchase of vehicles (up 9.8 per cent), followed by Furnishings and household equipment (up 2.1 per cent) and Health (up 1.8 per cent). Just six of the 17 spending categories fell in the quarter led by Alcoholic Beverages (down 1.3 per cent).
• Detailed consumer spending data. The ABS provides detailed consumer spending data, but just in original (not seasonally adjusted or trend) terms. Over 2011/12, real household spending grew by 3.7 per cent with prices up 2.2 per cent. In other words spending rose 5.9 per cent in nominal terms. Consumers outlaid 12.7 per cent more on electricity & gas and 10.1 per cent more on water and sewerage rates. Consumers spent less on newspapers & books (down 2.6 per cent) and less on clothing & footwear (down 0.6 per cent).
• Industry sectors: Just seven of the 19 industry sectors contracted in the June quarter. Mining and manufacturing each detracted 0.1 percentage points from economic growth while a raft of sectors equally added around 0.1pp to growth.

Other points

• Profit share eases. In seasonally adjusted terms, the ratio of profits to total factor income fell from 27.1 per cent to 26.7 per cent in the June quarter. The wages share rose from 54.5 per cent to 54.7 per cent in the June quarter.
• Household savings rose. The household saving ratio lifted from 8.9 per cent to 9.2 per cent, in seasonally adjusted terms in the June quarter. In trend terms household saving fell for the fourth consecutive quarter, easing from 9.2 per cent to 9.1 per cent.
• Imports rose as a share of spending. The imports to sales ratio rose from 0.374 in the March quarter to 0.383 in the June quarter.
• The inventory to sales ratio fell from 0.621 in the March quarter to 0.610 in the June quarter.

What is the importance of the economic data?

• The quarterly National Income, Expenditure and Product release (national accounts) from the Bureau of Statistics is the most complete assessment of Australia’s economic performance. Detailed estimates are provided on incomes (wages, profits), spending (such as household, dwelling investment and trade (exports and imports) and production (comparing industry performance). Other data includes household saving and the economic performance of States and Territories.
• The main use of the national accounts figures is as a historical record of economic performance. The information has little forward-looking value for currency, interest rate or share markets.

What are the implications for interest rates and investors?

• There are no real surprises in the national accounts. The Australian economy is growing slightly above its long-term average pace, the mix of growth is good, productivity remains firm and inflation pressures are contained.
• One of the biggest surprises is the marked variation in performance across states and territories. Growth rates in the resource states and territories are soaring whereas the manufacturing states are struggling. And the Tasmanian economy is going backwards, a result that should prompt a response by the Federal Government. Gains of the mining boom should be spread around, and assistance should be provided to struggling regions to assist with structural adjustment.
• The outlook remains murky, as evidence by struggling European and US economies, policy uncertainty in China and investment cutbacks by Australia’s miners. But the Reserve Bank is well placed to cut rates if necessary. Indeed the Federal government is also well placed to add stimulus given the low budget deficit and low government debt levels.

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Just as the Reserve Bank uses decade averages to determine the level of “normal” interest rates; we have done the same with the economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the “normal” performance.

In the last report in July 2011, Western Australia was judged the strongest economy from the ACT. And in the latest report Western Australia has tightened its grip on top spot. Western Australia leads the way in overall economic growth and equipment investment and is strong in retail spending, population growth and construction work.

What has become clear in the latest report is that the eight states and territories are effectively divided into three groups. Western Australia is in a group by itself. The next level comprises ACT, Victoria and South Australia. And then there is another gap to the next four states & territories: Tasmania, NSW, Northern Territory and Queensland.

Looking ahead, Queensland should continue to benefit from rebuilding activity after the floods and cyclones in early 2011. The state has posted strong results in retail spending, construction and equipment investment over the past quarter. 

Economies divided into three groups
Western Australia is clearly the nation’s strongest economy, underpinned by Asian demand for mining resources. Western Australia leads the way on economic growth and equipment investment while also possessing strong readings on retail spending, construction work and population growth. The main weakness is the residential sector with below-average dwelling starts and falling home prices.

Looking across the indicators, the ACT continues to lead the way on four of the eight indicators – population growth, commercial & engineering construction, housing finance and dwelling starts. But the ACT has the weakest performance of the states and territories on both unemployment and equipment investment. And the ACT is also under-performing on retail spending. While the ACT clearly has the second strongest economy, both Victoria and South Australia aren’t far away and it is probably best to view the three economies together.

Victoria is strongest in the housing sector – dwelling starts and housing finance – although home prices are softening after a period of out-performance. Victoria also out-performs in retail spending although other indicators are largely middle ranked.

The South Australian economy performs solidly on overall economic growth and building & construction work but is middle ranked on other indicators. The main area of under-performance is dwelling starts and housing finance.

There is little to separate Tasmania, NSW, Northern Territory and Queensland. Tasmania out-performs with a relatively low unemployment reading but somewhat surprisingly under-performs on retail spending.

NSW benefits from above-average population growth, firmer growth in housing finance and above-normal equipment investment. But dwelling starts are both below normal and below year ago levels.

Northern Territory continues to out-perform with low unemployment and solid growth of retail spending. But population growth, construction work and housing finance are below long-term averages and under-performing other states and territories.

The Queensland economy is beginning to see the benefits from rebuilding work from the floods and cyclone that occurred earlier this year. The state is also benefiting from strong demand for mining and energy resources in the Asian region. The main area of under-performance is housing – dwelling starts and housing finance – a situation not helped by weakness in population growth and unemployment. The economy should continue to lift over the coming year.

How was performance judged?
Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.

The aim was to find how each economy was performing compared with “normal”. And just like the Reserve Bank does with interest rates, we used decade-averages to judge the “normal” state of affairs. For each economy, the latest level of the indicator – such as retail spending or economic growth – was compared with the decade average.

While we also looked at the current pace of growth to look at economic momentum, that can yield perverse results to judge performance. For instance retail spending may be up sharply on a year ago but from depressed levels. Overall spending may still be well below “normal”. And clearly some states such as Queensland and Western Australia consistently have faster economic growth rates due to historically faster population growth. So the best way to assess economic performance is to look at each indicator in relation to what would be considered ‘normal’ for that state or territory.

For instance, the trend jobless rate of 4.0 per cent in the ACT is lower than in all but the Northern Territory. But compared with its ‘normal’ or decade-average rate of 3.5 per cent, the jobless rate is actually higher in percentage terms than any other economy, affecting activity in the retail sector.

Trend measures of the economic indicators were used to assess performance rather than more volatile seasonally adjusted or original estimates.

Economic growth
Ideally gross state product (GSP) would be used to assess broad economic growth. But the data isn’t available quarterly. Rather state final demand (household and business spending) is added to exports less imports to act as a proxy for GSP. Excluding the trade sector would provide an incorrect assessment of growth for economies such as Western Australia and Queensland.

Western Australia continues to lead the rankings on economic activity from the ACT and South Australia. In the June quarter, Western Australia’s economic output was just under 28 per cent higher than the state’s decade average level of output. ACT output was up 21 per cent on its long-term average, followed by South Australia (up 16.7 per cent).

At the other end of the scale, economic activity in NSW in the June quarter was just over 8 per cent above its decade average while Tasmanian activity was up almost 12 per cent on its “normal” or average output over the past decade.

The ACT has the fastest annual economic growth rate in the nation at 5.9 per cent, ahead of South Australia with 4.7 per cent and Western Australia with 4.6 per cent.

The weakest trend economic growth rate was recorded in the Northern Territory (-1.4 per cent) from Queensland and NSW.

Retail trade
The measure used was real (inflation-adjusted) retail trade in trend terms with June quarter data the latest available. Monthly retail trade was also assessed (August data available) to provide further information on trends. There were no differences in the rankings despite the monthly data being two months advanced on the real, quarterly readings.

Still leading the retail rankings is Northern Territory with spending in the June quarter 22 per cent above decade average levels. Supporting spending is a strong job market and previous gains in home prices. But it’s worth noting that actual growth in spending in the “top end” is down 0.2 per cent on a year ago in real terms.

Western Australia was next strongest, courtesy of low unemployment, with spending 20 per cent above decade-average levels. Western Australia also has the strongest growth in retail spending, up a stunning 5.2 per cent on a year ago.

Victoria was next strongest, with spending 16 per cent above decade averages, followed by Queensland and South Australia. Tasmania remains at the bottom of the leader-board, with spending up just 9.3 per cent on the decade average. And real retail spending in Tasmania is 3.3 per cent lower than a year ago – the weakest performance of the states and territories.

Equipment investment
Compared with longer-term averages, Western Australia currently is head and shoulders above other states and territories on equipment investment with spending in the June quarter almost 70 per cent above “normal” – or decade-average levels. Next placed is Queensland (up 38 per cent), followed by Tasmania (up 31 per cent).

By contrast, equipment spending in the ACT was up just 2.5 per cent on its decade-average. Next weakest economy – Northern Territory – had business investment 4.3 per cent above its longer-term average in the June quarter.

On a shorter-run analysis, equipment investment was only lower than a year ago in just two of the state and territory economies – Northern Territory (down 29.2 per cent) and Victoria (down 1.1 per cent). Tasmania is leading annual growth rates on equipment investment (up 50.3 per cent) from the ACT (up 39.5 per cent) and Western Australia (up 35.7 per cent).

Unemployment
Tasmania arguably has the strongest job market in the nation, but the lowest jobless rates can be found in Northern Territory and the ACT.
The trend jobless rate in Tasmania stands at 5.0 per cent, well below the long-term average of 6.2 per cent. The jobless rate in the Northern Territory stands at 3.9 per cent, below the long-term average of 4.6 per cent.

While unemployment is low in the ACT at 4.0 per cent, it is actually higher than the decade average of 3.5 per cent.

Western Australia was next strongest to the Northern Territory with a jobless rate of 4.2 per cent, 7 per cent below the decade average of 4.6 per cent. Apart from the ACT, Queensland and NSW have unemployment rates above their respective decade averages.

Construction work
The measure used for analysis was the total amount of residential, commercial and engineering work actually completed in trend terms in the June quarter.
 
In all states/territories except the Northern Territory, construction work is substantially higher than decade averages. Construction peaked in the ‘top end’ in March quarter 2009 at record levels. The relatively small Northern Territory economy is affected to a greater extent by the ‘lumpiness’ of major construction projects. Construction work in the Northern Territory is down just over 37 per cent on the decade average.
By contrast, in the ACT construction work done in the June quarter was 67 per cent above the decade average. And construction work in the ACT is also up 20 per cent on a year ago – the fastest rate in the nation.

Next strongest was Western Australia with construction work 66 per cent higher than decade averages followed by South Australia, up 40 per cent, and Queensland, up 32.5 per cent.

Construction work is higher than a year ago in all states/territories except Northern Territory (down 8.0 per cent), Tasmania (down 4.8 per cent) and South Australia (down 3.9 per cent).

Population growth
To assess population performance we looked at the current annual growth rate and compared it with each economy’s decade-average growth pace. And after outperforming from 2007-2010, currently population growth is above ‘normal’ in only three states or territories.

Population growth is above average in the ACT (1.79 per cent) followed by Western Australia (2.23 per cent) and NSW (1.14 per cent). Western Australia and the ACT also have the fastest population growth rates in the land from Queensland (1.63 per cent). But while third fastest, Queensland’s population growth is actually the slowest rate for that state in 11 years.

At the other end of the leader-board is the Northern Territory with its 0.41 per cent annual population growth rate the slowest in 7½ years, and 74 per cent below its 1.6 per cent decade-average growth pace.

Housing finance
The measure used was the trend number of housing finance commitments and this was compared with the decade-average for each respective state and territory.

Housing finance is not just a lead indicator for real estate activity and housing construction but also is a useful indicator of activity in the financial sector. It would be good to also use figures on commercial, personal and lease finance, but unfortunately trend data is not available for states and territories.

Far away in top position for housing finance is the ACT. The number of housing finance commitments in the ACT is 18.5 per cent higher than the decade-average at a time when all other states and territories except Victoria are recording negative growth. The high level of activity is positive for financial institutions, real estate agents and builders in the territory.

And not only is housing lending in the ACT above longer-term averages, it is also growing, up 5.4 per cent over the year, although it is only fourth fastest behind Western Australia (up 17.2 per cent).

Victoria is in second spot for housing finance, with the number of commitments 6.2 per cent above the long-term average. And just like the ACT, home lending is also growing, up 7.3 per cent in trend terms compared with a year ago.
NSW was third on housing finance, albeit down 8 per cent on the decade average followed by Western Australia (down 11.4 per cent) and Tasmania (down 18.6 per cent).

The Northern Territory remains the weakest economy for housing finance with trend commitments 25.2 per cent lower than its decade average, although only slightly worse than Queensland (down 24.6 per cent on its decade average). However in trend terms, Northern Territory’s housing lending is up 0.6 per cent on a year ago whereas Queensland commitments are down 2.4 per cent.

Dwelling starts
The measure used was the trend number of dwelling commencements (starts) with the comparison made with the decade-average level of starts. Starts are driven in part by population growth and housing finance and can affect retail trade, unemployment and overall economic growth. However any over-building or under-building in previous years can affect the current level of starts.

The ACT is head and shoulders above other economies on dwelling starts, supported by strong population growth. In the June quarter the number of dwellings commenced stood at a record 1,341 in trend terms, up 82 per cent on the decade average and 18.3 per cent higher than a year ago.

In second spot was Victoria with dwelling starts in the June quarter 28 per cent higher than ‘normal’ or “decade average” levels while Tasmanian starts were almost 2 per cent above the decade average.

At the other end of the scale, Queensland dwelling starts were not only 30.5 per cent below decade averages but it was also 17.9 per cent down on a year ago.

In NSW, dwelling starts were 18.2 per cent below decade averages in the June quarter, with starts in the Northern Territory 9.9 per cent below decade averages while South Australian starts were 9.5 per cent below its “normal” rate of activity. While the ACT was the only economy to post stronger starts compared with a year ago, NSW starts were just 2.5 per cent down on a year earlier.

Other indicators
At face value it appears that real wages were flat to negative in NSW, Queensland, ACT and South Australia in the June quarter. But ‘one-off’ factors such as cyclones and floods in Queensland forced up food prices in the March and June quarters. The annual rate of headline inflation is tipped to ease in coming quarters to 2.5-3.0 per cent. In comparison, wages are likely to grow close to 4 per cent, pointing to higher real wages ahead.

Still, the lift in a raft of living costs has affected consumer confidence and retail spending over 2011. And falling home prices has exacerbated the pain for Aussie consumers.

Home prices are now falling modestly in all capital cities except Sydney. However the declines in prices follow solid growth in prices in 2009 and early 2010 in response to low interest rates and grants to first-home buyers. Over the past five years Darwin prices grew on average by 10.9 per cent a year with Melbourne prices up 9.5 per cent and Perth prices up 9.3 per cent. Sydney had the slowest lift in home prices – up 4.6 per cent a year.
 
Implications and outlook
The main change in the state rankings over the past three months has been the significant out-performance of the Western Australian economy and the separation of other economies into two groups. The ACT leads the second group from Victoria and South Australia. But there is little to separate Tasmania, NSW, Northern Territory and Queensland. The term ‘multi-speed’ is therefore very appropriate when considering economic performance.

Overall most states have recorded above decade-average readings for economic growth, real retail spending, equipment investment and construction work. But performances have proved much more mixed on the other four indicators.

The outlook for the Western Australian economy remains bright and in fact there are even signs of improvement identified for housing activity. Still, it is important to note that prospects remain significantly tied to the fortunes of Asia, in particular, China.

The ACT economy continues to be supported by above-average population growth, which is underpinning strong activity in residential, commercial and engineering construction. The upward trend in the jobless rate bears watching however, especially as retail spending is weaker than in most other economies.

The Victorian economy is being underpinned by the housing sector so the recent upward trend in housing finance is encouraging. However it should be noted that equipment investment is growing at a far slower annual pace than other economies.

Below-normal unemployment could prove a catalyst driving improvement in the Tasmanian economy in coming months. And the Queensland economy should continue to lift in line with rebuilding work and spending.

Other economies are struggling to define the ‘X-factors’ that will drive growth. NSW and Northern Territory will probably need to focus on home building and affordability issues while South Australia should get a boost from mining sector investment.

The post CommSec: State & territory performance report appeared first on AdviserVoice.

Headline developments of the past week

European debt problems took centre stage yet again over the last week. Until recently it appeared that the European Union had put a firewall around Greece, Ireland and Portugal in order to protect Spain and Italy and as a result their bond yields had been contained. However, the spike higher in their bond yields in the last two weeks is worrying because together they account for 28% of Euro-zone GDP (as compared to only 7% for Greece, Portugal and Ireland) and 32% of Euro-zone public debt (compared to only 8% for the three peripherals). Italy in particular is probably just too big to rescue and what’s more German and French banks have a heavy exposure to Spain and Italy. Fortunately, Italy has moved quickly to allay market fears by adopting another round of fiscal austerity. But while bouts of short term relieve are likely, it’s clear that austerity is only making the situation worse and whether it’s Greece, Ireland, Portugal, Spain or Italy the European debt crisis is likely to remain a recurring threat and source of volatility for financial markets for some time to come.

In the US, concern that US politicians won’t agree to raise the debt ceiling by the August 2 deadline has led to increasing fears that it may have a short term default, an event Fed Chairman Bernanke said would through the US financial system into “enormous disarray”. However, there are several points worth noting on this. First, if the debt ceiling is not increased in time spending is likely to be cut ahead of not paying interest payments. More fundamentally though, just as the negotiations between Obama and the Republicans went right down to the wire regarding an agreement on the US budget a few months ago (only just averting a US Government shutdown) the same was always likely to apply in relation to the debt ceiling negotiations. Given the adverse political consequences that would follow from not raising the debt ceiling as welfare and Medicare/Medicaid payments are not made and public servants don’t get paid, the most likely outcome remains a last minute deal…but that could still mean another few weeks of intense uncertainty as the battle between Democrats and Republicans over spending cuts versus tax increases becomes increasingly acrimonious. Australian economic data remains week, with falls in both business and consumer confidence. Against this backdrop a rate hike this year is looking very unlikely.

There were some positives for markets over the last week though. Firstly, Fed Chairman Bernanke indicated that another round of quantitative easing (QE3) could be undertaken if the economy doesn’t pick up as expected. However, he also indicated the Fed wasn’t prepared to do it yet – it’s clear that the US economy will have to get worse and inflation fall before QE3 becomes likely.

Secondly, and more fundamentally, the Chinese economy is continuing to do its part in keeping the global economic recovery going with growth of 9.5% over the year to the June quarter helped along by strength in industrial production and fixed asset investment. While growth has slowed from an unsustainable pace of nearly 12% early last year there is no sign of the much feared hard landing. While headline inflation came in at a worse than expected 6.4% over the year to June this was driven largely by higher pork prices on the back of pork disease with non-food inflation starting to stall on a monthly basis. With Premier Wen Jiabao indicating that the Government should “not only stabilize inflation but also prevent major economic volatility” our assessment remains that the moderation in growth will result in a fall in inflation during the second half and that the monetary tightening cycle in China is either at or very close to an end.

The past week has seen share markets (except in China) fall sharply on the back of debt worries in Europe and the US and concerns about the growth outlook. Volatility in share markets is likely to remain high in the short term as the worry list remains significant – focussed on European debt problems, the US debt ceiling, the soft patch in the US economy and whether China will have a hard or soft landing – and the September quarter is normally the weakest time of the year for shares.

In the US in the week ahead, expect housing related data to show signs of stabilisation or improvement with a home builders survey due Monday, housing starts due Tuesday, home sales due Wednesday and house price data due on Thursday. A survey of manufacturing conditions in the Philadelphia region for July is expected to show a modest improvement after a sharp fall in June. The US June quarter earnings reporting season will start in earnest with investors expecting profit growth of around 13-15% on a year ago. In Europe the focus will likely be on business conditions readings due Friday after falls in recent months, along with ongoing debt problems.

In Australia, the minutes from the RBA’s July meeting due Tuesday are likely to confirm that there is no urgency to raise interest rates. Data for car sales and export and import prices are also due for release.

The post Weekly economic and market report appeared first on AdviserVoice.

Just as the Reserve Bank uses decade averages to determine the level of “normal” interest rates; we have done the same with the economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the “normal” performance.

In the last report in April 2011 the ACT was judged the strongest economy from Western Australia. But in the latest quarter the tables have been turned with Western Australia now on top. Western Australia leads the way in overall economic growth and is strong in retail spending and commercial and engineering construction. The ACT economy benefits from strong housing and commercial construction and historically-high population growth.

Next strongest economy was Victoria, followed by South Australia with little separating the economies of Tasmania and Northern Territory. Victoria maintains a strong job market and has above-average growth on housing finance. And South Australia benefits from strong equipment investment and above-normal population growth.

Looking ahead, the NSW economy should benefit in coming months from relatively high population growth and firm housing lending. And Queensland should benefit from rebuilding activity after the floods and cyclones in early 2011.

Western Australia now on top, from the ACT and Victoria
Western Australia is back on top, judged to have the strongest economy in the land. Western Australia continues to benefit from strength in mining and engineering, driving commercial construction, exports and overall economic growth. But the housing sector remains soft as is clear by the sharp slowdown in dwelling starts and falling home prices.

Looking across the indicators, the ACT leads the way on four of the eight indicators – population growth, commercial & engineering construction, housing finance and dwelling starts. The main blots on the copybook have been the weakening job market and weaker business investment. In addition retail spending in the ACT is under-performing other state & territory economies.

There has been little change in the relative performance of the Victorian economy over the past three months. Unemployment remains historically-low and that is supporting housing lending, retail spending and home building.

The South Australian economy has benefited from stronger investment and plant and equipment spending stands at record highs in trend terms. Above-average population growth also provides support to the economy although home lending is under-performing other economies.
Tasmania has been a clear improver over the last three months benefitting from stronger construction work which is now 32 per cent above decade averages. The Northern Territory maintains its top rankings on the job market and retail spending but business investment is now 39 per cent below the decade average.

The performance of the NSW economy continues to be restrained by the construction sector – both new home building as well as commercial and engineering activity. The job market has also softened in relation to other states and territories but relative strength in population growth augurs well for future spending and investment.

The Queensland economy is still in the early stages of recovery from the floods and cyclone that occurred earlier this year. Once rebuilding gets fully underway it should provide momentum through the broader economy. But activity in coal producing areas is still hampered by flooding. The housing market also remains weak, whether it be new building, home lending or home prices.

How was performance judged?
Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.
The aim was to find how each economy was performing compared with “normal”. And just like the Reserve Bank does with interest rates, we used decade-averages to judge the “normal” state of affairs. For each economy, the latest level of the indicator – such as retail spending or economic growth – was compared with the decade average.

While we also looked at the current pace of growth to look at economic momentum, that can yield perverse results to judge performance. For instance retail spending may be up sharply on a year ago but from depressed levels. Overall spending may still be well below “normal”. And clearly some states such as Queensland and Western Australia consistently have faster economic growth rates due to historically faster population growth. So the best way to assess economic performance is to look at each indicator in relation to what would be considered ‘normal’ for that state or territory.

For instance, the trend jobless rate of 4.0 per cent in the ACT is lower than in all but the Northern Territory. But compared with its ‘normal’ or decade-average rate of 3.5 per cent, the jobless rate is actually higher in percentage terms than any other economy, affecting activity in the retail sector. Trend measures of the economic indicators were used to assess performance rather than more volatile seasonally adjusted or original estimates.

Economic growth
Ideally gross state product (GSP) would be used to assess broad economic growth. But the data isn’t available quarterly. Rather state final demand (household and business spending) is added to exports less imports to act as a proxy for GSP. Excluding the trade sector would provide an incorrect assessment of growth for economies such as Western Australia and Queensland.
Western Australia continues to lead the rankings on economic activity from the ACT and Northern Territory. In the March quarter, Western Australia’s economic output was just over 28 per cent higher than the state’s decade average level of output. ACT output was up 22 per cent on its long-term average, followed by the Northern Territory (up 17.5 per cent).

At the other end of the scale economic activity in NSW in the March quarter was just over 9 per cent above its decade while Queensland activity was up 10 per cent on its “normal” or average output over the past decade. The ACT has the fastest annual economic growth rate in the nation at 7.2 per cent, ahead of Western Australia with 6.1 per cent and South Australia with 6.0 per cent. The weakest trend economic growth rates were recorded in Queensland (-3.6 per cent) from Northern Territory and NSW.

Retail trade
The measure used was real (inflation-adjusted) retail trade in trend terms with March quarter data the latest available. Monthly retail trade was also assessed (May data available) to provide further information on trends. There were no differences in the rankings despite the monthly data being two months advanced on the real, quarterly readings.

Still leading the retail rankings is Northern Territory with spending in the March quarter 22 per cent above decade average levels. Spending has been supported by a strong job market and rising home prices. But it’s worth noting that actual growth in spending in the “top end” has been weakening and is down 1.4 per cent on a year ago in real terms.

Western Australia was next strongest, courtesy of low unemployment, with spending 19 per cent above decade-average levels. Western Australia also has the strongest growth in retail spending, up 2.8 per cent on a year ago. Victoria was next strongest, with spending 16 per cent above decade averages, followed by Queensland and South Australia. Tasmania is now at the bottom of the leader-board, with spending up just 11 per cent on the decade average. And real retail spending in Tasmania is 3.7 per cent down on a year ago – the weakest performance of the states and territories.

Equipment investment
Compared with longer-term averages, Western Australia currently is leading other states and territories on equipment investment with spending in the March quarter almost 50 per cent above “normal” – or decade-average. Next placed is NSW (up 31.9 per cent), followed by South Australia (up 23.3 per cent).

By contrast, equipment spending in the Northern Territory was largely unchanged compared with its decade-average. Next weakest economy – ACT – had business investment 6.9 per cent above its longer-term average in the March quarter.
Equipment investment was only lower than a year ago in two of the state and territory economies – Northern Territory (down 39 per cent), Victoria (down 6.0 per cent and Queensland (down1.4 per cent).
In the ACT, equipment investment is 42.5 per cent higher than a year earlier, while investment in South Australia is at record highs, up 13.1 per cent on a year ago.

Unemployment
The Northern Territory still has the strongest job market in the nation, but there has been clear slippage in the past three months with similar softening in the ACT. The trend jobless rate in the Northern Territory stands at 3.7 per cent – well below the long-term average of 4.7 per cent. But unemployment has lifted from a rate of 2.4 per cent in January. And in the ACT, the jobless rate has lifted from 3.1 per cent to 4.0 per cent over the past 10 months and is now 15 per cent above the decade average of 3.5 per cent.

Victoria was next strongest to the Northern Territory with a jobless rate of 4.7 per cent, 12 per cent below the decade average of 5.3 per cent. And Tasmania has a jobless rate of 5.6 per cent, below its “normal” rate of 6.3 per cent.

Construction work
The measure used for analysis was the total amount of residential, commercial and engineering work actually completed in trend terms in the March quarter.In all states/territories except the Northern Territory, construction work is substantially higher than decade averages. Construction peaked in the ‘top end’ in the March quarter 2009 at record levels. The relatively small Northern Territory economy is affected to a greater extent by the ‘lumpiness’ of major construction projects. Construction work in the Northern Territory is down 28 per cent on the decade average.

In the ACT construction work done in the March quarter was just shy of 74 per cent above the decade average. Construction work in the ACT is also up 22.5 per cent on a year ago – the fastest rate in the nation. Next strongest was Western Australia with construction work 65 per cent higher than decade averages followed by Tasmania, up 32 per cent, and South Australia, up 31.5 per cent. Construction work is higher than a year ago in all states/territories except South Australia (down 8.8 per cent), Queensland (down 3.0 per cent) and Northern Territory (down 2.1 per cent).

Population growth
Across the states and territories the current annual rate of population growth was compared with each economy’s decade-average growth pace. And currently population growth is above ‘normal’ in all states and territories except Northern Territory (down 49 per cent), Queensland (down 29 per cent) and Victoria (down 1.4 per cent).

Population growth is fastest in Western Australia (2.09 per cent) followed by the ACT (1.95 per cent) and Queensland (1.70 per cent).
At the top of the rankings on the population growth leader board is the ACT with current annual population growth, well above the 1.3 per cent decade average. Next best was NSW, followed by South Australia and Tasmania. While Tasmania’s population growth of 0.77 per cent remains the slowest in the nation, it still remains 2.8 per cent higher than the decade average.

At the other end of the leader-board in Northern Territory with the 0.83 per cent population growth the slowest in seven years and 48.6 per cent the 1.6 per cent decade-average growth pace.
In Queensland, population growth has eased from 2.86 per cent in December quarter 2008 to 1.70 per cent – the slowest growth pace in 11 years.

Housing finance
The measure used was the trend number of housing finance commitments and this was compared with the decade-average for each respective state and territory.
 
Housing finance is not just a lead indicator for real estate activity and housing construction but also is an indicator of activity in the financial sector. It would be good to also use figures on commercial, personal and lease finance, but unfortunately trend data is not available for states and territories.

Far away in top position for housing finance is the ACT. The number of housing finance commitments in the ACT is 15.5 per cent higher than the decade-average at a time when all other states and territories except Victoria are recording negative growth. The high level of activity is positive for financial institutions, real estate agents and builders in the territory. And not is housing lending in the ACT above longer-term averages, it is also growing, up 4.9 per cent over the year and second strongest behind Western Australia (up 9.3 per cent).
Victoria is in second spot for housing finance, with the number of commitments 0.5 per cent above the long-term average. And just like the ACT, home lending is also growing, up 4.1 per cent in trend terms compared with a year ago.

NSW was third on housing finance, albeit down 15.7 per cent on the decade average followed by Western Australia (down 16 per cent) and Tasmania (down 21.5 per cent).

The Northern Territory remains the weakest economy for housing finance with trend commitments 31.1 per cent lower than its decade average. In addition, housing finance commitments in May were over 11 per cent down on a year ago. Queensland is next weakest with home lending 30.7 per cent below decade averages and down 10.6 per cent on a year ago.

Dwelling starts
The measure used was the trend number of dwelling commencements (starts) with the comparison made with the decade-average level of starts. Starts are driven in part by population growth and housing finance and can affect retail trade, unemployment and overall economic growth. However any over or under-building in previous years can determine the current level of starts.

The ACT continues to lead the pack on dwelling starts. In the March quarter the number of dwellings commenced stood at a record 1,294 in trend terms, just off the record high of 1,332 in the December quarter. Starts are almost 82 per cent and up 20.3 per cent on a year ago.
In second spot was Northern Territory with dwelling starts in the March quarter almost 42 per cent higher than ‘normal’ or “decade average” levels while Victorian starts were 24.2 per cent above the decade average. Strong home prices over most of 2010 together with low unemployment have driven the improvement in home building in the “top end’. Starts are at 11-year highs in trend terms.

Victoria was followed by Tasmania with starts up 7.5 per cent on decade averages. At the other end of the scale, Queensland dwelling starts were not only 26.6 per cent below decade averages but also they are 18.3 per cent down on a year ago. In NSW, dwelling starts were 13.4 per cent below decade averages in the March quarter, with Western Australian starts 10.4 per cent below decade averages and South Australian starts 10 per cent below its “normal” rate of activity. NSW was the only state of these three to post stronger starts compared with a year ago (up 4.4 per cent).

Other indicators
Consumers in all states and territories except South Australia continue to enjoy real wage gains (wages growing faster than prices). South Australian wages are growing in line with prices. Western Australian workers are doing best with wages up 4.1 per cent over the year, outpacing a 2.6 per cent lift in consumer prices. As would be expected retail spending in the state is also solid, with real growth the fastest in the nation with spending 19 per cent above the decade average.

Home prices are now falling in all capital cities except Sydney (dwelling prices up 1.0) per cent. Next best was the ACT with dwelling prices just 0.1 per cent on a year ago. Wages are expected to outpace prices over the remainder of 2011. And while home prices are currently down on a year ago in most capital cities, the trend for the remainder of the year is expected to be sideways rather than down. Housing markets are generally under-supplied with stock.

Implications and outlook
There has been little change in the state rankings over the past three months, Western Australia and the ACT are at the top; Victoria has held ground in third spot followed by South Australia with Northern Territory and Tasmania together. Provided China continues to grow then the Western Australian economy will continue to thrive. But just as the broader Australian economy is multi speed, so is the situation in Western Australia. Mining areas are thriving but weaker housing activity is creating challenges in Perth and non-mining regional towns.

The ACT economy is being propelled by above-average population growth, driving construction activity. But the lift in the jobless rate raises questions about whether the strong economic performance can be maintained. There is unlikely to be major changes in the middle rankings with Victoria and South Australia modestly ahead of Tasmania and Northern Territory. But there is little to separate these economies.
An extended period of interest rate stability could provide the momentum that NSW and Queensland economies both need – injecting interest in the housing sector. We continue to expect that the Queensland economy will benefit from rebuilding and refurbishment activity as well as a recovery in coal production. But the high Australian dollar will continue to provide challenges for the tourism sector – fewer international visitors and more Aussie travelling abroad.

Consumer conservatism and the uncertainty provided by proposed carbon and mining taxes will provide challenges for all the states and territories over the next 3-6 months.

The post State of the states – state & territory performance report appeared first on AdviserVoice.

• The Federal Government has proposed a new tax on carbon emissions of $23 a tonne to apply to 500 of the biggest corporate emitters from July 2012.
• The aim of the tax is to increase the price of goods produced by carbon-intensive industries and thus change behaviour of consumers and businesses. But the extent of the compensation mechanisms substantially reduces the effectiveness of the tax. If consumers are no worse off, and in fact many are better off, then you don’t have the incentive to change behaviour.
• The cost to the budget over the next four years is $4,281 million, including assistance packages for the steel and coal industries ($2,906 million in 2011/12). The Government expects the carbon tax to reduce emissions but income per person will be lower than in the absence of the scheme. Employment is tipped to increase by 1.6 million over the next nine years after rising by 2.18 million over the past nine years.
• The proposed tax on carbon emissions could work to reduce global emissions provided other countries moved at the same time. The risk of moving too quickly before other countries is that it reduces the competitiveness of Australian industries.

What does it all mean?

• The good news is that the release of details of the proposed carbon tax reduces uncertainty. The price of carbon is finally known as are the compensation mechanisms. The bad news is that the uncertainty has only just begun for consumers and businesses. Now Australians will be inundated with the pros and cons proffered by politicians, industry associations and interest groups.
• The Federal Government is proposing a tax on carbon emissions based on the theory that the global increase in carbon emissions is contributing to climate change. If you believe in the theory then it is reasonable that efforts are made to reduce carbon emissions. But a global problem requires a global situation. Australia represents just 1.5 per cent of global carbon emissions. So without significant efforts by large countries – China, India and the United States – then Australia’s efforts will have negligible effect.

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• At the end of the day, a tax on carbon emissions would work to reduce global emissions provided other countries moved at the same time. The risk of moving too quickly before other countries is that it reduces the competitiveness of Australian industries. Ahead of similar measures to price carbon by other countries, a better move in the interim may be to legislate for the gradual reductions of carbon emissions by companies.
• Unfortunately, as Greens senators acknowledge, there is the real risk that the Kyoto Protocol agreement to reduce carbon emissions will not be renewed when the United Nations climate change summit is held in Durban later in the year.
• In practical terms, the efforts to tax carbon emissions represent a lot of effort to produce little benefit. Australian consumers are likely to be rightly sceptical about whether their cost of living will rise. The Government says 5 million households will be super-compensated for the carbon tax. But until the compensation comes through, consumers will remain sceptical, entrenching “consumer conservatism”. While it is proposed that 90 per cent of households will be compensated, it still means that 10 per cent will be made worse off by the introduction of a new tax.
• In pure economic terms, there will be debate that the carbon tax – as currently proposed – is the right approach. As Professor Judith Sloan pointed out in The Australian on July 9/10, taxation measures are assessed on three grounds: efficiency, equity and simplicity. Professor Sloan argues that the tax fails on all three grounds. Clearly the tax is far from simple, as the Prime Minister acknowledged at the press conference. On efficiency grounds, the tax falls short of ideal for the simple fact that other countries are not moving at the same time. And on equity grounds, some in the community are actually made better off by the introduction of the carbon tax while others are made worse off. In addition, the extent of compensation measures reduces the effectiveness of the tax as it fails to change consumer and business behaviour.
• In political terms, the Federal Government faces significant risks in proposing a new tax on carbon. The tax is far from simple, making the selling job more difficult. The “Clean Energy Future” documents alone total 250 pages. And, rightly or wrongly, the fact that Julia Gillard ruled out a carbon tax ahead of the election will mean that consumers will be sceptical that they won’t be worse off with the introduction of the new tax. Consumer confidence is currently weak with the principal concern being on the rising cost of living and impact on household finances. The new carbon tax won’t ease those concerns – especially in the short term.· If opinion polls show a substantial fall in support for the Government then this will increase political uncertainty. Understandably foreign investors will be reluctant to put money to work in Australia until the carbon tax legislation is passed. There will be on-going hesitancy to invest until the tax begins in July 2012.

What are the details of the proposed tax? (note: much of the detail below is directly taken from Government documents)

• The Federal Government has proposed a “Clean Energy Future” program” that involves:
  • introducing a carbon price
  • promoting innovation and investment in renewable energy
  • encouraging energy efficiency
  • creating opportunities in the land sector to cut pollution.

• The Government has committed to reduce carbon pollution by 5 per cent from 2000 levels by 2020, and by up to15 or 25 per cent depending on the scale of global action. These targets will require cutting expected pollution by at least 23 per cent in 2020. The Government also commits to a new 2050 target to reduce emissions by 80 per cent compared with 2000 levels.

Carbon price

• The Government is proposing a tax of $23 per tonne on carbon emissions to begin from July 1 2012. The carbon pricing mechanism will be fixed for the first three years and will rise at 2.5 per cent per annum in real terms. On 1July 2015, the carbon price will transition to a fully flexible price under an emissions trading scheme, with the price determined by the market.
• A carbon price will be applied to domestic aviation, domestic shipping, rail transport, and non-transport use of fuels. A carbon price will not apply to household transport fuels, light vehicle business transport and off-road fuel use by the agriculture, forestry and fishing industries. Household fuel is exempt from the tax. The Government intends to apply a carbon price to heavy on-road transport from 1 July 2014. This measure was not agreed by the Multi-Party Climate Change Committee.
• There will be a household assistance package and it is estimated that 50 per cent of the revenue from the carbon tax will be spent on household assistance.
• The Federal Government claims that the average household will see cost increases of around $9.90 per week, while the average assistance provided will be around $10.10 per week. The effects of the carbon tax are estimated to lift the Consumer Price Index by 0.7 per cent in 2012/13.
• The cost of electricity for the average family is expected to increase by $3.30 a week with gas up $1.50 a week and food up by $1 a week.
• The Federal Government is also proposing that the revenue raised from the carbon tax will allow the tax-free threshold to be more than trebled to $18,200 in 2012-13. From 2015, the tax-free threshold will be further raised to $19,400.
• The Government estimates that 4 million households will be better off – that is, they will receive assistance that covers at least the average price impact of the carbon price on their cost of living.· Pensions, allowances and benefits will also increase. Pensioners and self-funded retirees will get up to $338 extra per year if they are single and up to $510 per year for couples, combined. Families with two children will get up to $220 in extra Family Tax Benefit Part A, and other families will get up to $110 per child. Families will get up to an extra $69 in Family Tax Benefit Part B. Allowance recipients will get up to $218 extra per year for singles,$234 per year for single parents and $390 per year for couples, combined. Self-funded retirees on the Commonwealth Seniors Health Card (CSHC) holders will get $338 per year for singles and $510 per year for couples, combined, through their Seniors Supplement.

The Climate Change Authority (CCA)

• The CCA will be established by legislation as an independent body to provide expert advice on key aspects of the carbon pricing mechanism and the Government’s climate change mitigation initiatives. The Government will remain responsible for carbon pricing policy decisions with significant and far-reaching implications. A Clean Energy Regulator will be established to administer the carbon pricing mechanism within a limited and legislatively prescribed discretion.

Federal Government initiatives

• Clean Energy Corporation: The Federal Government will invest $10 billion in a commercially orientated Clean Energy Corporation. Of the total $5 billion will be dedicated to investments in renewable energyprojects. The other $5 billion stream will fund investments in renewable energy, energy efficiency and clean technology.
• Australian Renewable Energy Agency (ARENA): The Government has proposed establishing a new,independent statutory body – the Australian Renewable Energy Agency (ARENA). “The Australian Government is funding around $3.2 billion in renewable energy investment to promote the research and development of renewable energy technologies”.
• Carbon Farming Initiative: The Government proposes a Carbon Farming Initiative for farmers and landholders that take steps to reduce carbon pollution. It will do this by creating credits for each tonne of carbon pollution which can be stored or reduced on the land. These credits can then be sold to other businesses wanting to offset their own carbon.
• Clean Technology Investment Program: The program will support manufacturers by providing $800 million in grants to upgrade to less polluting equipment and cleaner technologies. It will boost their international competitiveness and help keep manufacturing strong. Funding will be provided on a co-contribution basis,with industry providing three dollars for every dollar provided by the Government.
• Clean Technology Food and Foundries Investment Program: The Government will provide $200 million in grants to help companies in food processors, metal forgers and foundries industries to upgrade to less polluting equipment and cleaner technologies.
• Clean Technology Innovation Program: The Government will provide grants of up to $200 million through the Clean Technology Innovation Program over five years to support business investment in renewable energy, low emissions technology and energy efficiency. This could support manufacturers to develop new clean technology products.
• Energy Security Fund: The Government proposes an Energy Security Fund. The Government will seek to negotiate the closure of around 2000 megawatts (MW) of generation capacity by 2020 and provide transitional assistance to the most strongly affected coal-fired power stations.

Carbon permits

• The Government will allocate Australian carbon permits to the most emissions-intensive and trade-exposed industries. This will shield eligible businesses from the full impact of a carbon price, while retaining incentives to reduce carbon emissions.
• The most emissions-intensive and trade-exposed activities will initially be eligible for 94.5 per cent shielding from the carbon price. A second category of assistance will provide an initial shielding level of 66 per cent of the carbon price. This will apply to activities assessed as having a lower risk of carbon leakage. LNG projects will also receive a supplementary allocation to ensure an effective assistance rate of 50 per cent, in recognition of the wide dispersion of emissions among some prospective LNG developments. The assistance rates will be reduced by a carbon productivity contribution’ of 1.3 per cent a year to provide additional incentives over time for these industries to reduce pollution.

Assistance for small business

• The Federal Government says that small businesses will benefit from being able to claim an immediate tax deduction for assets costing up to $6,500 under changes to business tax deductions. This will help business invest in more energy efficient equipment and help small businesses to respond to the carbon price. The small business instant asset write-off threshold will be increased to $6,500. This applies to businesses with a turnover of less than $2 million a year.

The Jobs and Competitiveness Program

• The Jobs and Competitiveness Program will support local jobs and production, and encourage industry to invest in cleaner technologies. The ongoing program will provide $9.2 billion of assistance over the first three years of the carbon pricing mechanism, targeted at companies that produce a lot of carbon pollution but are constrained in their capacity to pass through costs in global markets. Assistance will be provided to around 40-50 of these ‘emissions-intensive trade-exposed’ industrial activities, such as steel, aluminium, cement and zinc manufacturing. Businesses producing over 80 per cent of the manufacturing sector’s emissions are expected tobe eligible for assistance under this program.

Additional measures proposed by the Government:(additional to that agreed by Multi Party Climate Change Committee)

Treatment of heavy on-road transport

• The Government intends to apply an effective carbon price to fuel used by heavy on-road transport from 1 July2014 through changes in fuel tax credits. This will significantly broaden coverage of the carbon price as heavy on road vehicles account for over 25 per cent of road transport emissions. Moreover, as rail, domestic shipping and domestic aviation will face an effective carbon price, extending coverage to include heavy on-road vehicles will provide consistent treatment across the freight sector.

Steel Transformation Plan

• The Steel Transformation Plan will provide assistance worth up to $300 million over five years to encourage investment and innovation in the Australian steel manufacturing industry. This will help the sector transform into an increasingly efficient and economically sustainable industry in a low-carbon economy. The Steel Transformation Plan is designed to improve the environmental outcomes of steel manufacturing and promote the development of workforce skills.

Coal Sector Jobs Package

• The Coal Sector Jobs Package will provide assistance over six years to the most emissions-intensive coal mines. The Government has allocated $1.3 billion to this program.

Coal Mining Abatement Technology Support Package

• The Coal Mining Abatement Technology Support Package will provide transitional assistance to help the coal industry implement carbon abatement technologies. Assistance will be provided in the form of grants on a co contribution basis. The Government has allocated $70 million over six years to this program.

What are the implications for investors?

• The United Nations climate change conference in December may not renew the Kyoto agreement on carbon emissions. Simply, there has been a re-assessment of the climate change theory. While the Clean Energy Future documents warn of global warming and point to a similar situation in Australia, long-run figures from the Bureau of Meteorology indicate that the gradual upward trend in temperatures has occurred for almost 150 years. The risk isthat Australia ends up leading the world on an issue whether there is less agreement on the right response.
• The Government gives the impression that it has created the perfect tax – where no one is worse off, in fact some are better off, and Australia takes a lead over other countries to price carbon emissions. But if it was that easy and painless then Governments would have done it years ago.
• The simple fact is that there is a cost to the economy – the budget bottom line is worse off by $4.3 billion with much of that impact actually made in the current financial year. Employment and income are expected to increase with the carbon tax, but will do so at a slower pace than without the carbon tax.
• Foreign investors will continue to be cautious on investing in Australia. If the carbon tax is introduced and runs successfully then foreign investors may warm to Australia – but success is unlikely to be proven for a number of years. There are risks in Australia moving at a faster pace on pricing carbon than other countries. The economy will be negatively affected in the short-term, albeit modestly. And then there is the mining tax, which has yet to be passed by Parliament.
• The Australian dollar is unlikely to be significantly impacted. If anything the impact is mildly negative, but that clearly would be welcomed by miners, rural producers, manufacturers and tourism operators.
• The extent of change and uncertainty for the coal and steel sectors as well as manufacturers will lead to a softening of investment support in the short term.
• While the Government has been generous with income and taxation support for households, consumers are likely to remain sceptical. It is important to remember that household incomes have been rising but the sharp lift in the cost of living – especially gas and electricity bills – has still made consumers cautious about spending. Electricity and gas are inelastic goods meaning that substantial changes in prices lead to only small changes in demand.
• Any increase in the headline rate of inflation makes the Reserve Bank nervous. So the Reserve Bank is more likely to lean in favour of rate hikes in the first half of2012/13 as the new tax gets bedded down.The other risk relates to the potential for business to lift prices in response to higher electricity and gas prices.

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• Confused about where the economy is heading? You’re in good company, with the boffins from the Reserve Bank also seemingly scratching their collective heads about where things are going. Earlier in the year the policymakers appeared confident that the economy would rebound strongly after the floods and cyclones and flagged the risk that this stronger growth would prompt the Bank to lift interest rates to keep inflation under control. But the economy hasn’t bounced as the Reserve Bank expected, reducing the inflation risk.
• So where did the Reserve Bank go wrong? Essentially it under-estimated the “new conservatism” mood that has taken hold among Australia’s consumers. The Bank thought – with jobs relatively plentiful and wages rising –that consumers would start spending again. But a raft of negative influences swamped the strong labour market outcomes, causing people to either save or just leave the dollars in their pockets.
• Not only are people still feeling the effects of the global financial crisis, but there have been the unprecedented floods across Australia, earthquakes in Japan and New Zealand, proposed carbon and mining taxes and the sharp increase in the cost of living such as higher food, electricity, gas and water prices.
• So where do we go from here? Well the positives are still out there. The global economy is still recording above trend growth, led by China and India. Incomes in Australia are being boosted by higher commodity prices. Mining companies are also pushing ahead with key projects. And the job market still generally remains in good shape. So it still seems more than likely that the domestic economy will pick up pace over time. And that means that interest rates are still more likely to rise rather than fall – but it may take a little longer than expected. And it depends whether any new factors come from left field to delay the process even further.
• The big mistake has been to assume that all the extra money coming into Australia was going to be spent. Miners are funnelling the extra dollars into new projects, many of which are capital, rather than labour intensive. Mining still accounts for a relatively small portion of our economy. Sure, the Aussie dollar has gone up, and that means more people are travelling offshore and buying foreign goods. But that doesn’t help our businesses. And while the rising share prices and higher dividends from our resource companies boost compulsory superannuation accounts, most can’t access the savings for decades.

The week ahead

• Investors are constantly trying to build a picture on the economy. Some pieces are big, others small, but each piece is useful. In Australia, some of the smaller pieces of the puzzle are provided in the coming week. Overseas,the focus is on the larger pieces of the puzzle including the latest economic growth figures from China.
• In Australia, the week kicks off with the May housing finance figures on Monday. The number of loans rose by 4.8per cent in April, but it was only the first gain in four months. And while the number of loans could have risen as much as 6 per cent in May, it probably has more to do with refinancing than loans to build new homes. As such it won’t suggest that stronger housing activity lays ahead.
• On Tuesday NAB issues its latest business survey. Both confidence and business conditions remain weak. And judging by recent surveys by Sensis and ACCI, little change in the soft readings is expected. Also on Tuesday the Reserve Bank releases the latest data on credit and debit card lending. Debit cards are favoured at present as consumers prefer to use their own money to buy goods. It would be good if the Reserve Bank started to provide the break-up between domestic and overseas purchases. If card purchases lift, but the dollars are going abroad,then this is hardly positive for Australian retailers.
• On Wednesday the latest consumer confidence figures are issued. With uncertainty about the carbon tax pervading, the latest sentiment figures are unlikely to be positive. On the same day lending finance data is released together with the “Modeller’s Database.” The lending data covers housing, business, personal and lease loans, so the figures provide a good guide to activity in the banking and finance markets. The “Modeller’s Database” includes the latest estimates on private sector wealth. You may not believe it, but Australians have never been wealthier.
• And on Thursday the Bureau of Statistics will provide some greater detail on the labour market such as state and demographic trends and figures on the number of hours worked.
• In the US, the first piece of market-moving economic data is issued on Tuesday in the shape of the latest trade data. The US has a major budget deficit and it also has a significant and persistent trade deficit. Investors aren’t too worried about the trade deficit just yet, but it’s important to note that the deficit remains large even with the weaker US dollar and soft US economy – factors serving to boost exports and constrain imports. A trade deficit near US$44 billion is expected in May. Also on Tuesday minutes of the June 21/22 Federal Reserve meeting are released, so more insights into policymaker thinking will be revealed.
• On Wednesday, Federal Reserve chairman, Ben Bernanke, delivers his semi-annual testimony on the economy.This statement takes on huge importance – Bernanke needs to be sufficiently upbeat on the economy without over-doing it to ensure that confidence and economic momentum is maintained. Also data on import and export prices is released on Wednesday together with the monthly budget figures.
• On Thursday in the US, data on retail spending, business inflation (producer prices) and new claims for unemployment insurance are released. Retail sales are stronger than in Australia and analysts tip a 0.2 per cent lift in non-auto sales. Business inflation is now “normal” with a 0.2 per cent lift in core prices (excludes food and energy) expected for June.
• And on Friday in the US, consumer sentiment, consumer prices and industrial production figures are releases with the Empire State survey thrown in for good measure. Economists tip a 0.2 per cent lift in core inflation and 0.4 percent rise in production. Overall these figures, together with those from earlier in the week, should confirm that the US economy is emerging from its “nap”.
• In China, the monthly download of key economic data occurs on Friday. As well as figures on production and spending, the June quarter economic growth figures are issued. Economists estimate that annual growth slowed a touch from 9.7 per cent to 9.4 per cent.

Sharemarket

• US earnings season kicks off on Monday. As is traditional, Alcoa gets the proceedings underway with analysts expecting earnings of US35 cents a share, up from US13 cents a share last year. Of the 27 other companies scheduled to report over the week, YUM! Brands issues its report on Wednesday with JP Morgan Chase and Google on Thursday and Citigroup on Friday.
• US earnings have been strong over the past year but the effects of the Japanese tsunami, the Greek debt crisis and the slowdown of the US economy will be influences on the results and outlook statements for companies during the earnings season. Overall Brown Brothers Harriman is tipping earnings of Standard & Poor’s 500 companies to be up 13.6 per cent on a year ago.

Interest rates, currencies & commodities

• The semi-annual testimony from the US Federal Reserve chairman, on-going debt woes in Europe, the start of US earnings season and Chinese economic data should be the key influences on financial markets in the coming week. Overall, we are tipping strength, not weakness, with the Aussie holding near US107 cents and commodity prices generally higher over the week.

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• The unemployment rate was unchanged at 4.9 per cent in June. The participation rate edged up from 65.5 per cent to 65.6 per cent. The working age population rose by 19,600.
• Employment rose by 23,400 people in June. Economists had tipped job gains of around 15,000. But the May result was sharply revised lower to show job losses of 500 (previously showed job gains of 7,800).
• Full-time employment rose by 59,000 in June (May jobs were down by 29,400) and part-time jobs fell by 35,600 (Mayjobs rose by 28,800).
• Average hours worked rose 0.5 per cent in June after rising by 0.5 per cent in May. The number of hours worked is up 1.7 per cent on a year ago.
• Across the states and territories unemployment rates in June were: NSW 5.2 per cent (4.9 per cent in May); Victoria4.6 per cent (5.1 per cent); Queensland 5.3 per cent (5.2 per cent); South Australia 5.1 per cent (5.4 per cent); Western Australia 4.2 per cent (4.3 per cent); Tasmania 5.5 per cent (5.8 per cent); Northern Territory 3.7 per cent (3.4 per cent); ACT 4.0 per cent (3.8 per cent).
• Victoria led the job gains in June (up 18,200) followed by South Australia (up 6,900) and Western Australia (up 2,600). NSW led the job losses (down by 17,000), followed by Northern Territory (down 1,000 in trend terms), Tasmania and Queensland (both down 700), and ACT (down 200 in trend terms).

What does it all mean?

• The latest employment data certainly looks robust – especially given the surge of 59,000 new full-time jobs. However it is just one month’s data and the monthly job figures tend to be volatile. Keep in mind that the prior two months saw full-time job losses of almost 80,000. In fact the previous month’s job gains of 7,800 has now been revised to show job losses of 500 people.
• A better indication of the labour market would be the unemployment rate which has effectively gone nowhere for seven months. It is clear that there is a better balance in terms of supply and demand in the labour market. Even annual employment growth rate has eased in recent months from a six-year high of 3.6 per cent to 2.0 per cent in June – the weakest growth rate in 16 months.
• Reading between the lines it is clear that the soft readings on economic activity are being reflected in the job market figures. Manufacturing, construction and the services sector all remain soft, while businesses are trimming new orders and profitability is being affected – given the lack of activity. No doubt the softer economy is ensuring that businesses remain cautious and more circumspect about future hiring.
• Overall the job market is in reasonable shape, but it is now going sideways. Certainly today’s result accords with the views of the Reserve Bank that the job market isn’t overly tight at present. Overall the Reserve Bank will remain hesitant about increasing interest rates anytime soon. CommSec is still pencilling in one rate hike over the next six months but the data flow would have to record a substantial improvement to justify the rate hike.
• Across the states the bulk of the job losses were recorded in NSW – consistent with the other key data releases this week showing weak retail spending and even weaker building approvals. It’s also worth noting that if you add up the employment results for the individual states the job gains total a much more sedate 8,100 instead of 23,400. It seems the seasonal adjustment process is playing a part in the overall result.

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