Gareth brings more than 20 years of experience across financial markets, economic policy and sovereign debt management in both Australia and the United Kingdom. His background spans senior roles in government and financial institutions and includes deep expertise in macroeconomic analysis and policy interpretation.

Most recently, Gareth served as Head of Australian Economics at the Commonwealth Bank of Australia (CBA), where he led the development and communication of the Group’s central view on the domestic economy and monetary policy outlook. Under his leadership, CBA’s economics team was recognised as one of Australia’s leading macro research groups.

Gareth is widely regarded for his ability to translate complex economic themes into clear, practical insights for advisers and investors. He has presented extensively to institutional audiences, adviser networks, boards and policymakers, and is a regular contributor across Australian media. His earlier career includes senior roles at the UK Debt Management Office and NSW Treasury. Gareth holds a Master of Commerce and a Bachelor of Agricultural Economics (Honours) from the University of Sydney.

Supporting advisers with continued depth and insight

In his new role at Evidentia Group, Gareth will be responsible for leading the firm’s macroeconomic research capability, providing deep strategic insights into interest rates, inflation, currency movements and global market forces. His work will support advisers with clear and nuanced perspectives on portfolio positioning — helping them guide clients through changing economic conditions with confidence.

Evidentia Group Chief Investment Officer, Darren Beesley, welcomed the appointment, saying, “Gareth is one of the most respected economic voices in Australia. His ability to connect big-picture economic themes with practical investment decisions will be invaluable to our advisers and their clients. We are thrilled to welcome him to our investment team.”

Gareth said he is excited to join Evidentia Group at a pivotal time for economic policy and markets, “The investment landscape is evolving rapidly, and advisers are looking for clear, evidence-based guidance to help clients navigate uncertainty. I’m looking forward to contributing to Evidentia’s investment process and helping advisers turn economic insight into real strategic advantage.”

Gareth will officially join the Evidentia Team in early April, reporting into Chief Investment Officer – Darren Beesley.

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The quarterly report analyses how the States and Territories are performing across a range of economic indicators and detail our key economic forecasts for each region.

Read the report.

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The big picture

Australia’s population is estimated to have clocked 24 million during the March quarter. The annual growth rate has been tracking around 1.4% for the past six quarters. It is quite a bit lower than the pre‑GFC boom years when population growth was running around 2.0%pa. But it remains high by OECD standards and is considered to be a strong pace.

Robust population growth means the economy needs to be expanding at a faster rate than otherwise to achieve full employment. That of course means that the economy has the capacity to expand at a faster rate too. The slowdown in Australia’s population growth rate is a contributing factor to why most estimates of trend growth for the economy have been lowered in recent years – both Treasury and the RBA have lowered their estimates of trend growth to be in 2¾‑3% range. In the short run, however, the economy can expand above that pace because; (i) the unemployment rate is above the non‑accelerating inflation rate of unemployment (NAIRU) and can move lower; and (ii) productivity in the resources sector will continue to lift as production comes on stream.

The major driver behind Australia’s population growth continues to be net overseas migration (NOM). However, its contribution to growth has come down over the past few years. Both sides of federal politics favour high levels of immigration to partially offset some of the effects from the ageing of the population. It also allows the economy to grow at a faster rate than would otherwise be the case which boosts aggregate demand. And it has significantly boosted demand for housing which flows through to higher prices.

The ‘grey army’ – those aged 65 and over – has continued to grow as a share of Australia’s population. The growth of this age cohort underpins the structural decline in labour force participation. The ageing of the population has increased the dependency ratio (the age‑to‑population ratio of those typically not in the labour force) which underpins the need for fiscal reform, particularly tax policy.

The detail

Australia’s population is estimated to have risen by 328k in QI (+0.4%). The lift takes the population to 24.1 million as at March 2016. NOM was 181k in the year to March 2016, up from 177k in the year to March 2015. But well down from the peak of 315k in 2008.

Population growth is well above the national rate in Victoria. This underpins very strong employment growth in the Garden State, robust residential construction and strong State Final Demand (SFD). It does little for per capita SFD growth, however. The decline in mining investment and associated downturn in mining‑related employment has contributed to a sharp slowdown in WA’s population growth rate.

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Overview

Investment is essential to both long run job creation and productivity growth, which ultimately drives real income growth. For most economies, investment is generally divided into two groups – public and private.

In Australia, however, we tend to think of capital expenditure as split into three strands – mining and non‑mining private investment (such is the size of the resource sector) and public investment.

Over the past few years, capex in Australia has been falling as a share of the economy. Mining investment was always going to decline as the once‑in‑a‑century mining boom ended. But non‑mining investment has not picked up over that period despite incredibly low interest rates and a significantly lower AUD.

At the same time, public investment has also been soft. There are a myriad of reasons why non‑mining investment has been weak and we covered them back in February.

But the same constraints don’t apply to public investment. Given soft private investment and robust population growth in Australia, it makes economic sense for public investment to fill some of the capex pothole, particularly given the overreliance on monetary policy to stimulate growth.

In this note, we shine the spotlight on public investment to look at what has been happening over the recent past. We then trawl through the latest budget papers to examine what we can expect over the period ahead.

Our findings lead us to conclude that the contribution to growth from public investment will be around 0.4ppts in 2016/17.

We argue that more can (and should) be done, particularly given borrowing rates are at record lows, monetary policy is being stretched and the economy is operating below its potential. It requires, however, the political will and a co‑ordinated policy response between the three tiers of government.

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Employment

The reported increase in jobs was modest. But the composition shows that there was a big lift in full‑time jobs partially offset by a sizeable decline in part‑time jobs. Policymakers will welcome these latest developments because they buck the trend observed over the past year in which part‑time job creation materially outweighed gains in full‑time employment.

Unemployment

The unemployment rate lifted a touch to 5.8% but the participation rate also edged higher. The Australian economy needs to generate around 15k jobs a month to keep the unemployment rate flat on an uncharged participation rate. In that context, a rise in the unemployment rate was inevitable based on modest employment growth and a lift in the participation rate.

The trend

Cutting through the volatility shows that monthly jobs growth over the past four months has averaged 13k. Normally such an outcome would be associated with a flat (or possibly increasing) unemployment rate. But a downward move in the participation rate has meant that the “trend unemployment rate” has been moving lower. We expect the unemployment rate to move sideways over the rest of 2016.

Hours worked

Hours worked fell by 0.3% to be just 0.6% higher over the year. This is consistent with stronger growth in part time employment (+134.1k) relative to full time (+94.1k). Average weekly hours worked in full‑time jobs has been steady in recent months at 38.4, after trending down over the first three months of the year. This move lower can be explained by the shift away from mining sector jobs where overtime is common. Average hours worked in part‑time employment remained steady at 16.8 hours.

Rotation impacts

Economic boffins love to analyse statistics and the ABS has provided some statistical fodder in its commentary today on rotation impacts. Each month the ABS surveys about 26,000 households for the labour force release. One‑eighth of the group, about 3,250 homes, leave the survey each month and a new 3,250 household are ”rotated” in. This has the potential to cause big volatility in the numbers because on any given month the employment status of the new households rotated in could be quite different from those rotated out. We were expecting a soft headline number today (i.e. CBA below consensus on employment change) because the group being ‘rotated out’ had a much higher employment to population ratio than then the average of the sample. That is, the odds lay with the incoming group having a lower employment to population ratio than the group going out. Indeed, the ABS confirmed this to be the case yesterday.

The ABS stated that the group being ‘rotated’ in for the June employment report had a lower employment to population ratio than the group it replaced (63.1% vs
63.6%). They also went on to add that the proportion of full‑time workers was
also lower for the group being rotated in compared with the group being rotated out.

In other words, the net impact of group rotation in June was a negative for both the level of employment and the number of full‑time workers. Yet despite this, the overall level of employment lifted in June and the number of full‑time workers rose. To us, that suggests a stronger underlying pulse of job creation than today’s headline numbers imply.
States: Across the States, there was solid jobs growth in Victoria (+24.2k) and SA (+5.9k). Employment declined the most in NSW (‑11.9k) and WA (‑10.3k). Over the year, NSW and Victoria have accounted for the lion’s share of jobs growth, while employment in the mining states of QLD and WA is broadly unchanged compared to a year ago

Leading indicators

The leading indicators of employment growth are mixed. The vacancies series are pointing to only modest growth but the NAB business survey continues to suggest solid employment growth. On balance, this points to modest jobs growth and we tend to agree with the RBA’s assessment that “labour market indicators have been mixed of late, but are consistent with a modest pace of expansion in employment in the near term.

RBA

Yesterday’s figures on their own don’t really shift the dial from an RBA perspective for the August meeting. The report was decent enough for policy to be left on hold. But if their focus is on inflation, as we suspect, then it’s all about the QII CPI report published in two weeks. Essentially the employment data isn’t strong enough to fend off a rate cut but it’s not weak enough to justify one on its own either. The decision around rates in August will come down to the Bank’s assessment of inflation. We expect a soft CPI report in two weeks which is likely to result in the RBA responding with further policy easing. But a rate cut in August is far from guaranteed, particularly given the recent lift in activity in the housing market. Roll on the 27th of July for the QII CPI.

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For the past few years, economists and policymakers have assumed that a lift in non‑mining business investment was forthcoming. A trawl through RBA documents and speeches shows that policy officials have been anticipating a lift in non‑mining investment for a few years. And yet despite incredibly low interest rates and a significantly lower AUD, the lift remains elusive. It has felt a lot like waiting for Godot.

Fortunately, however, there has been a greater than expected pickup in services activity which has generated a fall in the unemployment rate despite weak non‑mining capex. This has supported the economy and employment growth over the past two years. But for the productive capacity of the economy to lift over the longer term, a lift in business investment outside of the resources sector is required.

In this note we ask the question why non‑mining business investment has been so weak. We propose a number of reasons why we are yet to see a lift in capex. And we argue that the reason for a lack of investment goes beyond the level of interest rates and the AUD ‑ these cyclical drivers of business investment are at levels that support rather than hinder investment. Rather, it is a range of other forces at play which are holding investment back. We then take a look at the outlook for business investment in 2016 and what it is likely to mean for growth and monetary policy.

What’s been happening?

There is no shortage of information and literature covering Australia’s mining investment boom. In a nutshell, Australia had a once in 150yr mining investment boom that saw business capex as a share of GDP soar to a record high. During the mining investment period, non‑mining investment fell. But there was an assumption amongst policymakers and economists that non‑mining investment would lift again once mining investment peaked. Low interest rates and a lower exchange rate would help.

The mining investment peak has occurred (late 2012), but since then there has not been a pickup in non‑mining capex. RBA estimates conclude that in the year to QIII 2015, mining investment fell by 28.9% while non‑mining investment fell by ‑0.1%. So non‑mining investment has been flat over the past year which means it has fallen as a share of GDP. Naturally, the question to ask is why? We explore a few possible explanations.

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This report digs below the headline numbers and compares outcomes across Australia’s States and Territories.

CBA Economics analyses how the states and territories are performing across a range of economic indicators and details their key economic forecasts for each region.

This report is published quarterly.

Click here to read the report.

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RBA Assistant Governor Chris Kent delivered a speech on “Recent Labour Market Developments” at an Economic Society luncheon in Brisbane.  Kent was frank in his admission that, “the labour market has been adjusting more smoothly over the past year than we [the RBA] had been expecting.”

Kent’s speech reiterated the RBA’s opinion that the unemployment rate should be “little changed from recent levels over the next 18 months or so, before declining in 2017.”   Previously the Bank was of the view that the unemployment rate would gradually rise to around 6½% by mid‑2016.

A significant chunk of the speech was devoted to reconciling the “better‑than‑expected labour market outcomes” with below trend GDP growth.  Four possible explanations were put forward: (i) softer population growth; (ii) sharply slowing wages growth; (iii) a shift in the composition of growth towards more labour intensive sectors; and (iv) labour force / national accounts data issues.

Outside of the mining sector, the compositional change in demand towards more labour‑intensive industries in Australia has been underway for decades.  But as Kent noted, the fall in the AUD has encouraged, “Australians and foreigners to direct more of their spending to Australian tourism, education and business services.”

This clearly goes some way to explaining the disparity between below trend growth and a flat unemployment rate.  For example, the tourism industry accounted for 2.7% of GDP in 2013/14.  But it represents 4.6% of total employment in Australia.  The evidence of the compositional change shows up in Australia’s services exports which have risen steadily over the past two years.  Services imports, on the other hand, have declined.  We expect this trend to continue largely as a result of AUD weakness.

In our view, trend growth in Australia has fallen in recent years.  This means that there is probably less spare capacity in the economy than some commentators assume.  And if we are correct, it means that there is potentially less wriggle‑room for the RBA to cut rates further without putting some upside pressure on underlying inflation.

Overall, last week’s speech doesn’t shift the monetary policy dial.  If anything, it further cements the RBA’s view that we are at the peak in the unemployment rate.  We agree with that assessment and it’s essentially our views on the labour market that underpin our thinking on the cash rate.  While rate cuts are still “on the table”, the Bank’s assessment that the unemployment rate should be “little changed over the next 18 months” means the risk of a near term rate cut look low.  In addition, the AUD now looks quite content to be in the low 70s which we view as the ‘sweet spot’ for the RBA.  We see the RBA on hold at 2.0% from here.

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• Employment fell by by a small 2.9k in April following an upwardly revised 48.1k lift in March (previously reported as +37.7k).
• The fall in employment was driven by a 21.9k fall in full‑time jobs largely offset by a 19.0k increase in part‑time employment.
• The unemployment rate edged up a tad to 6.2% and the participation rate was unchanged at 64.8%.
• Leading indicators of employment are pointing to continuing modest jobs growth over the period ahead.

Context matters!

Yesterday’s small headline fall in employment of 2.9k missed market expectations which were centred on a small rise of 4.0k (CBA {f} +10k).  But the result needs to be taken in the context of the previous month’s employment figures, particularly given the upward revision to the March figures.  According to the ABS, employment lifted by 48.1k in March (previously reported as +37.7k) and by 38.0k in February.

So monthly jobs growth over the past three months has averaged 27.8k, which is a little above the required number to keep the unemployment rate flat.  Indeed, the trend unemployment rate, which smooths out the monthly volatility, has moved a little lower since October 2014 (down 0.08ppts).  It suggests some stabilisation in the labour market which is commensurate with what the forward looking indicators have been indicating for the past six months.

Employment growth in Australia in now estimated to be running at 1.5%pa which looks about right when married up against other indicators like the PAYG tax revenue data (see chart over the page).

The highly volatile monthly hours worked in April lifted by a solid 1.1% in spite of the ABS reporting there was a fall in full‑time jobs over the month.   There has been a solid uptrend in average hours worked recently (see chart on right) which is generally considered a positive sign for the future direction of the labour market.  It does, however, suggest that productivity in the economy is likely to have softened a bit recently.

Across the States, there were job gains in NSW (+9.8k) and QLD (+5.2).  Falls were recorded in Vic (‑4.9k), SA (‑0.5k), WA (‑10.4k) and Tas (‑1.0k).  Cutting through the monthly noise shows that Vic and NSW are driving national employment growth which reflects in part the strong residential upturn underway in both Sydney and Melbourne.  Employment growth has slowed considerably in WA as the mining construction boom wanes.

Yesterday’s employment figures don’t shift the dial from a monetary policy perspective.  They confirm that there is still plenty of spare capacity in the economy, but that jobs growth has been reasonable of late.  Since the RBA published its February Statement on Monetary Policy, the monthly jobs figures have come in a little better than the Bank would have assumed in their forecasts.  There has been reasonable jobs growth over the past three months and the unemployment rate has essentially tracked sideways.

Notwithstanding, we expect the RBA to reaffirm its dovish stance in tomorrow’s SMP while it assess the impact of rate cuts to date. But they are likely to say that employment growth has been a little stronger more recently.

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In this analysis, CBA Economics outline how the States and Territories are performing across a range of economic indicators and detail our forecasts for State outcomes. This report is published quarterly, following the national quarterly GDP results.

Click here to view the report.

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