• Industry employment: Employment rose by 14,400 over the three months to May – the smallest quarterly increase in three quarters but after strong gains in the previous six months.
• Shift in rankings: The Professional, Scientific and Technical Services sector is now the fourth biggest employer in Australia, moving past Manufacturing for the first time.
• Employment rose in 9 of the 19 industry sectors. The largest job gains was in Professional, Scientific and Technical Services (up 47,000), followed by Rental, Hiring and Real Estate Services (up 29,000).
• Population: Australia’s population 1.73 per cent over the year to December 2013, down from 1.78 per cent in the year to September. Australia’s population stood at 23,319,385 people at the end of December 2013.
• NSW Population lifts:  The NSW population grew by 1.5 per cent in the year to December, the fastest in four years and underpinning the lift in the economy over the past year. Tasmania’s population is growing at the fastest rate in two years.

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Weaker Australian dollar creating opportunity in many sectors.

The weaker $A will benefit tourism, education, agricultural and even the mining industry, a leading fund manager says.

Pengana Capital’s Australian equities fund manager Rhett Kessler says ‘a lower $A represents lower global purchasing power for us as consumers. However, we expect several important domestic industries to benefit materially from the currency shift’.

‘These include the tourism, education, agricultural and even, dare we say it, mining industry. Many companies have been forced to streamline their operations to cope with the high $A.’

Although we have been biased towards a weakening $A for some time, the speed of its decline has been surprising.

Kessler is pessimistic about the short- to medium-term outlook for discretionary spending and employment levels, despite the falling $A possibly translating into very high profits for some companies.

‘Having said this, we expect most domestically orientated companies to report muted trading activities (at best) while also being cautious in their outlook statements.

‘The recent unusual political activity continues to impact negatively on consumers and corporates alike while the unseasonably warm winter has severely dented discretionary fashion retail sales.’

Commenting on the US Fed ‘frightening’ investors during May and June with several ‘tapering’ of fiscal stimulus statements, Kessler says the Fed highlighted its flexible approach to ensure a sustained US economic recovery.

This saw a widespread relief rally with most equity markets – S&P500 (+4.9 per cent), FTSE 100 (+6.5 per cent) and the Euro Stoxx 50 (+6.4 per cent), closing significantly higher.

The Australian market followed with resources (+10 per cent), materials (+9 per cent) and energy (+6 per cent) leading the charge.

Conversely the weaker sectors were REITS (-1 per cent), information technology (0 per cent) and consumer staples (+1 per cent).

The Australian dollar continued its slide against the US dollar falling another 2 per cent (to print) to below 90c for the first time since August 2010.

‘It appears that the combination of political uncertainty, a deteriorating fiscal position, weakening mining sector and persistent concerns regarding the outlook for the Chinese Economy continues to weigh on the domestic economy (read lower interest rates) and consumer confidence,’ he says.

The long list of companies issuing profit warnings during the lead-up to the 2013 financial year reporting season has highlighted the impact these issues are having on trading conditions.

Mining services companies have been hit particularly hard due to the triple whammy of:
a) a difficult comparison with a robust prior period
b) the sharp slowdown in mining activity generally
c) the effect of the larger mining houses laser-like focus on cost-cutting

While this may provide some relief for financial and industrial companies due to less competition for scarce resources (labour and capital in particular), the transition is expected to take some time and be the source of some pain, says Kessler.

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• Mining recorded the biggest increase in value added in 2011/12, up 6.7 per cent, ahead of agriculture, up 6.3 per cent.
• The Bureau of Statistics has released other detailed estimates on the economy’s performance in 2011/12. The net worth (wealth) of Australia – total assets less liabilities – stood at $8,367.7 billion as at June 30 2012, up by 2.4 per cent over the year in real terms (up 1.3 per cent , nominal) after a 2.6 per cent increase in 2011/12.
• The value of all Australian homes hit a record $1,599.9 billion at June 30, up 2.7 per cent over the year.
  Labour productivity in the market sector fell by 0.3 per cent in 2010/11 after a strong 2.7 per cent increase the previous year. Productivity was best in agriculture (up 15.2 per cent) while it was worst in mining (down 16.4 per cent).

What does it all mean?

• The annual National Accounts data has certainly provided a treasure trove of information on the domestic economy. And while it may not be market moving data it will certainly help policymakers garner a clearer picture of the current economic landscape. 
• The latest data has quantified the dependence of the economy on the mining sector. Over 2011/12 the mining sector became the biggest driver of the Australian economy surpassing the Financial & Insurance sector.
• In fact it was the mining sector that recorded the biggest increase in value, adding 6.7 per cent in 2011/12. And whichever way you cut it, the mining sector looks set to play an important role in the economic recovery. The result also confirms the disparity in growth across the states truly highlights the multi-speed nature of the economy.
• In recent times the Reserve Bank has admitted that the mining investment boom may peak earlier than previously anticipated. However the main driver of the mining growth story over the next decade is going to be the volume boom that comes with more producing assets and larger capacity.    
• The Reserve Bank would be more disappointed with the weakness in labour productivity over the past year. Productivity has been discussed by policymakers on numerous occasions in the past year. The terms of trade has peaked and any growth in real wages over the mid-term needs to be as a result of a pickup in productivity. Otherwise it is likely to fuel inflation. Interestingly the mining sector has been the least productive over the past year – largely due to the strong hiring in the sector and the time it takes to embed a relative new labour force. And more importantly, given lower commodity prices and high costs of production it is likely that the mining sector will become more productive over the coming year.
• In recent weeks there have been signs of an improvement taking place in the global economy. However the Reserve Bank is likely to remain focussed on the downside risks to the global economy. No doubt the ongoing patchiness across the domestic economy and cautiousness being shown by consumers and businesses will continue to ensure that the Reserve Bank remains on an easing bias.
• In addition given that the terms of trade index has peaked, it has ensured that there is additional capacity in the economy to allow the household sector more breathing space. As such CommSec expects the Reserve Bank to cut interest rates by a quarter of one per cent next week.

What do the figures show?

• Mining has become the biggest driver of the Australian economy. The gross value added of the Mining sector was $139.95 billion in 2011/12, ahead of Financial & Insurance services at $137.55 billion. Mining recorded the biggest increase in value added in 2011/12, up 6.7 per cent, ahead of agriculture, up 6.3 per cent.
• The net worth (wealth) of Australia amounted to a record $8,367.7 billion at 30 June, up 2.4 per cent in real terms after a 2.6 per cent gain in 2011/12. In volume terms net worth was a record $8486.1 billion.
• Household wealth stood at $6,373.4 billion in 2011/12, down 2.3 per cent in nominal terms. The net worth of Australian businesses (non-financial) hit a record high of $691.6 billion at June 30.
• The value of all Australian homes stood at a record $1,599.9 billion at June 30, up 2.7 per cent over the year.
  National net saving rose from $126.3 billion (9.0 per cent of GDP) to $144.3 billion (9.8 per cent of GDP) in 2011/12.
• Labour productivity rose by 2.9 per cent in 2011/12 after rising by 0.2 per cent the previous year. Capital productivity fell by 3.0 per cent in 2011/12, after a 2.4 per cent fall the previous year. In the market sector, multi-factor productivity rose by 0.3 per cent in 2011/12 after a 0.9 per cent fall the previous year.
• Labour Productivity was strongest in agriculture (up 11.1 per cent) followed by wholesale trade (up 7.6 per cent). Productivity fell the most in mining (down 12.1 per cent) followed by electricity, gas, water and waste services (down 3.7 per cent).

What is the importance of the economic data?

• The Australian Bureau of Statistics releases the Australian System of National Accounts publication each year. The data includes the national balance sheet, estimates of productivity and a comprehensive assessment of Australia’s performance over the last financial year.

What are the implications for interest rates and investors?

• The mixed nature of current economic conditions is clear from the latest National Accounts data. Northern Territory, Western Australia and Queensland are benefitting from the mining boom. But other states are struggling.
• At present there are downside risks to domestic growth, however the longer term story is sound. An improvement in business conditions is the key to businesses committing to investment plans, which in turn will drive activity levels once the recovery becomes more entrenched. But the Reserve Bank will need to do its part by keeping interest rates in a stimulatory setting over the near term. In addition, productivity still remains an issue, with further ongoing improvement needed. We continue to pencil in a further rate cut in next week.

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• The mining sector is now the primary driving force behind the Australian sharemarket. In terms of volumes of shares traded in March, mining volumes were double that of a year ago while the number of
  industrials shares traded were down by 4 per cent.
• In value terms, trading of industrials shares still dominate, but it has fallen in annual terms for the majority of the past year. Mining shares are up 37.2 per cent on a year ago.
• Over the past year the Small Resources index has soared by 25.9 per cent whereas the ASX 100 Resources index has lifted just 9.9 per cent.

What do the figures show and what does it mean?

• Forget about the banks, retailers, media stocks and technology, it is mining shares that are in vogue at present, driving both the volume and value of shares traded on the Australian Stock Exchange.
• In March, $85.8 billion industrials shares were traded, the highest amount since May last year. But in annual terms share trade was 5.1 per cent lower than a year ago. Trading in mining shares is still lower than industrials at $53.4 billion, but it was the second highest monthly total in three years and up a hefty 37.2 per cent on a year ago.
• The value of Industrials shares traded has only grown once in the past nine months while shares of mining shares traded has consistently grown, averaging 24 per cent annual growth.
• In volume terms, trade in mining shares took over from industrials in September last year. In March 2011, 49.5 billion mining shares were traded, up 97 per cent on a year ago. Industrials shares traded in March stood at 32.6 billion, down 4.4 per cent on a year ago. Trading in mining shares took off in August 2009, with annual growth averaging a staggering 80 per cent over the period.
• Over March the All Ordinaries and ASX 200 both rose by just 0.1 per cent. The ASX 100 Resources index was up by 1.9 per cent to the highest level since February 15 2011.

• Interestingly, the biggest Resources companies were most in favour over March; no doubt foreign investors were attracted in response to a weaker Aussie dollar. While the ASX 100 Resources index rose 1.9 per cent in March, the Small Resources index fell by 2.4 per cent. Still, the ASX 100 Resources index rose 9.9 per cent over the past year while the Small Resources index rose by 25.9 per cent. The Small Industrials index rose by just 1.7 per cent.

What are the implications for investors?

• There are two factors that investors need to focus on. The first is China – if investors continue to expect China will grow strongly and suck in resources then they will embrace large and small mining and energy shares.
• The other influence is the Aussie dollar. Whenever the Aussie loses ground, foreign investors come out of the cupboard, embracing large cap shares.
• And herein lies the distinction. Foreign investors must take into account the US dollar price of Aussie shares whereas domestic investors in smaller mining and energy companies don’t need to worry about currency factors – rather they focus on the outlook for individual companies.
• The Small Resources index began to outperform the large cap resources stocks (ASX 100 Resources) in September last year when the Aussie dollar recovered from the European debt crisis. The stronger Aussie proved a real barrier to foreign investor interest.
• Foreign investors own around 43 per cent of all Aussie shares so clearly the value of the Aussie dollar is important in purchasing decisions.

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