• Employment rose by 26,100 in March after rising by 700 in February (previously reported as a rise in jobs of 300). Full-time jobs fell by 8,800 while part-time jobs rose by 34,900. Economists had tipped a 17,000 increase in jobs.
• Hours worked fell by 1.1 per cent in March. Hours worked are up by 0.7 per cent over the year.
• Jobless rate: The unemployment rate fell from 5.8 per cent to a 2½-year low of 5.7 per cent in March (lowest since September 2013). The trend unemployment rate held steady at 5.8 per cent – a 27-month low. The participation rate was steady at 64.9 per cent.
• Unemployment across states in March: NSW 5.3 per cent (February 5.3 per cent); Victoria 5.7 per cent (6.0 per cent); Queensland 6.1 per cent (5.6 per cent); South Australia 7.2 per cent (7.7 per cent); Western Australia 5.5 per cent (6.0 per cent); Tasmania 6.8 per cent (6.9 per cent). In trend terms unemployment in the Northern Territory rose from 4.4 per cent to 4.5 per cent; ACT unemployment fell from 4.5 per cent to 4.3 per cent.
  ¾ In smoothed terms, discount fares fell by 3.6 per cent over the year to April. But business class airfares rose at a smoothed 7.4 per cent annual rate with “restricted economy” fares up by 3.6 per cent

What does it all mean?

• The latest employment result was just what households and businesses ordered. After a couple of months of consolidation, employment has recorded a sizeable rebound. And while the pessimists may focus on the fact that hours worked fell in the March, the slide in the unemployment rate to 5.7 per cent – the lowest levels in 2½ years – will provide a big boost to confidence amongst Aussie consumers. And as we saw over the latter part of 2015, job security plays a big part in household consumption.
• Labour market conditions have certainly improved over the past year; business conditions are healthier; profitability has improved; and more importantly the housing sector is providing significant support to an array of industries.
• After racking up almost 300,000 new jobs in 2015, there was likely to be inevitable period of consolidation. And the volatility in financial markets in the early part of 2016 was unlikely to see businesses commit to significant hiring. The employment growth in March is a positive shift in momentum, however while we expect employment to strengthen over 2016, it is likely that employers will be more circumspect in hiring given the uncertainty around the timing of the Federal Election.
• The Reserve Bank will be comforted by the latest job market figures. No doubt it would like to see a lift in productivity but that will take time as the significant new job hires over 2015 get settled into their new working environments. In addition policymakers will take the latest figures with a degree of caution given the seasonality issues with the early timing of Easter and even the extra day in February (leap year). The key will be the inflation data, due on April 27. A super low inflation result would allow the Reserve Bank to contemplate another rate cut – in effect asking the question whether the economy could run at a faster pace without creating asset bubbles. We expect rates to remain on hold over the next couple of months.
• The Reserve Bank will also be heartened that the youth jobless rate (15-24 year olds) fell from 12.2 per cent to a near 3-year low of 12 per cent.
• It pays to shop around. That is common advice but it certainly is the case with airfares. In smoothed terms, discount airfares are almost 4 per cent lower than a year ago but business and full fare economy fares are up on a year ago – over 7 per cent higher in the case of business fares. With plenty of people travelling – especially businesspeople – airlines aren’t keen to trim fares.

What do the figures show?

Labour force:

• Employment rose by 26,100 in March after rising by 700 in February (previously reported as a rise in jobs of 300). Full-time jobs fell by 8,800 while part-time jobs rose by 34,900. Economists had tipped a 17,000 increase in jobs.
• Hours worked fell by 1.1 per cent in March. Hours worked are up by 0.7 per cent over the year.
• The unemployment rate fell from 5.8 per cent to a 2½-year low of 5.7 per cent in March (lowest since September 2013). The trend unemployment rate held steady at 5.8 per cent – a 27-month low.
• The participation rate was steady at 64.9 per cent.
• A total of 235,300 jobs were added over the year to March. The annual growth rate eased from 2.1 per cent to 2 per cent. In trend terms, employment has risen for 28 consecutive months.
• The working age population rose by 30,900 in March. The working age population rose by 285,600 over the past year. The working age population is up 1.49 per cent over the past year.
• Unemployment across states in March: NSW 5.3 per cent (February 5.3 per cent); Victoria 5.7 per cent (6.0 per cent); Queensland 6.1 per cent (5.6 per cent); South Australia 7.2 per cent (7.7 per cent); Western Australia 5.5 per cent (6.0 per cent); Tasmania 6.8 per cent (6.9 per cent). In trend terms unemployment in the Northern Territory rose from 4.4 per cent to 4.5 per cent; ACT unemployment fell from 4.5 per cent to 4.3 per cent.
• Jobs across states and territories in March: NSW +4,800; Victoria +10,600; Queensland -15,400; South Australia +4,600; Western Australia +16,600; Tasmania +800. Trend terms: Northern Territory -600; ACT unchanged.

Airfares

• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) reports that business class airfares fell by 0.2 per cent in April to stand 6.2 per cent higher than a year ago. Earlier in February airfares were up 8.2 per cent on a year ago – the strongest growth in 10 months. In smoothed terms, business class airfares are up 7.4 per cent on the year, the fastest growth pace in 13 months.
• “Restricted economy” airfares also fell by 0.2 per cent in April after rising by 0.1 per cent in March. Restricted economy airfares are up 3.6 per cent on a year ago. In smoothed terms restricted economy fares were also up 3.6 per cent over the year. Airfares have been rising at a 6.5 per cent average annual pace for the past three years.
• Discount airfares remain volatile. Discount fares rose by 6.4 per cent in April after falling by 6.6 per cent in March and rising by 7.5 per cent in February. Discount fares are 9.9 per cent higher than a year ago after being down 13 per cent on a year ago in March. In smoothed terms, discount airfares are down 3.6 per cent on a year ago.
• In real terms however, discount airfares are only 6.0 per cent above the lowest levels recorded (March 2011).

Why is the data important?

• The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.
• If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.
• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases regular aviation data. The BITRE releases Airport Traffic data and the Australian Domestic Airline Activity publication each month as well as the Domestic Air Fares publication. The data provides insights on airline activity as well as trends in the broader Australian economy. If more people are flying, then it suggests businesses are more active and/or consumers are more confident.

What are the implications?

• Interest rates remain on hold. The Reserve Bank will want to assess a lot more data before deciding the next move on rates.
• The Bureau of Statistics has estimated that the number of people in the working age population. Rather than rising by 22,300 a month, the increase in the past three months averaged almost 31,000 – the biggest increase in almost two years. If this assumption is correct and retained, it may make it more difficult for the jobless rate to ease further in the next few months.

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• 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 Northern Territory has leapfrogged the ACT to become the second-best performing economy. But the big changes have been below with now little to separate the ACT and Queensland. NSW and Victoria follow and are closely grouped together. 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 on only one of the eight criteria – retail spending. Western Australia is now second on six of the eight indicators, and fourth on dwelling starts.
• The jump in the rankings of Northern Territory to second place is due to improvements in business investment, and unemployment. Queensland recorded solid strength in business investment and in housing finance propelling it into equal third with the ACT.

Western Australia still on top; NT moves up to second. ACT and Queensland now equal third.

• Western Australia remains Australia’s best performing economy, while the Northern Territory has jumped ahead of the ACT. NSW and Victoria, are now equal fifth.

•  Western Australia leads the way on retail trade. It is second strongest on economic growth, business investment, construction work done, housing finance population growth and unemployment; and finished fourth on dwelling starts.
• The Northern Territory is now the second strongest economy with main strengths being economic growth, construction work, retail trade, dwelling starts and a huge improvement in unemployment. The Northern Territory is now third strongest in business investment. But it also in last place on housing finance.
• The ACT slipped down to third spot alongside Queensland. The ACT’s main weakness was a loss of momentum in terms of business investment. It also finished fifth on retail trade, unemployment and construction work.
• In contrast Queensland was the best performer when it comes to business investment, third strongest on economic growth, retail trade and construction work and a noted improvement over the quarter in housing finance (moving from sixth to fifth place). Queensland placed seventh strongest for population growth.
• There is still little separating NSW, and Victoria in terms of relative economic performance. NSW is third strongest on unemployment, population growth, housing finance and dwelling starts. Victoria is strongest on housing finance and fourth strongest on retail trade, business investment and population growth. But at the other end of the scale, NSW is seventh on economic growth while Victoria is seventh on construction work.
• There is then a gap in the rankings to South Australia. While the state is middle ranking on construction work, and fifth on business investment it is sixth or seventh on every other indicator.

Tasmania remains locked at the bottom of the Australian economic performance table. Tasmania lags all other economies on all of the indicators except for being sixth strongest on housing finance. The strength in housing finance may provide the state economy with a platform for improvement in coming quarters. Housing finance is up 20 per cent on a year ago, but still down 11 per cent on ‘normal’ or decade-average levels. But stagnant population growth is reducing activity across the economy, with added weakness in commercial, 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 4 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 four of the state and territory economies, 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.

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. Exclusion of the trade sector would provide an incorrect assessment of growth for economies such as Western Australia and Queensland.
• The Northern Territory continues to lead the rankings on economic activity. Activity in the ‘top end’ is 41 per cent above its ‘normal’ or decade-average level of output.
• Next strongest is Western Australia, with output around 30 per cent higher than the decade average level of output. Then follows Queensland (up 18.6 per cent) from the ACT (up 16 per cent).

•  At the other end of the scale, economic activity in Tasmania January 17 2014 3 Economic Insights: State of the States January 2014 in the September quarter was just 3.9 per cent above its decade average while NSW activity was up 10.3 per cent on its “normal” or average output over the past decade.
• There would be little change in the rankings if “final demand” was used instead. But Victoria would move from fifth to sixth spot and NSW would improve from seventh to fifth spot.
• Interestingly Queensland maintains the fastest annual economic growth rate in the nation, up by 4.2 per cent on a year ago, ahead of NSW with 2.2 per cent and South Australia (2.0 per cent).
• The weakest trend annual economic growth rate was recorded in Tasmania (-0.1 per cent) followed by ACT (1.1 per cent) and Victoria (1.4 per cent).

Retail trade

• The measure used was real (inflation-adjusted) retail trade in trend terms with September quarter data the latest available.
• Western Australia retains top spot on the retail rankings with spending in the September quarter, almost 22 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, supported by a lift in dwelling construction, with spending 18.3 per cent above decade-average levels.
• Queensland was next strongest, with spending 14.5 per cent above decade averages, followed by Victoria (up 10.8 per cent).
• Tasmania has the weakest result on retail spending, up just 2.6 per cent on the decade average (up from 2 per cent in the June quarter), and below South Australia with growth of 7.6 per cent.
• If monthly retail trade was assessed instead (November data available), Tasmania would move to top spot, ahead of Northern Territory and NSW in the rankings. While the monthly results are more volatile it does seem to suggest that an improvement and turnaround in activity is seemingly taking place across the broader economy, with some of the weaker states starting to see a lift in activity levels.
• In terms of the monthly retail trade series, Tasmania is 5.8 per cent higher than a year ago, just in front of
• Northern Territory with 5.5 per cent growth, NSW with 4.6 per cent growth, Victoria with 4.5 per cent growth, Queensland up 4.3 per cent, followed by ACT up 4.2 per cent and South Australia up 4.1 per cent. At the other end of the scale, Western Australian spending is up 1.6 per cent.

Equipment investment

•  Queensland leads other states and territories when it comes to equipment investment. Spending in the September quarter was almost 27 per cent above “normal” – or decade-average levels. Mining investment still remained relatively strong across the resource states. Northern Territory was the biggest mover jumping from seventh to third spot. Equipment investment in Western Australia is now 24.6 per cent above decade-average levels followed by the Northern Territory (up 20.5 per cent), Victoria (up 8.8 per cent), South Australia (up 6.6 per cent) and NSW (up 6.3 per cent).

•  By contrast, new equipment spending in Tasmania was 6.8 per cent below its longer-term average in the September quarter with the ACT up 1 per cent.

•  On a shorter-run analysis, equipment investment in the September quarter was lower than a year ago in four of the state and territory economies. Currently equipment investment is down on a year ago in Western Australia (down 29.1 per cent), followed by the ACT (down 16.7 per cent), Tasmania (down 13.5 per cent), NSW (down 6.1 per cent). By contrast new equipment investment in, Victoria is up 6.6 per cent on a year earlier, followed by Northern Territory (up 4.8 per cent), South Australia (up 3.6 per cent) and Queensland (up 2.4 per cent).

Unemployment

• Northern Territory and Western Australia have arguably the strongest job markets in the nation. Northern Territory has the second lowest trend unemployment rate in the nation at 4.2 per cent, while the jobless rate is actually 1.4 per cent below its “normal” or decade average level.
• Similarly in Western Australia, trend unemployment stands at 4.5 per cent and this is 7.8 per cent above its decade average rate of 4.2 per cent.
• In NSW, unemployment is higher at 5.8 per cent and this is 12.5 per cent above the “normal” or decade-average level of 5.2 per cent.
• At the other end of the scale, Tasmania’s 7.7 per cent jobless rate is the highest in the nation and up almost 29 per cent on the decade average. The South Australian job market is next weakest. In the past 12 months the jobless rate has lifted from 5.7 per cent to 6.7 per cent and it is now 24.2per cent above its decade average level of 5.4 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 September 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 9.9 per cent below its decade average. By contrast construction work done in Northern Territory was almost 79 per cent above its decade average followed by Western Australia (up 69.9 per cent) and Queensland (up 49.3 per cent).
• Next weakest to Tasmania is Victoria where construction work is 9.3 per cent above decade averages, followed by NSW (up 10.4 per cent on the decade average).
• In terms of annual growth rates, Northern Territory construction work done in the September quarter was up 18.5 per cent on a year ago, followed by Queensland (up 6.8 per cent) and South Australia (up 2.4 per cent). In the ACT, construction work was 16.4 per cent below decade averages.

Population growth

• To assess population performance we looked at the current annual growth rate and compared it with each January 17 2014 5 Economic Insights: State of the States January 2014 economy’s decade-average growth pace. And the good news is that population growth is above ‘normal’ in five states or territories with growth lifting in five jurisdictions over the past quarter.

• Western Australia is the clear leader in population growth. Not only is the annual growth rate of 3.32 per cent the strongest in the nation, it is also almost 33 per cent above the decade average. But the actual leader in the rankings is the ACT. Annual population growth of 2.2 per cent is 43 per cent above “normal’.
• In NSW current annual population growth of 1.4 per cent is 27.4 per cent above the decade average.
• At the other end of the leader-board is Tasmania where the annual population growth of 0.16 per cent was 78 per cent below the decade average rate of 0.73 per cent but growth did lift in the June quarter from 0.11 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 four of the states and territories – the Victoria, Western Australia, NSW and the ACT – trend housing finance commitments are above decade averages. Even more encouragingly commitments in November were above year-ago levels in all states and territories, except for the Northern Territory.
• The ACT was the biggest mover when it comes to housing finance commitments, dropping from top spot to fourth. In the strongest economy Victoria, the number of housing finance commitments was 9.8 per cent above the decade-average level and commitments in November were 12.6 per cent higher than a year ago.
• Western Australia was in second spot for housing finance, with the number of commitments 8.3 per cent above the long-term average.
• NSW has moved up to third spot on housing finance, up 5.4 per cent on the decade average followed by the ACT (up 4.7 per cent). And importantly the NSW market has momentum with home lending 20.4 per cent higher than a year ago in trend terms.
• Northern Territory is the weakest economy for housing finance with trend commitments 19.2 per cent lower than its decade average. Next weakest was the Tasmania with trend commitments down 20.4 per cent on the decade average, but encouragingly commitments were up 20.2 on a year ago.

Dwelling starts

• The measure used was the trend number of dwelling commencements (starts) with the comparison made to 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 four of the states and territories and starts in five states and territories are above levels of a year ago.
•  The ACT is in the strongest position for new housing construction, with starts almost 57 per cent above decade averages. In addition in the September quarter the number of dwellings started was 27.4 per cent higher than a year earlier, the strongest annual gain in two years.

•  In second spot was Northern Territory, with starts almost 40 per cent above decade averages. But momentum is January 17 2014 6 Economic Insights: State of the States January 2014 lagging with starts in the quarter 11 per cent lower than a year ago, down from 67.9 per cent growth in the March quarter. In NSW, dwelling starts in the September quarter were up 28.3 per cent on the ‘normal’ or “decade average” level with starts in Western Australia up almost 22 per cent on decade averages.
• At the other end of the scale, Tasmanian dwelling starts were 31.6 per cent below decade averages, while starts in the September quarter were 5.5 per cent down on a year earlier. Next weakest was South Australia (down 13.5 per cent), Queensland (down 12.3 per cent) and Victoria (down 3.9 per cent). However encouragingly Queensland starts were 8.8 per cent higher.

Other indicators

• Real wages were positive in all economies in the September quarter except for the Northern Territory. Strongest growth occurred South Australia at 1.4 percentage points, followed by the ACT (0.9 percentage points) and Western Australia (0.6 percentage points).
• Even using “underlying” inflation than “headline” inflation, real wages are growing on average by around 0.5-1.0 percentage points.
• Home prices are now higher than a year ago in all capital cities across Australia. Strongest growth in home prices was in Sydney (up 14.5 per cent) followed by Perth (up 9.9 per cent) and Melbourne (up 8.5 per cent). Interestingly growth rates of home prices are still below decade averages in all the rest of the capital cities. The decade average growth in Sydney is 2.7 per cent, well below other capital cities of between 4.7-10.2 per cent.

Implications and outlook

• State and territory economies continued to grow in the September quarter, but below the more “normal” growth rates over the past 5 years or 10 years. Western Australia continues to lead other economies in a relative sense with little slippage over the past three months.
• The Northern Territory has leapfrogged the ACT to become the second-best performing economy.
• But the big changes have been below with now little to separate the ACT and Queensland. NSW and Victoria follow and are closely grouped together. There is then a gap to South Australia and another gap to Tasmania with both states clearly under-performing other economies at present

• All economies should lift now that consumers and businesses are showing a sustained level of optimism. The low interest rate environment is boosting housing construction, while rising wealth levels is supporting confidence and in turn spending.
• The slowdown in mining investment will continue to affect some regions, however this should be offset by a lift in residential building. NSW, Western Australia, Queensland and ACT are expected to benefit most from a lift in home building. In addition the lower Australian dollar should provide a boost to exports in coming months and help to alleviate the risks surrounding the rebalancing of the economy.
• Firm real wages and improved housing affordability are being reflected in a lift in retail spending in Tasmania. If this leads to increased employment then there will be potential for stronger economic momentum in coming months.

Savanth Sebastian, Economist, CommSec

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• Just under half of financial assets at private sector companies are held in cash or deposits, while households are holding just over a quarter of their assets in cash and deposits.
• The high level of liquid assets is both positive and negative. Companies are well able to deal with the challenges posed by the volatile global financial conditions. But at what point does the level of cash become too much? It is easy to hold funds in liquid form of cash and deposits, but shareholders also want companies to be exploring opportunities to increase efficiency, productivity or growing organically or by acquisition.
• Australian consumers and superannuation funds are also maintaining extraordinarily high holdings of cash and deposits. In fact super funds are holding almost double the “normal” cash holdings with the proportion of assets sitting just over 14 per cent.

To read the full report from CommSec, click here.

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The latest Reserve Bank Board minutes highlights that while the case for a rate cut was compelling, it was a “finely balanced” decision that was swayed by the ongoing European debt crisis.

Interestingly the minutes make mention of the general health of the domestic economy, with the recent round of domestic data “generally had not suggested a significant weakening in conditions”. The Reserve Bank is well aware of the multi-speed nature of the economy however recent data on retail sales, labour market, mining investment and even business credit implied a “degree of resilience” in domestic activity. In fact in recent times policy officials have been at pains to highlight that any inherent weakness is more a confidence issue than as a result of significant structural weakness.

To read the full report, click here.

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In seasonally adjusted terms the CPI fell by 0.2 per cent. The CPI stands just 1.6 per cent higher than a year ago – the lowest rate in 2½ years. To read CommSec’s report, click here.

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• Australia has recorded its first trade deficit in 11 months. The trade balance eroded from a surplus of $1,433 million in January to a deficit of $205 million in February. The impact of the natural disasters was the key driver behind the weaker than anticipated result.
• Exports fell by 2.4 per cent in February while imports rose by 4.9 per cent. The slide in exports was largely driven by the non-rural component – metal ores and minerals which fell by $543 million or 8 per cent, while imports of fuel and lubricant rose by $561 million or 26 per cent. Also non monetary gold export receipts fell by $688 million in February.
• In March, 93,984 vehicles were sold, down by 0.8 per cent compared with a year ago. In seasonally adjusted terms CommSec estimates that sales rose by 1.0 per cent in the month.

What does it all mean?

• Over the past year higher commodity prices and relatively strong demand for coal and iron ore have helped support the Australian economy as the global recovery gained traction. However in recent times the economic landscape has changed once again. The economy has been going through a soft patch and now the trade balance is back in the red.
• Australia has notched up its first trade deficit in 11 months – largely due to the impact of the floods on coal and iron ore exports, but also due to the strength of the Australian dollar and the resulting additional demand for cheaper imports, and higher world oil prices.
• Importantly the latest trade data is for February and the recent strength of the Australian dollar will place further downward pressure on the trade balance in coming months. This is especially likely given that the Aussie rallied a further 1.4 per cent over March and broke through USD104 cents in early April. Not only does the stronger Aussie make exports less competitive but cheaper imports will also be in stronger demand.
• The main determinant on how quickly the trade balance gets back into the black will clearly be based on how quickly the coal and iron ore miners can get back to business. And the anecdotal commentary suggests that the trade accounts will again be back in surplus in the next couple of months.
• Interestingly the economy as a whole generated an additional $20 billion dollars in export revenue in just under a year. Despite the boost to Australian coffers the impact has yet to have a resounding effect on the economy. The weakness in business and consumer spending suggests the additional income is being saved rather than spent.
• However as the Reserve Bank has highlighted, increased savings will eventually mean a pickup in spending down the track. It is the multiplier effect that essentially the Reserve Bank is banking on to spur domestic growth over the coming year. At present the additional income is not being spent, but as the recovery gains traction it is likely that Australian businesses and consumers will follow through on spending and investment plans.

What do the figures show?

International trade

• Australia has recorded its first trade deficit in 11 months. The trade surplus fell from $1,433 million in January to a deficit of $205 million in February.

• Exports of goods and services fell by 2.4 per cent in February. Imports of goods and services rose by 4.9 per cent. Exports are up 12.1 per cent on a year ago while imports are up 8.1 per cent on a year earlier.

• Rural exports rose by 11.8 per cent in February while non-rural exports fell by 1.7 per cent.

• Within non-rural exports, metal ores and minerals was the major driver of the weakness falling by $543 million or 8 per cent.

• Non-monetary gold exports fell from $1,535 million in January to $847 million in February.

• Within imports, consumer imports rose by 0.2 per cent in February, capital goods imports rose by 2.2 per cent while intermediate goods imports rose by 11.6 per cent (fuels and lubricants up by $561 million).

• While the physical trade of goods is in surplus, the services account remains mired in deficit – narrowing from the record deficit of $737 million posted in January to a $700 million shortfall in February. The high Australian dollar is a key culprit, depressing tourism receipts.

Car sales:

• The Federal Chamber of Automotive Industries reported that 93,984 new cars were sold in March, down 0.8 per cent on a year ago. Passenger car sales were 6.5 per cent lower than a year ago, 4WDs were up 6.6 per cent and “other vehicles” (trucks, utes etc) were up 6.7 per cent.

What is the importance of the economic data?

• The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

• The Federal Chamber of Automotive Industries release figures on new car sales at the start of each month. The data is useful in gauging consumer spending behaviour.

What are the implications for interest rates and investors?

• The strength of the Australian dollar continues to have a detrimental impact on the services sector. Australia’s service sector has notched up its 17th consecutive deficit and the shortfall is sitting just shy of the record high $737 million reached in January. The Aussie dollar strength is making Australia a less attractive destination for overseas tourists and potential international students. Interestingly when the Aussie fell below US70c in 2009 the services sector notched up a series of surpluses.
• While the floods in Queensland have had a detrimental impact on coal exports, in coming months production will once again ramp up. Added to firmer volumes will be higher contract coal prices, ensuring that trade surpluses are back on the agenda. That is provided the weather doesn’t take an extreme turn for the worse.

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• Petrol prices are set to rise – but modestly. The rally in the Australian dollar has been outpaced by gains in regional oil prices. According to the Australian Institute of Petroleum the national average retail pump price fell just 0.1 cents a litre last week to 123.5 cents a litre.
• The job market continues to strengthen. The Advantage internet job index rose by 2 per cent in October, led by gains in accounting and engineering. The ANZ index of job ads rose by 0.6 per cent – the weakest increase in six months.

What does it all mean?

• A lot of people of have been recently asking the question why has petrol prices not fallen given the recent rally in the Australian dollar? And it is the simple fact that the global oil price has been matching and in fact outpacing the gains in the Aussie dollar. The Nymex crude oil price reached fresh two year highs overnight, while the Singapore unleaded price is now holding at a just over six-month high in US dollar terms.
• Interestingly the recent strength in the global oil price is largely due to the weakness in the US dollar rather than a substantial rise in oil demand. The sharp slide in the US dollar across a basket of currencies has resulted in strong demand across the entire commodities complex. Investors are attempting to hedge US dollar exposure – a result that ensures even regional oil prices will remain well supported in the near term.
• While the Singapore unleaded price has recorded sharp gains, the strength of the Aussie dollar has ensured that any rise in domestic pump prices is likely to be more circumspect. The Singapore unleaded price has risen by 4.3 per cent in the past week while in Australian dollar terms the rise is a much more sedate 1.1 per cent. The recent strength of the Australian dollar has so far, been modestly outpaced by the rise in the global oil price. As such CommSec expects pump prices to rise by 1-2 cents a litre and hold close to $1.25 a litre in the next fortnight.
• While the economy appears to be struggling for momentum, one of the key leading indicators – job advertisements – is still pointing higher, albeit at a more sedate growth pace. According to the Advantage job index, jobs ads have now risen for an unprecedented 14 consecutive weeks. The ANZ job ads series has highlighted that job ads are holding at the best levels in 21 months, however the growth in job advertisements held at the weakest levels in six months.
• The sustained improvement in jobs growth and resulting limited capacity in labour market has been an area of Economic Insights Stronger Aussie dollar outpaced by gains in oil price November 8 2010 2
  concern for the Reserve Bank. However given the more modest improvement in jobs ads and the latest rate hike it is likely that jobs growth will be more circumspect in coming months. The cautious consumer attitudes that are prevalent will keep a lid on selling prices in the near term and as such businesses are likely to be more cautious about future hiring.

• In the longer term, sliding unemployment and a much tighter labour market are likely to be part of the economic landscape adding to inflationary pressures – particularly if growth holds above trend as the Reserve Bank growth forecasts suggest.
• For employers, the tasks of attracting and retaining staff will prove to be challenging over the next year. Generation Y are again looking at their best options in a more fluid job market and that may lead to higher wage costs as businesses try to keep staff happy.

What do the figures show?

Job advertisements:

• The Advantage internet job index rose by 2.0 per cent in October and job ads have now risen for an unprecedented 14 consecutive weeks. In October, gains were recorded in accounting (6.3 per cent) and
  engineering (5.4 per cent) but losses were recorded by human resources (-2.9 per cent) and legal (-2.8 per cent).
• The combined number of internet and newspaper job advertisements, as tracked by ANZ, rose by 0.6 per cent in October, the smallest gain in six months. Internet job ads rose by 0.6 per cent in the month, while newspaper job ads fell by 0.3 per cent. In annual terms job ads are up 34.6 per cent off a low base.

Petrol prices:

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 0.1 cents per litre to 123.5 cents a litre in the week to November 7.
• The metropolitan price rose by 0.1 c/l to 123.4 c/l, while the regional average price fell by 0.3 c/l to 123.8 c/l.
• Petrol prices across states in the past week were: Sydney (up 1.1 cents to 124.4 c/l), Melbourne (down 0.9 cents to 122.7 c/l), Brisbane (up 0.4 cents to 125.8 c/l), Adelaide (down 0.1 cents to 120.5 c/l), Perth (down 0.6 cents to 120.0 c/l), Darwin (down 0.7 cents to 126.9 c/l), Canberra (up 2.0 cents to 125.0 c/l) and Hobart (down 0.6 cents to 127.9 c/l).
• The national average wholesale (terminal gate) hit an 11-month low of 111.6 cents a litre on October 1. After hitting two month highs of 115.3 cents a fortnight ago, the terminal gate price is holding at 115.0 cents today. The key Singapore unleaded petrol price rose by US$3.83 (4.3 per cent) to US$93.63 last week. And in Australian dollar terms Singapore gasoline rose by $1.03 (1.1 per cent) over the week to $93.08 a barrel.

What is the importance of the economic data?

• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum. National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions

What are the implications for interest rates and investors?

• The job market will be central to interest rate deliberations over the next year. Employers are still actively looking for workers – in part due to economic conditions but also in large part due to demographic influences and a reduction in migrants to fill vacancies.
• Given the anticipated pickup in economic growth over the next year, one of the best solutions is to increase migration, and thus labour supply, rather than to choke off demand with higher interest rates.

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