The Economic News Thread

[AtD]

I look at some of this stuff at work, and I post bits and pieces in random threads. It's about time I start my own!

It looks like the "economic downturn" talked about in the media has yet to impact South Australia.

Retail Trade, Apr 2008
In trend terms, South Australia has experienced the highest, or equal highest, growth in retail turnover of all states and territories for every month since September 2007.
For 2008, South Australia has recorded a 3.0% growth in retail turnover, compared to 0.2% for the nation.

Australian National Accounts, Mar 2008
For the March quater of 2008, South Australia recorded the highest increase in State Final Demand of any state or territory (in Seasonally Adjusted terms), recording growth of 1.6%. This is compared to 0.9% for Australia. Although for the year, SA is still far behind, with just 2.8% growth in final demand compared to 4.7% for Australia. (Note that State Final Demand does not equal GDP)
In seasonally adjusted terms, strongest Machinery and equipment investment growth was in South Australia (up 2.1%).

Building Approvals, April 2008
The trend estimate for number of housing dwellings approved in SA fell by 0.4% in April, compared to 0.6% for Australia. Only Tas and NT recorded an increase.
The trend estimate for value of dwelling units approved fell 0.7% in SA in April, compared to 1.0% fall for Australia and a 0.7% rise in WA.

It looks like slow and steady SA is doing well.

[Brando]

Good thread Adam.
From AdelaideNow....http://www.news.com.au/adelaidenow/stor ... 13,00.html

MORE rates rises are predicted after data released today showed a surging Australian economy, defying economists' and RBA expectations of a slowdown.

The Australian Bureau of Statistics said the economy grew 3.6 per cent over the year to March 31.

Gross domestic product (GDP) rose by a seasonally adjusted 0.6 per cent in the March quarter, the ABS said.

This compared with an upwardly revised rise of 0.7 per cent in the December quarter. The median market forecast was for a rise of 0.3 per cent in the March quarter and an annual rate of 2.9 per cent.

In seasonally adjusted terms, the main contributors to the increase in expenditure on
GDP were household consumption, despite higher interest rates.

Higher inflation means higher rates

Finance Minister Lindsay Tanner said the growth was reassuring news at a time of global downturn, but inflation remains a concern.

"In the context of a slowing world economy, today's national accounts are reassuring news on economic growth, but they also show that the inflation fight is far from over,'' Mr Tanner said.

"Higher inflation means higher interest rates which, in turn, tend to reduce economic growth and employment growth.''

ICAP senior economist Matthew Johnson said the figures showed the economy remained strong, despite the official cast rate being at 12-year high of 7.25 per cent.

"It threatens the RBA's road map to lower inflation,'' Mr Johnson said.

Mr Johnson said household demand and business investment was also stronger than expected.

"That's symptomatic of an economy with very strong domestic demand,'' Mr Johnson said.

"The RBA had forecast that GDP would slow to 2.5 per cent by the end of the second quarter,'' Mr Johnson said.

"I can't see any way in which that could occur... The RBA has told us over and over again that they will raise rates if demand doesn't slow as they expect and it doesn't look like demand is slowing as they expect.''

He said there was a "very real chance'' the RBA would have to raise rates again.

ANZ co-head of Australian economics and interest rate research Sally Auld said the GDP figures meant the economy was performing better than expected, paving the way for further rate rises.

"We got upward revisions for the end of 2007 and that is telling you that the economy finished 2007 on a stronger note,'' Ms Auld said.

"It's now started 2008 on a stronger note than most people, including the RBA, probably thought."

"This really reinforces that the risk to interest rates for the rest of this year is to the upside.''

Engineering construction and defence investment also added to the expansion.

Household final consumption expenditure rose 0.7 per cent in the quarter and was up 4.3 per cent over the year to March, adjusted.

Total investment in dwellings was flat in the quarter, adjusted, to be down 0.7 per cent in the year to March.

Total gross fixed capital formation rose 1.6 per cent in the quarter and was up 6.6 per cent over the year, adjusted.

Domestic final demand grew 0.9 per cent in the quarter and was 4.8 per cent higher over the year, adjusted.

Gross national expenditure (GNE) rose 0.9 per cent in the quarter and was up 4.7 per cent over the year, adjusted.

Adam, can i ask what your line of work is?
I have been studying for my DFP in Financial Planning, so i enjoy talking finance etc.

[muzzamo]

We just have to hope that because our houses arent as expensive here, that we can get out of the housing bubble with a little less pain/shock.

Unfortunately at the moment people in the US/UK/Ireland/New Zealand/everywhere else where the bubble is bursting haven't been so lucky, we can hope that in Adelaide/SA our mining boom will pull us through, and that our economy withstand the correction a little more than the rest.

[Brando]

True muzzamo, i know in Florida for example house prices have fallen as much as 40% in some areas. Some real bargains to be had over there for investors.
I agree with you, i think Adelaide will be less affected from the downturn as opposed to other mainland cities. No doubt we may have a correction in certain suburbs, but i think overall Adelaide will certainly fair better. I know many investors are anxiously waiting in NSW for the right time to buy. Not because they are nervous, but due to the highest level of people declaring themselves bankrupt. Sadly, but with personal debt at an alarming high, it will always be inevitable for those commited beyond their means.

[muzzamo]

In Japan it was a 15 year slide out of their property bubble, and its still decreasing.

These "investors" you talk about - i'm not sure there ever will be a good time for them to buy ahead, because for them to make money there needs to be more and more people willing to borrow more and more money to join the ponzi/pyramid scheme - their wealth hasn't increased because they have innovated, or have invested in a company that has grown. Its simply because they were first onto the pyramid scheme.

People in Japan learnt this long ago. Have a read of this article:

http://www.nytimes.com/2005/12/25/busin ... ref=slogin

[AtD]

Brando: I'm just a public servant. I think my title would be Analyst if it wasn't Graduate. I got my B.Ec from Adelaide Uni last year.

muzzamo: Great article! 100 year mortgages? Crazy. The parallels with Australia today are easy to draw.

If you want to talk house prices, I think the best place to watch is the ABS Housing Finance publication. No loan approvals today means no sales tomorrow. The March publication showed a very large 6.1% drop (Seasonally Adjusted) for Australia and 9.9% drop in SA. The April numbers come out next week.

[muzzamo]

What really grinds my gears is the media manipulation that goes on with the real estate industry and the newspapers, but that is a topic for another time. I could talk about this topic for ages . That article was written in 2005, before the bubble in the US started to really burst.

I also get annoyed with people who think that a 12% increase in a house they bought, that they borrowed for, is a profit. With a 9% loan and inflation at 4%, that means they actually went backwards by 1%!

[Omicron]

I found fifty cents in my sock drawer today!

[Cruise]

well, handing out an extra 4K to first home buyers will ensure demand is kept up in the real estate market

[Ho Really]

well, handing out an extra 4K to first home buyers will ensure demand is kept up in the real estate market

The 4 grand will be eaten up by the stamp duty and higher house prices (if prices will still go up). This is really only a token (hollow) gesture. The answer is really with the state governments building affordable homes.

Cheers

[muzzamo]

or just wait for the speculative bubble to burst. Its working in the US, UK, NZ etc.

[muzzamo]

In related news

http://www.afgonline.com.au/afg_fronten ... MenuID=124

Mortgage sales plummet as consumer confidence takes a pounding
4 June 2008

May mortgage sales throughout Australia were the worst since the AFG Mortgage Index began according to AFG, Australia’s largest mortgage broker, which has 10% of the mortgage market. AFG Mortgage Index shows that national mortgage sales during May (6,691 in total) were 31.5% lower than in May 2007 (9,762), 22.6% lower than in May 2006 (8,648) and lower even than in May 2005 (7,243).

While AFG figures are not definitive, independent analysis has shown they are usually within 10% accuracy of ABS figures released six weeks later. AFG Mortgage Index figures go back to August 2004.

In past years, May has represented a high point in the property buying cycle, before sales reduce over the winter months. This May’s figures not only buck the established trend, they represent a reduction of 6.1% on April.

AFG Mortgage Index also shows a dramatic fall in the take-up of fixed rate loans. These peaked at 25.3% of all new loans in February this year, when new mortgage buyers sought cover from the prospect of rising interest rates. However they slid to a low of 13.7% in May – the lowest figure for fixed rate loans since September 2005 (10.9%).

Mark Hewitt, General Manager of Sales and Operations says: “Consumer confidence has taken an absolute pounding. These figures show just how fearful many people are right now about the rising costs of food, fuel and mortgage repayments. Despite the benefits of the resource boom, Australia now finds itself in a similar position to USA and UK with softening property prices combined with a sharp rise in the cost of living. The difference in mood between now and six months ago is like night and day.”

Mortgage sales across the country were significantly lower than in May 2007 with South Australia the worst affected (minus 31.0%) followed by WA (minus 26.9%), NSW (minus 25.6%), VIC (minus 20.1%) and QLD (minus 19.5%).

AFG Mortgage Index also shows a significant increase in the proportion of buyers taking out Introductory mortgages on cheaper initial rates. These have risen from 5.8% at the beginning of the year to 12.8% in May.

[Cruise]

well, handing out an extra 4K to first home buyers will ensure demand is kept up in the real estate market

The 4 grand will be eaten up by the stamp duty and higher house prices (if prices will still go up). This is really only a token (hollow) gesture. The answer is really with the state governments building affordable homes.

Cheers

I agree but the 4K has a mental effect on people that could proberly already afford to buy. they think "Oh goody, i'm definitely buying a house now!" the knock on effect is of course higher prices.

[muzzamo]

In related news, this graph shows the correlation (with a 7 month lag) between mortgage approvals and house prices in the UK.

Our mortgage approvals have just started to drop, so should be interesting to see how things are in around 7 months.

[skyliner]

True muzzamo, i know in Florida for example house prices have fallen as much as 40% in some areas. Some real bargains to be had over there for investors.
I agree with you, i think Adelaide will be less affected from the downturn as opposed to other mainland cities. No doubt we may have a correction in certain suburbs, but i think overall Adelaide will certainly fair better. I know many investors are anxiously waiting in NSW for the right time to buy. Not because they are nervous, but due to the highest level of people declaring themselves bankrupt. Sadly, but with personal debt at an alarming high, it will always be inevitable for those commited beyond their means.

Significant reasons we will be less affected are
A. Older population.
B. Lower house prices and so less affected by rates rises.
C. The further development of the resource sector input into the economy.
D. AS pointed out, investors seeing the above points and putting money in this state.

BTW - Great thread AtD. I follow economic developments extensively as well.

SA - STATE ON THE MOVE