Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Thursday, 27 July 2017

Sydney labour market strengthens

Sydney leads

Australia's total annual employment growth has lifted to +2 per cent, taking the total number of employed persons up to 12.2 million, representing a material improvement in 2017.

After a remarkable 3-year run, Sydney hiring is off and running again, with total employment growth surging back towards +2.5 per cent, and employment +64,500 higher year-on-year. 

Despite the relatively high level of unemployment on the Central Coast, across Greater Sydney the unemployment rate has now fallen to just 4.36 per cent. 

The annual average unemployment rate for the harbour city is now at the lowest level since the financial crisis, helping to explain why mortgage arrears have been falling from already low levels to even lower levels. 

Perhaps small wonder that the Sydney housing market has held up so well looking at these numbers.

Brisbane has seen an big uplift in inbound internal migration, but appears to be struggling to absorb the intake with gainful employment as apartment construction slows.

Accordingly, the Brisbane unemployment rate has lifted somewhat.

"Gizza job!"

The median duration of job search across Australia has improved, if marginally, from 20 weeks a year ago to 19 weeks in June 2017. 

While Hobart has been improving on this measure, it now takes 22 weeks on average to find a job in Adelaide, which is a concern. 

Finally, a look at Townsville employment as a bellwether for the resources-influenced regions shows that total employment has rebounded from the lows of 2016. 

The wrap

Overall, the labour market seems to have turned a corner in 2017, albeit with the proverbial turning circle of the QE2.

And the results do remain quite unbalanced around the states. 

Sydney looks set to most enjoy the benefit of low interest rates for another couple of years, which may in turn result in the return of stronger wages growth. 

Job vacancies up by a quarter from 2013

Increase in 'quality' jobs

The recovery in the labour market has been slow, surreptitious, and shallow, so you'd easily be forgiven for having missed the bottom, but job vacancies do indicate a steadily improving immediate outlook.

After a solid result in the month of May, trend vacancies improved again by +0.9 per cent in June 2017.

Vacancies are now +23 per cent or +32,100 higher than at their October 2013 lows, and sit at their highest level in five years.

Notably Skill Level 1 jobs have seen a +25.3 per cent since increase since the lows of ~50,000 in August 2013. 

Skill Level 5 jobs have increased more modestly by +14.8 per cent since their 2015 low of 19,400. 

Trend job vacancies were on the up for all occupational groups in FY2017, but the strongest increases were for machinery operators and drivers - which were up by +21.5 per cent over the financial year, albeit from a small sample group - as well as technicians, and trades workers. 

State versus state

Naturally, the employment outlook for employment is always important for the respective city housing markets.

But this is doubly so in 2017.

Since there has been an unprecedented volume of apartments under construction the three most populous capital cities need to be able to sustain strong immigration rates in order to absorb the new stock, in addition to attracting international students. 

New South Wales appears reasonably well placed in this regard, with the Department of Employment reporting some 65,500 vacancies. 

The ABS survey has also previously recorded a super-strong 69,300 vacancies for NSW, an all-comers record high for any state on that measurement (this index was put on ice for a while during a period of budget cuts, accounting for the mysterious gaps in the chart). 

Following a recent surge, Victoria has now seen a +5.9 per cent trend uplift in vacancies over the financial year to a solid enough 45,100.

In many ways Queensland faces some of the greatest challenges, with thousands of new apartments coming online, yet employment having been held aloft by public sector hiring and, well, jobs related to apartment construction! 

There was some promising news in the Sunshine State with trend vacancies up by +7.9 per cent over the year to 31,600, making Queensland the second strongest year-on-year performer on this measure. 

South Australia has recently been the surprise package on this index, with a +13.3 per cent trend annual increase.

However, there were declines in Tasmania, the ACT, and a substantial double digit trend decline in the Northern Territory. 

Finally, having nosedived by -28.8 per cent over the two years to September 2016, trend job ads in Western Australia have recovered somewhat to be 9.6 per cent above their September 2016 nadir.

The wrap

Clearly it's a far cry from the heady days of the mining boom when you could sometimes get a pay rise or even a bonus just for turning up to work, such were the skill shortages in certain sectors.

Nevertheless it's good to see that vacancies have been rising solidly over the last five years, albeit with a couple of stumbles along the way. 

On this evidence, Sydney and Melbourne will continue to attract the bulk of immigrants, while Melbourne is also attracting workers from all over Australia, rendering its forecast apartment glut a big fat fizzer.

Wednesday, 26 July 2017

Weakest June quarter inflation in 14 years

Do the hawk...

Oops! Inflation was remarkably weak in the June quarter at just +0.18 per cent, the softest inflation result for the second quarter of the calendar year since 2003. 

Thus, not only is core inflation tracking below the target 2 to 3 per cent range, now headline inflation is too, at just +1.9 per cent. 

To be fair, though, here was another moderate annual increase in non-tradables inflation - a proxy for domestic price pressures - so the inflation pulse arguably still at least has a...erm, pulse.  

As widely expected, automotive fuel prices pulled the headline result down in the quarter. 

Looking more closely at the seasonally adjusted and analytical series, both of the core measures came in at +0.5 per cent for the quarter, although the weighted median was within a hair's breadth of being rounded up to a +0.6 per cent reading.

Over the past year both core measures came in at just +1.83 per cent and +1.84 per cent respectively.

Other soft spots for inflation included the intensely competitive clothing and retail sectors.

Rents weak...nationally

Many readers of this blog have a good deal of interest in the housing market, so let's have a quick shufty at what's happening to rents around the traps. 

Annual rental price growth remains weak at just +0.6 per cent as a weighted average of the eight capital cities, which is the equal lowest level in 23 years, a direct consequence of the building boom combined with record numbers of Mum and Dad landlords. 

There were some wild variations around the capital cities, however.

The headline result was impacted heavily by increasingly sharp year-on-year declines in Perth (-8.1 per cent), and another weak result for Darwin (-7.2 per cent). 

Brisbane rents were only flat over the past year as the impact of the inner city apartment oversupply threatens to ripple through to the wider apartment market. 

There was a much juicier +4.2 per cent annual increase in rents in the tight Hobart market down in resurgent Tassie. 

In Sydney, rents (+2.5 per cent) continue to comfortably outpace inflation, and indeed over the past decade rents in the harbour city (+54 per cent) have increased by exactly doubled the growth in the index for all groups CPI (+27 per cent). 

The wrap

Overall, it was a stunningly low inflation result for the headline inflation figure, which should keep the interest rate hawks in check for now. 

If you look more closely at the analytical series, though, you could arguably make the case that the weighted median inflation figure is gently drifting back towards the target range, while the annualised trimmed mean figure was essentially flat when you drill in to an extra decimal place. 

With several indicators of improvement in the economy, and with the Reserve Bank's own inflation forecasts suggesting that the middle of the target range will be hit sometime around the middle of the next decade, we could well be in for a loooong period of rates on hold. 

Dr. Copper heal thyself

Copper rally

Well it's been a long time coming, but the copper spot price has rallied hard to a 2-year high.

The price of copper is often taken to be a predictor of turning points in the global economy. 

This move likely signifies strong expected demand, particularly from China, and possibly tighter supply in China too. 

Meanwhile, the iron ore price is up 22 per cent year-on-year after a rollercoaster ride, which is helping Western Australia's recovery along. 

And the commodities news is better still for Queensland:

CPI to come

So that's a tidy little cluster of positive news ahead of today's inflation report at 11.30am.

While forecasts expect headline inflation to levitate some way into the target 2 to 3 per cent range, the more important core readings of inflation are forecast to remain just below 2 per cent. 

Inflation readings have stunned financial markets and expectations for interest rates before, however, so this could potentially be one of the most interesting data releases in months. 

Stay tuned!

Tuesday, 25 July 2017

Winning the battle with credit cards

Credit where due

It's true that Aussies are using credit cards more these days - I swipe mine more often myself now that you don't have to remember the PIN every time you use the card.

The total value of outstanding balances is a little higher than 5 years ago, but lower when adjusted for population growth, and quite a bit lower after accounting for price inflation. 

Meanwhile, more of us have gotten smarter about using interest free periods.

See my analysis featured in the number one article on SMH today (click image to view). 


Broad based improvement

Hiring has improved significantly in 2017, particularly for full-time jobs, which will be a welcome relief for the Reserve Bank of Australia.

Another sometimes useful indicator we can look at is the employment to population ratio, which is less volatile that many of other labour force estimates (since estimates of the resident population are also less volatile). 

Scanning the trend in the employment to population ratio it initially looked as though the labour market had reached a trough in 2014.

But then there was a setback, which some commentators attribute to then Treasurer Hockey's 'austerity' measures, which attempted to drag the Budget kicking and screaming back into surplus. 

Now the trend employment ratio is improving again, up from 60.9 per cent at the beginning of the year to 61.3 per cent in June 2017, with both the male and female cohorts rebounding. 

As you can see, nationally the employment ratio tends to be considerably higher these days than it was in the 1980s due to the vastly increased female participation in the workforce. 

This also has important implications for the housing market, for there are now many more dual income households than there were, increasing household incomes, and in turn borrowing and purchasing power. 

Despite the recent improvement the national employment population ratio remains 1.5 per cent lower than in 2008, when the employment to population ratio ran all the way up to 62.8 per cent in a starburst of fiscal stimulus packages. 

State versus state

Most states have seen a bit of an improvement in recent months. 

Possibly the surprise package here is Western Australia, which has rebounded nicely as jobs growth has picked up.

This has partly been driven by resurgent commodity prices, although at least part of the improvement in labour force ratios has been due to negative net interstate migration, with disaffected workers now migrating back to the eastern states. 

We've seen similar trends in the Northern Territory, where the employment to population ratio ran even higher at above 70 per cent in the early part of 2017, but population growth in the Top End is now threatening to turn negative.

Still, it shows that the medium term prospects in the resources states may yet prove to be better than many imagine. 

CoreLogic index

Home values index

As so often seems to happen in July, home values are off and running again.

Source: CoreLogic