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).

5 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 finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete 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'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Wednesday, 8 October 2014

Property Observer: Retail & jobs (the trend IS your friend after all!)

Property Observer

You can read my latest piece on Property Observer today where I muse over the latest retail trends. New South Wales has experienced boom-like retail conditions, but some other states have seen weak retail in volume measures terms in recent years, and some other states are now rolling over. Check out the article here.

Jobs - the trend IS your friend!

The most important data release of this month is coming right up tomorrow morning - jobs!

I noted here last month the level of incredulity surrounding last month's figures where the Australian Bureau of Statistics (ABS) recorded a wildly anomalous result and apparently the strongest monthly jobs gain ever recorded in Australia, which seemed rather at odds with other indicators.

As it turns out, the ABS doesn't believe the data either, finally making a somewhat resigned statement today that it would drop the seasonal adjustments entirely for the July-September period:

"The ABS has concluded that the seasonal pattern previously evident for the July, August and September labour force estimates is not apparent in 2014. This assessment was made while preparing labour force estimates for September 2014 and relates to all seasonally adjusted labour force estimates other than the aggregate monthly hours worked series.

As there is little evidence of seasonality in the July, August and September months for 2014, the ABS has decided that for these months the seasonal factors will be set to one (reflecting no seasonality). 

This means the seasonally adjusted estimates for these months will be the same as the original series and this will result in revisions to the previously published July and August seasonally adjusted estimates."

Well, there you have it. Tomorrow's data will drop seasonal adjustments for the quarter and we should focus on the trend after all.

What does this mean for tomorrow's release? The most likely outcome appears to be a fairly flat result in trend terms with the unemployment rate remaining flat at just 6.1 percent - but in truth with some of the numbers which have been flying around the place of late, practically anything is possible within reason.

The prior month's figures will be revised back down to a somewhat more credible +32k employed (from the previously outlandish +121k), which is still a decent enough result. Tomorrow's release and the reaction to it should be a hoot to observe!

Credibility shock

This will do little for the credibility of ABS surveys, but in fairness to the Bureau they have seen their budgets cut sharply by governments of both persuasions over the past six years, so perhaps it is unrealistic to expect anything otherwise. 

Personally I've always felt that with the existing sample sizes and survey response rates the major surprise is that figures are not more volatile than they actually are.

As a Group FC I was an ABS survey contributor myself for some years, and it can be as much an art as science in some instances, it has to be said. The main problem for the Labour Force survey is simply a lack of coverage which means that the state level data in particular can be wildly volatile.

Notes Dan Petrie of Bloomberg:

State level data

If you are genuinely serious about analysing the labour market rather than endlessly spruiking previously conceived opinions you need to move beyond the headline figures and check out the major shifts which are gradually taking place at the state, regional and industry level over time.

Charted below is what we have recorded for total employment at the state level over the long run on a seasonally adjusted basis, which will be updated and amended tomorrow after the ABS releases its newly revised results for July and August.

We have had a strong bias towards capital cities and particularly economies which are substantially based around financials and services industries, particularly after our long run experiences with London versus the rest of the UK since the 1990s.

The great thing about having access to the full range of data sets is that over time they do not lie and there is nowhere to hide from the numbers, whether you like them or not. Poor predictions are cruelly exposed and weaknesses in flawed logic are ruthlessly debunked, forcing analysts to revise their opinions as the outlook evolves.

In short, if you are wrong, you should be forced to admit it and move on!

Australia's mining states are presently in transition mode as the mining construction boom fades into the rear view mirror, which is likely to put a serious handbrake on employment growth as the baton is handed over to other industries.

Meanwhile economies which sustain manufacturing jobs are also highly likely to struggle in the decade ahead, in our opinion at least (click to expand): 

We also have serious concerns about coal mining regions at this stage in the commodities cycle, with a significant number of projects appearing unprofitable and marginal producers at risk of being shaken out as we have considered previously here and here. Job losses in the coal industry are inevitable.

We have envisaged that in the three years ahead capital cities such as Sydney (and to some extent Brisbane) are set to benefit from a boost in local construction employment as all-time record high dwelling approvals (as analysed here) flow through to dwelling commencements, building activity and construction work done, and then ultimately completions, resulting in 3 year economic growth forecasts for NSW of a tidy 3 percent per annum.

Remember, dwelling construction has a strong multiplier effect across the local economy, which is another reason we see some city economies faring so much better than others in the years ahead.

Regional disparity

What the monthly Labour Force figures do not highlight is the alarming disparity between aggregate full time employment growth in the capital cities and the growth being seen (or rather, the growth not not being seen) in regional Australia. 

In only one state - Queensland - has there been any meaningful regional jobs growth at all in aggregate during the last half decade, a worrying trend which appears set to continue. Under-employment and unemployment in regional Australia is presently too high for comfort and trending up.

Like many developed economies Australia sadly also has a manufacturing base which is being slowly but surely hollowed out and flushed down the toilet. Our cost bases are comparatively and inevitably too high, and manufacturing jobs are being shipped off to China and elsewhere.

Not a week goes by without a story of a similar ilk to this today from the ABC, and with the car manufacturing industry due to follow in the years ahead, the outlook isn't very bright for our manufacturing based economies:

"Workers at Caroma Industries at Norwood are set to lose their jobs in coming months after a decision by manufacturer GWA Group to close the site. The Adelaide factory, which makes bathroom and kitchen fittings employs 76 people. It had been operating at Norwood for 73 years but will close its doors in nine months.

Joe Kane from the Australian Workers Union said the company told its workers this morning it had decided to move its manufacturing offshore. "It's just another blow for manufacturing," Mr Kane said.

"GWA bathrooms and kitchens will stop manufacturing in Australia altogether. Everything that you put in your bathroom now will be made predominately in China. "They sold the site quite some time ago ... we always knew sooner or later it might happen, but we didn't think it would happen quite this soon."

The SA Opposition's employment spokesman David Pisoni said it was a sad day for the state's manufacturing industry.

"This is a very difficult time for Caroma workers who will join South Australia's growing queue of unemployed," Mr Pisoni said. "Caroma's announcement today follows recent job losses at Hills, Aldinga Turkeys and Arnott's Marleston Bakery.

"Today's news is another worrying sign for the South Australian economy."

It's not all bad news for South Australia, as we considered in some detail in our data sets here, with huge volumes of untapped resources potential, as and when it can ever be exploited. We just don't think it is very smart analysis to ignore the evident risks. Actually, it can't even be called objective analysis at all if you ignore risk.

We'll analyse the September jobs data in full right here tomorrow. In the memorable words of Stingray: "Anything could happen in the next half hour..." - expect the unexpected!