Geographical and Industry Trends
One of the more interesting aspects of the Australian economy is its diversity, not only in terms of the component industries, but also geographically.
While some regions battle to survive, others can thrive.
This is a point which investors need to get an accurate handle on if they are striving to beat average returns through selecting outperforming sectors with appropriate market timing.
In the real estate game, investors need to identify flourishing regions with thriving economies, strong employment and rising household wealth.
So far in this property cycle, for example, we have been vociferously bullish on the prospects for the largest, diversified city economies which are heavily weighted towards services, banking and financials - particularly Sydney - which has had the benefit of a soaring population yet an infrastructure and dwelling deficit, leading on to a construction boom.
On the other hand we've been far more circumspect over the course of this market cycle about the prospects of economies which lean heavily on manufacturing - particularly automobile manufacturing - and public sector employment. These include the economies of South Australia and Canberra (ACT).
Times change and cycles come and go, but that's how things are tracking for now.
Mining Town Woes
As for mining towns, we've warned again and again over recent years about why this might be a very risky road to go down, but you can only make the same point so many times before you begin to sound like scratched vinyl.
Mining towns and resources regions from Mudgee to Muswellbrook and from Mackay to Moranbah are reportedly under the cosh, with Port Hedland and Karratha especially hard hit.
Just as when investors were burned by unscrupulous advisers who recommended buying over-priced off-the-plan units on the Gold Coast in years gone by, the revised rhetoric for mining towns in particular is now likely to be that property investments impacted by the resources sector should be a "long term hold", and owners should aim to ride out the bumps.
This may be a solid enough plan depending on the location and the asset in question, provided that elevated vacancy rates do not leave a dwelling empty and thus failing to provide an income for too long, which could turn a poor investment into a disastrous one.
However, investors clearly need to make an assessment on a case by case basis.
The whole point of investing or speculating in a mining town is presumably the anticipation of a new resources project which is aiming to capitalise on escalating commodity prices attracting a positive investment decision, whereby the labour-intensive construction phase of the project brings new employment and demand for housing.
But let's be crystal clear about this: the construction phase of the mining boom has now passed its peak and with the less labour-intensive production phase now hitting its straps, global commodities markets are becoming flooded with a glut of supply.
The result will be heavy downward pressure on commodity prices through this phase of the cycle, meaning that in turn fewer and fewer significant new projects will pass the feasibility study stage, particularly in the bulk commodity sectors of coal and iron ore.
Onwards to today's data, and the ABS released its Retail Trade figures for the month of September, so let's see what we can learn in four short parts...
Part 1 - Retail Sales Surge
Strong consumption has been a major part of the Australian economy's success story for well over two decades, and although the retail trade figures don't capture services sector activity well, this is an important release as an indicator of consumption for the forthcoming Q3 National Accounts.
In the event we got a crunching result for the month of September. with retail turnover leaping by 1.2 percent in the month on a seasonally adjusted basis. Even allowing for inherent volatility in ABS releases, it's a big print which appears to get things back on track a little after a concerning lull.
Part 2 - Mining States Slowing
We've run the long run retail turnover data below by state to underscore an important point.
The Sydney economy is cruising exactly as we expected, but it's becoming increasingly clear that the mining states are not nearly having such a good time of it in 2014, which mirrors what we have variously found in other data releases, from soft Labour Force data to slowing population growth and a reversal in interstate migration away from the mining states and towards Sydney.
While New South Wales retail is continuing to experience boom-like trading conditions, there was a negative result for Queensland, and retail turnover in Western Australia has clearly flattened.
Things may be looking up moderately in South Australia, although the Adelaide economy has largely been treading water over the past half decade.
The quarterly and annual figures demonstrate the point well graphically. Tasmania has calmed down after an apparently random spurt of growth, but it is Sydney and Melbourne that are obviously leading the economy forward.
Part 3 - Positive for the Q3 National Accounts
In terms of what this means for the National Accounts, it's pretty good news. Q2 was a bit of a shocker for retail turnover in volume terms - to a greater or lesser extent impacted by budget concerns depending upon who you believe - but ongoing low interest rates have seen a very solid rebound in Q3 and we can expect a sound contribution to GDP growth in the third quarter.
There's little value in running too much of the detailed Chain Volume Measures data, other than to note that the economy appears to be leaning rather heavily on the contributions of Sydney and Melbourne.
Part 4 - Discretionary Spend Trends
We reported here previously that the Q2 National Accounts recorded household disposable income jumping by 4.7 percent over the past year.
While this was partly a quirk of data sampling and is miles ahead of what we have seen for wages growth at just 2.6 percent, the result was also in part related to the low level of interest repayments on existing mortgages.
And consumers are indeed enjoying their increased disposable income, with the incredible boom in "eating out" expenditure jumping by yet another 2 percent in the month. It's been quite an extraordinary run for the sector, which we believe represents a generational shift.
In seasonally adjusted terms electronic retailing also roared higher by an enormous 9.2 percent in the month, the type of jump which leads to variance analysis and more detailed questioning at the statistics bureau. And the ABS provided us with the answer - it was due to the release of the i-Phone 6 in the month!
More Easing Needed?
Overall, it was a happily strong release, certainly for the two largest states, and one which will help consumption to keep the economy ticking along in the third quarter.
However, it's far from all good news out there, and for my money interest rates are still as likely to fall as not.
Commodity prices continue to slide, Australia ran up an impressively wide trade deficit this month, and, perhaps most concerningly, the ABS yet again revised its employment data, and not in a positive manner.
Headline unemployment has moved been back up a notch to 6.2 percent and the survey now suggests that we have seen almost no growth in employment for the past six months.
With that kind of data knocking around, those of us suggesting that further monetary policy easing may be required probably won't be feeling quite so isolated for long.
The Labour Force data for October will be released on Thursday, although forecasters will undoubtedly be reticent to submit estimates after the merry-go-round of recent months, which has nudged the survey into a credibility deficit.
We await the latest round of data with bated breath...