Sydney Leading the Economy Forward
If you have been following my blog over the years, you'll know that I have often put forward the view that Sydney is set to be the strongest economy in Australia.
It seems that Westpac's Coast to Coast report has reached a similar conclusion.
If you read my summary of the National Accounts recently you will recall how domestic demand is overwhelmingly being driven by Sydney.
Westpac records the same.
Similarly, our summaries of the retail trade data have shown Sydney retail booming at a rip-snorting double-digit pace "(see: "NSW Retail Shooting the Lights Out").
Westpac now also finds NSW consumption to be on the up & up...
Government Stamp Receipts Booming
From a revenue perspective the NSW Government has benefited from the boom in property transaction levels in seeing stamp duty receipts soar by an extraordinary 85 percent in only 18 months to $6.1 billion y/y as at the last available Monthly Statement.
Stamp duty revenue was $744 million higher than forecast only in the June budget, a welcome boost to the kitty, no doubt, resulting in a tidy state surplus.
Due to an inherent infrastructure and dwelling deficit the 2014-15 Budget now plans to deploy a massive $60 billion in infrastructure project spend while there is also a huge Sydney construction boom underway (commercial and residential).
Road and rail projects galore in Greater Sydney with a new airport also in the pipeline.
$6.7 billion of "Restart NSW" funds are focused on the accelerated delivery of priority projects.
If you have ever studied property booms, you may know that some of the contributing factors may include:
-a burst of property investors or speculation
-a media obsession with real estate
-low interest rates
-a "mania for home ownership"
-soaring population growth
-an economic boom
-a widely held belief that housing is a good investment
Another of the themes of this blog has been to question the assumed notion of an oversupply of property in Greater Sydney.
Simply, despite the construction boom, there isn't one (except in perhaps in parts of the city and inner south - a glut of apartment stock).
It's an odd thing that people see a crane or two and immediately assume an oversupply.
In Sydney's case much of the construction has been predominantly commercial in nature (such as at Barangaroo), while most of the residential building is a catch-up from years of chronic undersupply.
Population growth has been exceptionally strong, largely a result of the end of the mining construction boom and therefore the lowest net interstate migration on record.
This has mopped up the new supply.
The REINSW reports that inner Sydney vacancy rates declined to just 1.5 percent in October, the lowest level in 20 months.
No oversupply there.
The Greater Sydney unemployment rate is only around 5 percent, with many of the inner/middle ring suburbs where we like to invest showing unemployment in the "mid 2s" range, which is effetively full employment,
When we look at second tier Sydney suburbs we'd be expecting unemployment in the "mid 5s" range.
Typically for an economy behaving in such a manner, particularly where house prices have been rising, one would expect to see interest rates rising too.
Yet, despite all the positives in Sydney, other parts of Australia's economy are demonstrably weak, and interest rates appear more likely to be cut in 2015.
A perfect storm for Sydney? There are many unknowns. But it could be.
Why Will Rates be Cut?
The mining construction boom is drawing to an end and this is slowing the economy in certain regions, with unemployment rising.
Falling commodity prices will push a number of marginal iron ore and coal producers to the wall, and the job losses may not be confined to these industries.
In Adelaide and parts of Victoria, the shuttering of the car manufacture industry is set to clobber certain regions.
Although some prefer to play down the impact of Holden's withdrawal, the rates of unemployment in suburbs such as Elizabeth are already staggering, and are forecast to get worse:
"The suburb of Elizabeth in Adelaide has the highest inner-city jobless rate in Australia with 32.4 per cent of locals unemployed.