Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), & 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's 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 & charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, author of the New York Times bestsellers 'End Game' & '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 Hmmm, one of the world's most popular & widely-read financial publications.

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

Sunday, 31 December 2017

Non-banks pick up slack

Personal credit falls

Personal credit growth was negative again in November 2017, as it was in October 2017, and on an annual basis it has been negative since 2015 as Aussies elect to cut up their credit cards (or at least, apply for fewer cards and personal loans).

Housing credit continues to swing across from investors to owner-occupiers - in part due to loan switching - but in aggregate the annual rate of growth at 6.4 per cent remains higher than a year earlier when it was 6.3 per cent. 


Annual credit growth was steady year-on-year at 5.4 per cent.


Cross-checking to APRA's monthly figures we can see that ADIs grew their investment loan exposures at just 2.8 per cent, miles below the arbitrary 10 per cent speed limit, so there is plenty of potential capacity for investment loans to pick up again in 2018. 


On the other hand, APRA's figures showed that monthly owner-occupier credit grew by an up-tempo 0.56 per cent to $1.04 trillion, suggesting that non-banks have picked up the slack created by tighter lending standards.

Low mortgage stress

The unemployment rate continued to trend lower in 2017, now down to its lowest level in 4½ years with further declines to come in 2018, and S&P has its 30-day prime mortgage arrears at the lowest level we've seen. Arrears may or may not pick up a bit in 2018, but they are presently tracking at such a remarkably low level it could hardly be a surprise if they did. 


The Reserve Bank's figures suggest that the ratio of household debt to disposable income will likely tick past 200 per cent in 2018, but serviceability remains very comfortable for most households, with the cost of living indexes very benign and household income growth passed its nadir.

It was interesting to see that the Bank for International Settlements (BIS) incorporated the two uppermost points I raised at the UBS Conference panel debate, namely on Australia's household debt distribution by quintile and the tremendous growth of mortgage offsets (see borrowers and buffers) in its latest paper on household debt (though it appears to have given the buffers point relatively short shrift!).

The fact is, though, that mortgages are easier to service than they used to be, and overall households are managing pretty well, while the outlook is improving nicely in the resources states.

Roll on 2018 and the 'surprisingly resilient' articles...

Friday, 29 December 2017

Synchronised upswing

Synchronised upswing

Employment growth and now interstate migration into Queensland have suddenly surged to their highest level since the financial crisis. 

And not all of those new jobs are in Brisbane, which makes for pleasing reading. 

Trend employment across the state rose to a thunderous 4.8 per cent over the year to November 2017, quite a stupendous increase after such a lean few years. 


South-east Queensland soon plays host to the Commonwealth Games in 2018 which will deliver another timely boost.

Half as big again

Winding the clock back to just before the Sydney Olympics in round numbers there were 1.6 million employed persons in the Sunshine State, whereas today the total is about 50 per cent higher at around 2.4 million.

Of those extra 800,000 jobs, about 250,000 were in the main Brisbane sub-regions, with a further 200,000 or so in Ipswich, Logan-Beaudesert, and within the Moreton Bay regional council.

So that marks an expansion of just under 450,000 in total for 'Greater Brisbane'.

Gold Coast and Sunshine Coast have added about an extra 150,000 and 75,000 employed persons respectively over that time, with Toowoomba, Townsville, Mackay, and Cairns mopping up most of the remaining new jobs created.

It's easy to get excited by the monthly noise, but even smoothing the figures on an annual average basis shows that an overdue jobs recovery is  now well underway. 


Plumbers, paramedics, & plant operators

A closer look at what's happened over the past 12 months shows a welcome recovery for the resources regions, including Townsville and Mackay, in addition to solid employment growth in Cairns.

Brisbane, Gold Coast, and Sunshine Coast have all been tracking rather nicely too.

Jobs growth has been spread across the public and private sectors, and over a number of industries.

Mining fortunes have been mixed to say the least over the past decade. 

Coal mining jobs fell quite dramatically from 2014, but the outlook has brightened in tune with commodity prices. Employment in the oil & gas industries has followed a similar pattern, coming from a much lower base a decade ago.

Healthcare was a considerably larger employer in 2017 Queensland than it was half a decade earlier, while a plainly visible spate of road and other infrastructure projects have helped to get the economy moving.

Construction employment has fought its way back for now, largely through residential building, following a retreat after the peak of resources construction.

On a more cautionary note, there is an unsustainable element to growth in some sectors, with a cyclical surge in real estate agents & service providers - up by nearly a fifth over a relatively short period of time - while SEEK's employment report showed a  boom in Queensland advertisements in some of the trades & services categories.

The job advertisements figures bode very well for the first half of 2018,  but something will need to plug that hole as apartment construction drops away.

Thursday, 28 December 2017

What the doctor ordered

Now 4-year highs for Dr. Copper.


Bullish...

Bulls in a China shop

Inbound traffic

International visitor numbers had been fairly flat for some years post-2007 in Australia at just over 5 million per annum, largely thanks to the small matter of a global financial crisis and then a supremely strong Australian dollar. 

As the global outlook brightened and the Reserve Bank began to cut interest rates, the Aussie dollar fell and tourists and other international visitors began to surge to Australia in droves.

According to Tourism Research Australia (TRA) in the 2017 financial year we saw another tremendous +8.7 per cent lift in visitor numbers to just under 8 million, the increase being driven by a spree of holidaymakers and international student arrivals. 


In terms of where visitors came from, there has been huge and ongoing percentage growth in arrivals from countries such as India, Japan, Canada, and the United States, exchange rate shifts being an obvious driver for the latter. 

But in terms of the sheer weight of numbers it's hard to look beyond China & Hong Kong as a tremendous source of expansion. 

At least as interesting as the number of international visitors is the growth in dollar spend within Australia, with China once again leading the way with abandon. 


The total trip spend by those hailing from the Chinese markets has utterly dwarfed that of every other country.

Stronger for longer

The average length of stay of international visitors from China vastly exceeds that of most other countries, in part because so many Chinese come to Australia to study, with education presently being one of Australia's most thriving sectors alongside tourism. 

The statistics also showed that some 207,500 Chinese came to visit friends & relatives across the financial year, and those doing so stayed much longer on average (at a luxuriously extended 54 nights) than the equivalent visitors from, say, New Zealand (at a a rather more fleeting 11 nights). 

And how the Australian economy has benefited, with international visitors from China spending a thumping +15.9 per cent more in Australia in the 2017 financial year at $7.65 billion. 

Total dollars spent in Australia by international visitors thus also surged by +9.8 per cent to just shy of $28 billion.

Chinese visitor numbers have been projected to comfortably more than double over the coming decade.

And looking at the dollars being spent tourism regions and operators should be bending over backwards to attract the Chinese spending wave.

Wednesday, 27 December 2017

Rush for the exits?

Shots fired!

Amazon Australia's launch was variously reported as underwhelming and a non-event after the first day of trading just a few weeks ago.

You'd think it's customary to assess business success or failure over a slightly longer period than 24 hours - especially when it's a global business with net revenue exceeding US$135 billion - though apparently not in this case!

In the early hours of Boxing Day, Amazon Down Under fired a few tasty shots in the direction of the traditional retailers by offering discounts on a wide range of goods. 

A quick look at some of the Amazon "top picks" throws up a very attractively priced Acer desktop at under $1,100, with free delivery on eligible orders (click to expand images)...


And then a Lego jungle play set at just $119 with free delivery, undercutting the competition by up to a quarter...


And a beard trimmer at $85 with free delivery (ditto)...


...and so on, and so forth.

There were also substantial discounts offered by Amazon on books, clothing, music, DVDs, and other items.

Amazon may or may not capture up to a tenth of Boxing Day's ~A$2.5 billion or so dollars of retail turnover, but the really interesting thing to see will be whether evidence emerges of widespread industry discounting.

A more detailed look at major retail lines for laptops, shavers, and a range of household goods suggests that the answer may prove to be a resounding yes in 2018. 

As Chris Weston of IG once said, dance near the exit when the disco's on fire. 

Retail deflation? It's on.

Tuesday, 26 December 2017

Dragging money from the moon

Pulling money from the moon

When discussing lenders of last resort and appropriate rate of interest in the 1870s, influential Victorian Walter Bagehot was quoted as having said that "seven per cent will pull gold from the ground", later echoed in a London money market (and European banker) saying of the early 1900s that "seven per cent will drag money from the moon".

The view was that high enough interest rates and tight enough monetary policy in the major financial centres could ultimately suck in money from almost anywhere. 

Interest rates and what's deemed to constitute tight monetary policy has changed more than a bit over the decades, while exchange rate expectations have also changed almost beyond measure. 

Yet still today humans are driven to act as we do by pain and pleasure, and, in a similar vein, financial markets continue to be driven by fear and greed.

Reflexivity

It's interesting to read debates about what, specifically, caused Sydney's latest property boom of recent years. 

A perusal of a few chat forums throws out a few possible answers: low interest rates, negative gearing, measured land release, first homebuyer grants (?), underbuilding and rising rents, generally greedy Baby Boomers, and that old chatroom favourite "more buyers than sellers"! 

Some of these might be important fundamentals over the medium term, but they don't adequately explain why dwelling prices were basically flat for ages, and then suddenly decided to rise sharply for several years. 

After some years of flat or slightly falling prices, annual price growth in Sydney exceeded 7 per cent in the June 2013 quarter, and then continued to exceed 7 per cent for 15 of the next 17 quarters, with a temporary blip in 2016 when APRA initially hosed down the credit market.


This suggests that human emotions and the expectation of rising prices was at least as big a factor in the short term. 

We often hear the lament that dwelling prices should only rise in line with inflation or household incomes, yet time and again we see prices languish for a period of time before going on an absolute tear. It seems to happen all the time.

Drawing upon the spirit of Bagehot, it appears that while prospective new market entrants or homebuyers can cope with seeing prices dawdle higher at a few per cent per annum, once annual price gains start racing towards 6 or 7 per cent the pain of missing out becomes too great and they pile in with abandon.

Property booms can then become self-fulfilling as buyers act ever more decisively for fear of having to pay more in a month or even a fortnight's time.

Asymmetry

Interestingly, dwelling prices often don't behave the same on the way down as they do on the way up, partly because there's no easy mechanism for shorting illiquid housing markets, and partly because most markets comprise mainly homeowners rather than purely investors (i.e. homeowners may be less inclined to sell in a downturn). 

There are no certainties when it comes to housing market booms, busts, and forecasts, but this is a dynamic worth watching out for with regards to capital city markets which have recorded solid but unspectacular annual price growth in 2017, such as Adelaide (~5 per cent) and Brisbane (~4 per cent).

Why Sydney and Melbourne have had property booms but not some other cities is often debated. It's a truism, yes, but perhaps prices just haven't risen fast enough to date to spark a boom in markets such as Brisbane and Adelaide.

This aphorism brings to mind the strategies of the stock traders such as William J. O'Neill, not fearful of buying on strong technical breakouts even if a stock has hit fresh highs. As they would point out, every tenbagger or 100 bagger by definition has to breakout to new highs at some point in order to become a great winner. 

Incontestable, yet so often overlooked!

Sunday, 24 December 2017

Season's greetings (most read blogs of 2017)

Christmas time

Thanks for reading this year!

Blog readership was up only moderately this year (boo!), but performing a monthly analytical review this was largely due to a tremendous spike in readership in December 2016, the reason for which now escapes me. 

In any typical month, the readership was about 50 per cent higher in 2017 than a year earlier, so that was good.

If Sydney sports stadia are the topic du jour, then in many of the months there were enough readers to fill the footie stadium, but not nearly enough to fill the Olympic Stadium Australia. 

So, thanks for reading, and for sharing.

The most read half dozen blog posts in 2017 related to:

1 - Record high immigration in Sydney

2 - Brisbane apartments and the oversupply

3 - Interest-only loan resets

4 - What I learned from the UBS conference panel

5 - Bitcoin

And, of course...

6 - Bitcoin again!

Have a splendid break, drive safely, and whatever you do, don't buy any Bitcoin on margin.

See you in 2018!

Sydney unemployment rate continues to fall

Demographic dividend

The 'imminent recession' crowd seem to have finally accepted that they backed the wrong horse, after all these years.

These days more time seems to be spent campaigning against immigration if my social media is capturing the zeitgeist representatively.

For five years Australia has been grappling hard against its resources investment downturn, but this has now finished, leaving the economy free to grow at about 3 per cent without the drag. 

The Reserve Bank of Australia (RBA) put out a bulletin this month which showed why immigration can be so helpful to advanced economies.

As also reported by the Productivity Commission and in the Intergenerational Report, a well-targeted immigration programme can bring in young workers, slowing the ageing of the population, accelerating economic growth (in both absolute and per capita terms), raising the participation rate, and increasing the tax take.

"Australia has one of the youngest populations among advanced economies. Its relatively high net migration rate has helped offset the ageing of the native-born population" noted the RBA. 


Source: Reserve Bank of Australia

Projections show how Australia can increase its participation rate by fully 6 percentage points to above 70 per cent by 2040, compared to a terrible decline in the 'ageing only' scenario.

Better still, while some countries such as China, Japan, Korea, and others are expected to see their median age soar alarmingly, Australia can keep its median age amongst the very lowest of the world's major economies. 


Based on these projections, if you're waiting for a government to willingly implement a low immigration scenario, you could be waiting for a very long time. 

Job search

The length of time it takes to find a job is now beginning to decline again, though it still has a long way to fall to get back to anything like the levels seen before the financial crisis and during the heady mining boom years. 


By and large, the labour market works and adjusts it should, with migration flowing to the strongest state and city economies, both from overseas and internally. 

Sydney and Melbourne are the cities where the job search process is the shortest on average, and it's no surprise therefore that these two cities attract by far the most migrants, at least for now. 


In Sydney we could see the lowest unemployment rate on record next year if present trends persist.


One of Australia's most enduring commodities has been that it's an attractive place to live, study, and work.

Saturday, 23 December 2017

Riding on the sheep's back

People sometimes like to say that employment and growth is too narrowly focused.

Consider, for comparison purposes, Australia in the 1920s...


Source: Trove

A thousand new jobs per day

1,000+ jobs per day

Following on from the somewhat tedious "jobs and growth", the Coalition's latest catchphrase is "a thousand new jobs per day!".

In fact, even that bold claim is selling matters short across 2017, with the economy adding a monster +383,100 new jobs on a net basis over the year to November.

That represents huge, near-record annualised jobs growth, with the unbroken run of monthly gains the lengthiest in nearly four decades, and soon threatening to take out the all-time record set almost a quarter of a century go.

What makes that jobs added figure all the remarkable is the horrendous -84,100 jobs lost in the manufacturing sector, with thousands of those coming in the last quarter as Holden and Toyota shut up shop.

Infrastructure takes over

Where, then, are all of these jobs being created? 

The biggest gainers included healthcare (+104,700), construction (+101,300), and education & training (+39,000), as well as jobs being created across a raft of other services industries. 

Thus while manufacturing resumes its multi-decade secular decline, healthcare & social assistance and construction between them now account for more than 2.8 million jobs, and education & training more than 1 million more (largely thanks to the 578,000 foreign students now studying in Australia). 


The government's push for road, rail, transport, and other infrastructure projects has paid enormous dividends here, with construction employment soaring to a record 1.165 million or 9.4 per cent of the entire workforce. Massive.

SEEK's job advertisement figures show that engineering and construction sectors will likely continue to flourish in early 2018. 

3 largest cities creating jobs

Greater Sydney and Melbourne are creating jobs at an electric pace, with each of the major cities creating more than +88,000 jobs on a net basis over the year to November 2017.

Only one state is creating jobs in its regions at a meaningful rate, being Queensland, while Brisbane too has created tens of thousands of new jobs, at an impressive +52,200 year-on-year.


Sydney's unemployment rate continues to fall, recording a rate of just 4.3 per cent in the month of November 2017, once again considerably lower than the 4.9 per cent equivalent result last year.

Full employment beckons for the harbour city, then - Sydney should ignore the carping, and crack on and update those decrepit sports stadia now too, as befits a wannabe global city.


Gradual tightening

Finally, while there remains a fair bit of slack in the labour force nationally, more importantly when looked at in volume measures terms, we can see conclusive evidence than underutilisation is falling.

In other words, while there may be a million Aussies that want more work (perhaps inevitable given the structural shift to more contracting and part time work?...and unfailingly reported ad nauseam!) the amount more work they actually want has been falling for three years now.

Don't expect anyone in the misery media contingent to report that, though - in reality, most probably wouldn't even know anyway!


While clearly still higher than desirable, the volume measures of underutilisation are no longer especially high in historical terms - during the mining boom, at the sharp end of the labour shortage in the 2007-8 financial year, the underutilisation rate fell to a fraction under 6 per cent, but that was an anomaly characterised by booming wages growth. 

The wrap

The number of reported unemployed may not have declined all that much last year, but there was a thunderous +2.82 per cent increase in the labour force total, while the participation rate has swelled to its highest level since 2010. 

There was an appropriate time for gloomy reporting of the labour force figures. But that was 2014, and all things considered 2017 has been a corker of a year for jobs growth.

With job ads tracking at the highest level in six years, there's probably plenty more good news to come in early 2018 too. Great to see.

Friday, 22 December 2017

Flick of the switch (meaningless shite)

To $10 trillion & beyond

Household wealth fell tantalisingly short of the $10 trillion level in Q3, as housing market valuations stalled.

The rate of households saving cash has weakened to its slowest pace in several years, though households are sitting on a record hoard of well over $1 trillion. 


Average net worth per person also ticked up to the highest level on record at just shy of $400,000.


Many people don't like these data (correction: many don't like these figures when they're going up, they don't mind it so much when asset values are declining!).

I'll gladly concede that such graphics provide little texture or insight into Australia's Gini coefficient, asset liquidity, or wealth distribution. 

Or, as curmudgeonly property sage Michael Matusik rather more bluntly put it: "Pete, this is meaningless shite!" (when I worked at Deloitte, one of the firm's 'seven signals' was to 'Talk Straight'...perhaps a nascent career in accountancy beckons for Michael!).

Matusik makes a sagacious point, though the institution setting the policy rate thinks that aggregate household wealth and liabilities are important. Ergo, they are important, however indirectly. 

Switch hit

The interest payable to income ratio dropped from 11 per cent to just 9.9 per cent in the September quarter, as borrowers flocked towards cheaper principal and interest products (and away from interest-only loans). 


We know that these figures can be a bit noisy from quarter to quarter,  but this looks significant - what it means is cheaper mortgage rates for some, but more repayment of principal.

Despite strong growth in the population, total interest payable on dwellings has declined hugely, to just $13.9 billion this quarter from $18.4 billion six years ago.

The implied average mortgage rate in turn suggests that substantial balances continue to sit in mortgage offset accounts.

Thursday, 21 December 2017

Market plunger

Market plunger

A final retail stock update for 2017, I promise.

Yesterday's main fiasco was once again taken out by Retail Food Group (ASX: RFG), which continued to hurtle towards zero at an alarming velocity, crashing by by another 19 per cent during the day's trade to close at $1.625.

With franchisees heading for the exits and the company apparently doing little to allay the market's fears, the remaining shareholders are now eyeing the group's significant debt pile increasingly nervously.


Retail deflation

It's interesting to consider why anyone is invested at all in the retail sector right now given the obvious headwinds and growing list of failures

Some institutions may be compelled to hold larger positions, so that's one reason, while other investors may have transaction costs such as capital gains taxes to consider. 

In RFG's case many smaller investors often simply can't bear the thought of selling for a 50 to 80 per cent loss, even though they probably wouldn't buy the company today at any price. 

Many would rather ride a stock to zero than crystallise such a huge loss. 

This is a cognitive bias, since nowhere is it written that you have to make it back the same way you lost it.

And in fact, most investors suffering such massive drawdowns will never recover the loss anyway, because an 80 per cent drawdown requires an outlandish 400 per cent increase to recover the loss (ain't never gonna happen). 

Not dissimilarly, investors that have made profits can feel compelled to invest the winnings in high-risk stocks, known as the house money effect, or playing with the house's money.

Thinking rationally, each parcel of your money is the same, and it should be treated as such - if you have a dog investment, then it should be sent to go and whistle. 

Unfortunately many stock market investors hold on to the bitter end, as we saw fairly recently with Arrium's long slide into voluntary administration. 

Other corporate collapses can happen all but overnight

I used to think it was amateurish when property investors would say "my property will never go to zero".

And yet they may have a point, for like you and me, a business has a life cycle. They are born, they grow (hopefully), and then one day they die. 

Holding the bag

Lest there was any doubt about how many small investors in RFG have become bagholders, the internet message boards lighting up like a bilious Xmas tree yesterday, with a huge amount of hostility and not very festive spirit being gobbed around.

Not much Yuletide bonhomie, you might say. 

A former market darling, RFG had been strongly recommended by fund managers, wealth managers, subscription stock picking sites, and dividend investment membership websites, among others. 

Jobs for the boys

More jobs growth ahead

Skilled vacancies rose for the 13th consecutive month in November 2017, which is the first time that's happened since 2011 according to the Department of Employment. 

The trend index now sites +8.5 per cent above the level recorded a year ago and some +27.3 per cent (or +38,200 advertisements) above the October 2013 nadir, so the recovery gathering momentum nicely.

That's bullish for more jobs growth in 2018, coming off the back of a behemoth 2017 for employment gains


Interestingly the resources states are now forging ahead, with substantial year-on-year increases in Western Australia (+18 per cent), Queensland (+15 per cent), and the Northern Territory (+16 per cent) in seasonally adjusted terms.


The male-dominated occupational groups dominated the annual increase, including technicians and trades workers, and machinery operators and drivers. 

What a year lies ahead for Queensland, such an exciting time to be alive! 

Wednesday, 20 December 2017

Magnetic north

It's happening...

Baked in the cake

Baked in

The retail bust is becoming a gift that keeps on giving to willing market shorters at the moment.

Another day, another massive downgrade. 

This time step forward Retail Food Group (ASX: RFG)...again.

RFG management decided to come clean to the market, issuing a trading update to confirm that revenues and profits will be lower than analyst expectations:


Thus another trading update makes reference to the struggles facing other industry retailers, especially those with shopping centre exposures, with RFG's statutory NPAT likely to be down by more than half (though this is "difficult to predict"). 

RFG also confessed that franchisees are leaving the network instead of renewing, following on from an investigation by Fairfax Media which further reported that hundreds of stores are for sale. 

The market unsurprisingly took an extremely dim view of this lack of transparency, this being the fifth market release in a dozen days, and the share price crashed by another 25.3 per cent during yesterday's trade. 

The share price is now down by 55 per cent in under a fortnight. 


With the share price annihilated from a 52-week high of $7.18 to just $1.98 for a market cap of under half a billion dollars, RFG will almost certainly drop out of the ASX 200 at the next quarterly rebalance. 

There was no icing on the cake in this release.

---

Edit: RFG opened down again, with another 9 per cent dip this morning. 

Tuesday, 19 December 2017

UK home prices accelerate

The Hometrack 20 Cities Index accelerates again to +6.3 per cent, up from +4.9 per cent a year earlier. 

Horizon still 3 miles away

Budget deficit cut

Well, the bottom line certainly looks in a little better nick for the right-on Scott "Sco-Mo" Morrison and the Treasury than it did when the Budget was released seven months earlier. 

The Federal Government is now projecting a budget deficit of $26.3 billion for this financial year.

That's down from an expected $29.4 billion at the time of the May budget. 

Woop.

In fact, the bottom line is set to be $9 billion better off over the next four years, with the projections showing a return to a surplus of $10.2 billion or +0.5 per cent of GDP by 2020-21 (though, like the horizon etc...).

The chart data isn't available until December 22, but compared to the 2017 MYEFO the Government is evidently projecting a stronger few years ahead. 


This is, to be fair, positive news for the shoring up of Australia's hallowed AAA-rating.

An objective reading of the mid-year outlook, however, would conclude that the improvement has as much been down to stronger iron ore and coal prices - plus the improving labour market - than anything much that the government has achieved in terms of attacking budget repair.

Any port in a political storm, I guess...including Port Hedland.

Gross profits have soared by +27 per cent over the past year to a record high of $319 billion, following the fortunes of the mining sector, which should flow through to higher company taxes. 

The iron ore price is certainly experiencing a cracking run-up over the last few weeks of 2017, nailing 3-month highs of above US$74/tonne yesterday. 


The huge increase in employment growth in 2017 should also help to reduce government payments prospectively, although on the flip side our ever-optimistic government has been forced to accept that stronger wages growth will take longer than previously expected to return.

Net debt is now estimated to peak as a proportion of GDP at 19.2 per cent in 2018-19, little changed from the 2017 MYEFO, and is expected to decline to 7.7 per cent of GDP by 2027-28 (a slight improvement).


The government will continue to look for ways to make savings, including the latest wheeze, making it harder for new migrants to obtain benefits.

The wrap

Meh.

Shuttered

Perth takes a corner

Quite a number of excitable types have been predicting, and sometimes even hoping for a deepening recession in Western Australia.

Sure enough, it's been a very tough few years for the state following the heady mining construction boom years. 

There's undoubtedly a way to go yet before sentiment is positive in Western Australia. Slowly but surely, though, one indicator after another is flipping from negative to positive. 

This time it's new motor vehicle sales, which have been shaping up quite nicely over the past year (click to expand charts):  


Granted it doesn't look all that much in rolling annual terms, but looking at the monthly seasonally adjusted sales, units shifted are now some +13.1 per cent (or about 1,000 units) higher than a year earlier at 8,680.


Record new motor vehicle sales of 334,724 in Victoria over the past year helped to drive the annual total to 1,183,439, the highest on record for Australia. 


Numbers appear likely to struggle to rise much further from these levels, especially in New South Wales where sales volumes have shattered all records in 2017 (397,680 new vehicles were sold over the year to November). 

Production lines close

Sadly, in the future new cars will mostly be imported rather than assembled in Australia, with Holden having closed its car production plants on October 20, and Toyota Altona shutting down earlier in the same month. This follows the closure of Ford Geelong a year earlier in October 2016.

You can see the impact that this chain of events has had on production volumes since October 2013, when some 21,445 cars were produced. 


The Holden Elizabeth plant, home to the company's car production since the 1980s, completed its last Commodore around October 19, and the last Camry rolled off Toyota's production line only a few weeks before that. 

To date there doesn't seem to have been an excessive wider impact on the jobs market - the industry closures have, after all, been discussed for some years - but there may yet be further fallout, including detrimental impacts on suppliers.