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Sydney unemployment rate dropping

Sydney unemployment falling

Greater Sydney has been creating thousands of new jobs per month in recent times, and the harbour city's unemployment rate has generally been trending down now for the past 44 months, now hitting an annual average of just 4.65 per cent.

Brisbane also recorded a neat fall in the month, but seems to be creating a dearth of full time positions.

Sydney's monthly unemployment rate dropped to just 3.9 per cent in the month of October 2017 itself, a fantastically strong result which suggests any meaningful housing market correction is unlikely for the time being.

There hasn't been a lower monthly unemployment rate since more than a dozen years ago, all the way back in August 2005, and before the financial crisis.

Sydney's labour market is tightening gradually, and there are some nascent signs of wage pressures in the trades and construction industries.

It now takes 14 weeks on average for Sydneysiders to find a job, down from 18 weeks three years earlier, so it's been a bit of a slow burn.

Newcastle and the Hunter Valley have also seen a fine turnaround in fortunes over the past couple of years as the state's economy accelerated away from the resources downturn (and coal prices in particular came shooting back with a vengeance).

Stamp duty and transfer take has exploded to $10.7 billion, leaving the state of New South Wales in a negative net debt position.

Two of Sydney's largest sports arenas, Allianz Staidum and ANZ Stadium, will now be demolished and rebuilt at a cost of $2 billion, adding to the long list of infrastructure projects.

Around the traps

Queensland is now creating the most jobs nationally, and cities such as Gold Coast are recording very low unemployment rates - at an annual average of just 4.8 per cent - with the Commonwealth Games visitors boost still to come.

That's a phenomenal quantity of new jobs being created in Queensland, but the quality to date may not be quite so inspiring, particularly in Brisbane.

Of the other regions around Australia, Geelong looks to be thriving, creating nearly 15,000 new jobs over the past two years, and the annual average unemployment rate declining from 7.8 per cent in 2015 to 5.8 per cent. 

The housing market in Geelong has also been firing.

There are still, however, some relatively high unemployment rates being recorded in the regions that are most defined by resources.

Platforms & ladders

Taking the gas

Construction work done came in at a thunderous $61.8 billion for the third quarter, the highest on record, with the distorted result again skewed higher by the import of an LNG platform.

Drilling into the engineering construction figures, if you'll pardon the pun, we can see the enormous spike in Western Australia largely relating to an imported LNG platform, sending total engineering construction a massive 68.4 per cent higher than a year earlier. 

Notably engineering work is also rising solidly in New South Wales and Victoria on the back of strength in infrastructure projects, with Queensland also now on a decent run in this regard.

Flats falling flat

Despite the record high quarterly result, residential construction is now in moderate decline, with the value of detached house building done sliding for three consecutive quarters.

Looking specifically at the building of attached dwellings such as apartments, work done is still absolutely flying in New South Wales, but is now teetering in Victoria, and dropping sharply in Queensland (down 22 per cent since the end of last year, and falling).

Melbourne increasingly appears to be at risk of failing to meet the strong demand for dwellings from rapid population growth.

The wrap

Construction employment has never been higher in Australia, both in terms of the numbers of directly employed, and as a share of the workforce. 

Infrastructure building looks to be strong, and indeed construction activity is at record highs in both New South Wales and Victoria.

The residential building boom, on the other hand, has now moved beyond its peak.

In particularly apartment construction activity is set to fall over the next few years, especially in Brisbane where fewer and fewer new residential projects are now being kicked off. 

Overall, though, this was an upbeat result, with high levels of activity driving construction price inflation to multi-year highs. 

APRA lays foundations

Smackdown

APRA announced at the end of March that lenders should limit new interest-only residential borrowing to 30 per cent of new loans. 

The impact of their announcement was "notable and immediate", with the share of new lending declining to just 23 per cent by the September 2017 quarter.

Based on preliminary figures, a similar result is expected by APRA in the December quarter. 

Many borrowers have also been encouraged to switch to principal and interest repayment too, resulting in interest-only loan balances outstanding plummeting by 7 per cent in the past six months.

Lenders are also growing their investment loans books well below APRA's arbitrary cap.

It remains to be seen whether they begin to start pushing housing lending harder again in 2018.

My guess is that they will.  

Stress in the west

Non-performing housing loans remain relatively low at ~0.75 per cent, if a little higher than APRA would ideally like to see. 

The steady increase since 2014 was driven by weakness in the Western Australian economy.

Next on APRA's hit list will be a review of loans with a low "net income surplus" and tighter scrutiny of estimated household living expenses. 

APRA also aims to tackle a blind spot whereby lenders are not always clear about other debt held by prospective borrowers. 

More detailed analysis for institutional investors can be found in our monthly subscription reports.

By popular demand

Cooler, shakier

Back in February this year I went to the auction of a house in Bondi that had no fewer than several dozen registered bidders, with the final two prospective buyers bidding hell for leather and sending the final purchase price well over half a millon dollars over the guide price. 

By the end of March the market regulator APRA had understandably seen enough of all that, and introduced a range of cooling measures, and by the second half of the year stock on market levels were rising quite quickly from previously depressed levels. 

Auctions were still being reasonably well attended, but often with only a handful of serious but cagey buyers at each auction the mood was much more circumspect. 

The shift from strong price growth to a cooling market wasn't driven by an increase in the dwelling stock, at least not directly (in fact the number of houses in many parts of inner Sydney is in decline), nor by a slowdown in population growth (if anything, it's accelerated in Sydney).

The change in sentiment instead reflected a change in the balance of willing and able market participants.

Actually, population growth is rarely very strong in much of the eastern suburbs of Sydney, since not very much tends to get built - it's hard for the population to grow faster than the number of dwellings given new builds are mostly attached dwellings.

Prices are still being driven by supply and demand, of course, just not in the way that market analysis often understands it. 

One of the more thought-provoking talks I've seen in recent times was delivered Scott Keck at Charter Keck Kramer, in which he discussed why Australia doesn't really have a meaningful oversupply of dwellings, and never will have. 

Of course, there can be a stock overhang when the market anticipates demand incorrectly - especially of big apartment blocks which take longer to build - but since projects that aren't selling don't get built, the impacts should be temporary. 

Well worth a watch, many thanks to Robert Baharian of Baharian Wealth for sharing it.

Wage curve ball

It's always a bit of a worry when analysis leans towards the view that the immutable laws of supply and demand don't work any more, and we've arguably seen a bit of that in relation to wages growth  lately (and, for that matter, inflation).

It wasn't that long ago that wages were absolutely belting along during the mining boom, but after just a few short years of low wages growth plenty seem to believe that this is the new normal, possibly forever. 

A buddy of mine in London recently told me he'd just received a substantial, six-figure golden handshake (bonuses...remember them?) for signing a new contract, something that was all but unheard of a couple of years ago.

But with the UK unemployment rate falling to 42-year lows, skilled workers are slowly but surely becoming harder to find again.

The challenge for Australia is that the unemployment rate is relatively speaking still quite elevated at 5.4 per cent, so there's probably a hefty amount of slack that needs to be taken up before we solid wages growth return.

At least things are heading in the right direction. 

For reasons that are hard to fathom, some commentators even believe that the Reserve Bank will hike rates while wages growth is tracking at just ~2 per cent, though I can't believe that for a minute. 

In the meantime, a number of lenders have been quietly lowering mortgage rates again, including for investors and interest-only loans. 

The car in front is an import

Shuttered

Automotive production continues to plummet, with annual volumes nearly 50 per cent below their December 2010 level, and falling fast, so the new car you buy next year will likely be made somewhere else. 

The Department of Employment projected that the factory closures at Elizabeth in Adelaide (Holden) and Altona in Melbourne (Toyota) could cost 27,500 jobs over the years ahead, leading some commentators to predict the end of days for Australia.

Indeed, some gloomy reports even speculated that the closures could snowball into hundreds of thousands of jobs losses, which always seemed a bit far-fetched given that the shutdowns have been discussed for years.

It was wise to be prudent and wait for the halting of operations to pass, which has now occurred, but if there were to be any earth-shaking initial impacts then they weren't yet in evidence in the October 2017 employment figures.

In the event, total employment exploded +355,700 higher over the year to October, sending the unemployment rate careering to a 4½ low, and with the ABS also now putting job openings at the highest level on record. 

Furthermore, the more timely SEEK job advertisements figures showed openings tearing 25 per cent higher in South Australia and 18 per cent higher in Victoria, so it's probably safe to say that the world hasn't ended for Adelaide or Melbourne. 

Interestingly some of the sectors creating tens of thousands of new job openings lately have included engineering, technicians, manufacturing, including machinery operators & drivers, trades & services, and transport & logistics.

Long term production employees at Holden and Toyota might have received a meaningful payout, potentially even providing a mini-boost to the local economies. 

"Pivot, pivot, pivot..."

There has been much criticism of the government for not propping up the loss-making auto assembly industry. 

Luci Ellis of the Reserve Bank of Australia rattled off the counter-arguments in a blazing speech on economic rationalism last week. 

There's no doubt that the auto industry is facing a fair amount of uncertainty and potential disruption over the years ahead. 

For example, a great deal has been made on the newswires this week of Tesla's forays into driverless trucks, electric vehicles, and "insane" roadsters.

Interesting stuff, though whether a company which has barely produced anything to date - let alone sustainable profits - will prove to justify a market cap north of US$50 billion (and an enterprise value of a baffling magnitude) can only be known in the fullness of time.

It's a good story, I'll grant it that!

Greatly exaggerated

For all the excitement of electric rigs and electric supercars that can accelerate ridiculously fast (albeit not on Australia's congested highways, lol), the death of the humble road vehicle has been somewhat exaggerated. 

Annual unit sales increased to 1,181,418 in October, marginally the highest result ever notched, powered by record Sports Utility Vehicle sales. 

At just under 99,000 the seasonally adjusted monthly sales were a little below the all-time monthly peak set last year, a fact which some have tried to claim represents stretched household budgets.

A more realistic narrative is that low interest rates and tax incentives pulled forward demand in New South Wales, where anyone and everyone considering purchasing a new vehicle must have done so in 2016. 

With more than 1.18 million sales recorded over the past year traffic congestion will get worse rather than better, adding to the urgency for the delivery of transport infrastructure projects, of which there are many now in the pipeline. 

A final observation, the trend in new motor vehicle sales in Western Australia has now been rising for 9 months consecutively. Western Australia saw 8,570 new motor vehicles sold on a seasonally adjusted basis in October, a solid increase of +8.2 per cent from a year earlier. 

While much commentary is focusing on more downside, a number of indicators are pointing towards brighter times ahead in the west. 

Swiss cheesed

200,000 more Oz millionaires

2017 saw another large increase in global wealth, increasing by 6.4 per cent or (USD) $16.7 trillion to $280 trillion, driven by equity prices and non-financial assets, including housing.  

Global wealth is projected by Credit Suisse to hit $341 trillion by 2022, driven largely by rapid growth in countries such as China and India. 

The US continued an unbroken run of gains since the financial crisis in 2017. 

The Eurozone saw the creation of 620,000 new US dollar millionaires as the currency picked up, and Australia once again punched above its weight in adding a further 202,000 millionaires, taking the total up from 958,000 to 1.16 million. 

Switzerland's wealth per adult has increased by by a thunderous 130 per cent since the turn of the century in US dollar terms to $537,600, albeit largely due to shifts in the exchange rate, according to the Credit Suisse 2017 Global Wealth Report. 

Among the countries in the world with available figures over the long term, Switzerland stands alone in seeing no decline in wealth inequality over the past century. 

Home to just 0.01 per cent of the global population, Switzerland alone accounts for some 1.7 per cent of the top 1 per cent of global wealth holders, with several thousand ultra-high net worth individuals with personal wealth in excess of $50 million. 

Lucky country

Switzerland is something of an exceptional case as a tax haven, but next in line comes Australia with a mean wealth per adult of $402,600, partly driven by "high property prices in the capital cities", somewhat perversely.

Australian household wealth gains have averaged 12 per cent per annum since the turn of the century, and the average debt to assets ratio is surprisingly low at only 20 per cent. 

68 per cent of Australian adults have a net worth of above $100,000, which is some eight times the world average. 

Meanwhile, New Zealand's wealth per adult moved ahead of Norway into fourth place in 2017. 

Wealth inequality is relatively low in Australia, with a far smaller share of the population having a net worth of under $10,000 than the United Kingdom or US. 

Indeed, when measured in median terms Australia's wealth per adult of $195,417 is not too far off the highest in the world, with only Switzerland edging us out at $229,059. 

There are now 36 million high-net worth individuals in the world with a net worth of $10 to $50 million.  

Some 2 million of them are located in China - nearly 40 times as many as at the turn of the century - with a further 6.3 million in India and other Asia-Pacific countries.  

Perhaps not unrelated to this, Australia is projected to be home to 1.7 US dollar millionaires by 2022, up from 1.16 million today. 

Drain the swamp

Swamp thing

Since the hiring freeze was lifted, Canberra has seen by far and way the strongest household income growth, with gross income per capita in the ACT up from $101,600 to above $110,000 over the past two financial years.

Nice work if you can get it!

At the other end of the scale household income per capita declined in Western Australia in FY2017, back to below the level seen in the 2014 financial year in nominal terms. 

Disposable incomes followed a very similar pattern, with Canberra absolutely miles ahead of the rest, by a magnitude of almost 50 per cent. 

Surprisingly the Northern Territory has been the strongest performer over the past five years in per capita terms, with disposable incomes rising by +24 per cent. 

Queensland incomes have really struggled since the peak of the resources construction boom in 2012, and income growth has been relatively modest elsewhere.

These numbers are derived from the state accounts, and as ever some household are faring better than others.