Jobs conundrum solves itself

Puzzle trail

There's been a puzzle over the past year involving an essentialled stalled economy yet massive ongoing employment growth at +2.9 per cent or about +360,000. 

The conundrum appears to be solving itself now, though.

The May quarter tends to be a seasonally weak one for job vacancies, but still you can see how New South Wales and Victoria are now off their record historic highs. 

After seasonal adjustments, total vacancies declined a bit from 244,200 to 241,500 in the May 2019 quarter.

Hardly disastrous, but you'd be brave to argue against this data series rolling over now, especially given what the most timely other indicators and indices have been showing. 

Meanwhile, something else has happened: capacity in the labour force increased.

After accounting for this the ratio of unemployed persons per job vacancy took a leap in the May quarter, although it looks a bit less dramatic on my smoothed trend series below.

Job vacancies as a share of the labour force were thus also well down last quarter as female participation has soared.

The previously solid relationship with the unemployment rate appears have broken down somewhat. 

The wrap

Still plenty of jobs growth to come on these figures, then, but vacancies look set to arc lower now reflecting what other data sources have already suggested for some time. 

At the sectoral level healthcare job vacancies jumped from 24,000 to 29,800 over the year to May 2019 following on from the NDIS rollout, but there's not been quite so much to write home about elsewhere.

The retail trade figures reported today were also weak, increasing for the month by just +0.1 per cent seasonally adjusted.

Twin surpluses?

Iron phwoar

Is Australia on track to record a current account surplus twinned with a Federal Budget surplus?

Well, we must be getting pretty close.

Estimated iron ore export values exploded to a record A$8.8 billion in May 2019, leading to a mammoth record monthly result for Aussie dollar exports.  

The annual value of Aussie dollar exports is off to the moon, in rapidly approaching $500 billion.

This drove another record trade surplus, with the trend result being a surplus of $6 trillion.

And finally, the lower Aussie dollar helped to power the tourism services balance to its highest level since forever.

The wider services sector recovery is rather stuttering along, however.

Enormous result for corporate and mining profits, and tax receipts. 

Strange times: the economy can begin to hum again, assuming banks finally loosen the credit taps to allow rate cuts and tax cuts to do their job.

Unit pipeline shrinking fast

Pipeline being worked off

Sydney and Melbourne unit approvals continued to trend lower in May 2019.

In particular, higher-density approvals are being battered lower.

This will doubtless continue for as long as states persist with stamp duty and land tax surcharges for non-residents.

Notably these figures pre-date the latest round of building defect headlines, this time from Mascot. 

Piecing it together house approvals declined, keeping the downtrend in place, from above 20,000 approvals per month in 2016 to about 14,500 in May 2019.

Figures produced by RiskWise showed that the unit pipeline has shrunk dramatically since 2017 in New South Wales (-38 per cent), Victoria (-38 per cent), and Queensland (-29 per cent). 

The Reserve Bank forecasts see population growth outstripping the growth in the dwelling supply by the end of the forecast period.

Certainly the Budget assumed a population explosion over the coming years, with population growth already tracking at more than 400,000 per annum. 

Unit supply still exceeds demand in parts of Sydney (especially in Parramatta and Blacktown), inner-city Brisbane, and inner-city/inner east Melbourne, according to RiskWise research. 

RBA leaps to action (more to come)

Rates fallin'

Consumer confidence leapt by +4 per cent from 114.3 to 118.9 last week, according to Roy Morgan.

Consumers must have anticipated what was coming, as the Reserve Bank announced in its Darwin meeting today that interest rates would be cut by another 25 basis points to 1 per cent. 

The wording of today's Statement hinted at the possibility more cuts to come after an initial pause:

Source: RBA

The door is open to more cuts, then, and more may come later in the year, quite likely, if the spare capacity in the labour market is not absorbed.

ANZ was first out of the blocks to announce that it would pass on the full 25 basis points to borrowers this time around, but the other majors will hold back some of the cut.

Elsewhere there are record low mortgage rates available from as low as 2.89 per cent.

Housing market sentiment had already turned around by May, with pent up demand unleashing a 28.8 per cent rebound in new house sales. 

And housing markets are now back in the headlines, and not for building defects this time.

On the economy, now it's over to the government to do its part, starting with the planned suite of tax cuts, but hopefully with some bigger plans on infrastructure thereafter.

Stocks listings tighten in Sydney

Listings down in June

Total property listings fell 11 per cent in both Sydney and Melbourne in June, with most cities recording more modest declines. 

Year-on-year listings were down a couple of per cent nationally.

And that's due to a 10 per cent decline in Sydney roughly from 35k to 31k.

Not much new stock to choose from, and asking prices are now rising, according to SQM Research.

Interest payments fall too

Breathing space

Australia is experiencing a genuine demographic boom in its 25 to 34 year old cohort, largely due to the structure of its migration program.

And as more Baby Boomers elect to take some debt into their later years, in aggregate Australian household liabilities have increased, as one might expect in tune with lower interest rates.

Adjusted for incomes in Sydney and Melbourne median dwelling prices are about 20 per cent cheaper than their respective peaks of a couple of years ago, while no other capital city has seen any meaningful increase in real median dwelling prices over the past decade (although Hobart has got close to that point). 

There had been a level of concern about the extensive use of interest-only ('IO') loans, but after a huge crackdown both the stock and flow of IO loans are now tracking at the lowest level on record as a share of the overall market. 

A lot gets written about debt, but what's critical is the ability of households to service it, and there's no doubt that the forced IO reset has caused stress and arrears for some households, especially in Western Australia, the Northern Territory, and, to a somewhat lesser extent, Queensland.

On this front, some positive news: the ratio of both household and housing interest payments to income declined in the March 2019 quarter, and both ratios are now more than 31 per cent below their respective high watermarks of Q3 2008. 

The good news is that thanks to an interest rate cut having been delivered in June combined with a dramatic year-on-year reduction in housing finance, these will ratios will decline further in Q2 2019.

Click to expand the chart: 

For some interesting context, household interest payments accounted for a greater share of income 30 years ago in Q3 1989 than they do today in Q3 2019. 

Inflation easing further

The Reserve Bank's mandate is to target inflation of 2 to 3 per cent as a stable nominal anchor.  

However, petrol prices are now falling, and annual inflation decelerated in May to the lowest level in two years at just 1.6 per cent.

Thus the rate of inflation is reportedly drifting further away from the target, which is typically a sign of an economy running well below its capacity. 

While it's true that highly indebted households can repreent vulnerability from a financial stability perspective if conditions are allowed to deteriorate, measures have been introduced to prevent households from leveraging up today as they once could.

For those households that already had high debt, given the absence of inflation the best thing that fiscal and monetary policies can do is relieve pressure on them by getting the unemployment rate down towards 4 per cent and incomes rising.

Tax cuts to reverse years of bracket creep can help. 

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The commodity price index increased 13.4 per cent over the year to June in SDR terms, due to iron ore, gold, and beef and veal prices. 

In Aussie dollar terms, the index was up by 19.4 per cent.  

Stock shortage

Listings down

New listings are down 30 per cent year-on-year in Sydney.

And they're down 32 per cent in Melbourne.

In Sydney in particular this is leading to a dearth of quality stock, and total listings in the harbour now sit below 25,000 as demand ramps up. 

Source: CoreLogic

In fact the latest CoreLogic stats show that new listings are down across all capital cities from a year earlier. 

The Reserve Bank meets tomorrow and hopefully will cut interest rates to get the stalled economy moving.

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ScoMo has had some divine intervention here...

And then to start the financial year...

Time for some overdue tax cuts, please!

Housing auctions

Road to recovery

CoreLogic reports the post-election recovery, and prices rising:

Source: CoreLogic

Not a lot of stock.