Are we heading for a recession?

Zero growth per capita

GDP growth in the economy was just 1.4 per cent over FY2019.

After accounting for estimated population growth, there was a negative result for GDP per capita at -0.2 per cent.

So while we might not technically be in recession, conditions have clearly been weak. 

The latest central bank forecasts don't see a recession - they seldom do - instead seeing GDP growth as being likely to meander back to about 3 per cent by 2020/21.

It must be said, though, that some of the indicators aren't looking all that promising.

Annual credit growth is now running at just 3.1 per cent and declining, which is the sort of year-on-result more readily associated with recessions.

Now, officially Australia avoided a technical recession through the financial crisis, but my friend Dr. Chris Caton argues that if the unemployment rate rises by more than 1 per cent then that's effectively a recession by another name (it increased by about 2 per cent during the intense heat of the GFC). 

We're not near that sort of an outcome just yet, with the unemployment rate just rounding up to 5.3 per cent at the last count, but the rate of unemployment has trended steadily higher in 2019. 

Another metric and leading indicator often associated with recessions is a plunge in building approvals.

Australia has seen its monthly trend sink to about ~10,000 approvals per month a few times before, including during the early 1990s recession, briefly during the tech wreck period, and during the financial crisis. 

Again, we aren't quite at those levels just yet, in part thanks to the aforementioned strong population growth, but equally we've never seen a sharp decline from such lofty heights before. 

Slowdowns in construction tend to be felt keenly due to the knock-on impacts to trades and materials, and all the more so with construction workers as a share of the employed workforce now coming off century highs. 

The central bank forecasts may prove to be right, and the economy might well muddle through with a retail recession but no technical recession.

That would be a welcome relief, not least because 'R word' headlines can themselves spook the consumer horses. 

Importantly, the Reserve Bank now looks set to do whatever it can or takes to reinflate to build on its 'gentle turning point', but the government really ought to pulls its finger out and add some stimulus instead of exulting at its prized balanced budget. 

This is how to jump off the hedonic treadmill

Getting off the treadmill

Here's how (or click the image below):

Another whopping surplus; soft imports

Exports ease

International trade exports in Aussie dollar terms were about 3 per cent softer in August, though in truth still enormously strong at about $40 billion.

The recent strength in exports is much more a story of prices than it is of volumes. 

Further weakness in imports was reflected in another very large trade surplus of $6.9 billion.

The cumulative trade surplus over the past year is now a thunderous $54.8 billion.

Monthly exports were down mainly due to iron ore, coal, and gold, but looked at in context, iron ore exports in Aussie dollar terms have really exploded since May. 

The annual dollar value of Aussie exports hit a record $480 billion, up dramatically from $414 billion a year earlier.

With the Aussie dollar now down to 67 cents, tourism will no doubt continue to flourish, while the long trade services recovery has been floundering a little. 

Finally, a look at the merchandise trade balances at the state level, with Western Australia heading to the moon on the back of the iron ore boom. 

Overall, very strong on the exports side, but with an ongoing disappointing weakness in capital imports, which rather reflects a lack of buoyancy and investment in the domestic economy.

This is why you should think beyond borders

Borderless thinking

See here for more (or click the image below).:

Sydney tightening fast

Stock tightening

Sydney stock levels fell sharply by -5.7 per cent in September 2019, to just 28,773.

Sydney listings have plummeted by some -20.4 per cent over the past year.

A bullish signal for A-grade stock in Sydney, and indeed Louis Christopher has christened it a new housing boom for Sydney.

Some brighter signs for Perth here, too. 

Stock levels were higher year-on-year in Canberra (and in Hobart, but from a very low base in this case). 

Overall, though, national listings were down -6.9 per cent year-on-year, following an abnormal decrease for September - a time of year when stock on the market is normally expected to rise. 

Podcast: investing in a low interest rate environment

Lower rates

Record low interest rates, ahead, including mortgages with a 2-handle in the not too distant future.

I discussed what investors need to consider in the low rate environment on the Michael Yardney podcast here (or click on the image below). 

Approvals lowest since January 2013

Construction crunch

Attached dwelling approvals were much softer year-on-year in Sydney (1,461), Melbourne (1,328), and Brisbane (343!), as the ongoing collapse in approvals maintained the rage through August. 

It's not just an apartment phenomenon, though.

House approvals were also down 17 per cent from a year earlier, and right around the traps as construction finance has slowed. 

Supply looks set to tighten in 2020, then, and will most likely be felt acutely in Melbourne on these numbers. 

Hobart alone gets its own graph here, with annual approvals of 1,649 just below the record high for the Tassie capital. 

Piecing it all together, there were only 12,817 approvals in the month, which is the lowest number since all the way back in January 2013.

Population growth, after accounting for delays in registering births, is still running at about 400,000 per annum. 

Heavy drag

With credit growth slumping and building approvals apparently stuck in a race to the bottom, the Reserve Bank was left with little choice other than to cut the cash rate this afternoon by 25 basis points to 0.75 per cent. 

Kudos to James Glynn of the Wall Street Journal who has had some of the best insights into policy in recent times, alongside Sophia Rodrigues who has resurfaced as Central Bank Intel.

Today's statement seemed dovish, with the Reserve Bank prepared to cut rates further as required, leading commentators to muse a follow-up cut as soon as next month.

The states we're moving to...and leaving behind

Interstate flows

I discussed the latest demographic trends with Domain here (or click the image below).