Pete Wargent blogspot

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

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

Thursday, 12 June 2014

Unemployment steady at 5.8% - southern states concerning

Steady as she goes...

Well, it was a so-so jobs report from the Australian Bureau of Statistics for the month of May, the headline figures showing a decline of 27,000 part-time jobs, but an increase of 22,000 full-time jobs, leaving the total employed fairly steady at a seasonally adjusted 11,564,600 (click chart):

In fact, the biggest plus to take away from this release is that the jobs growth in 2014 to date has been all about full-time jobs growth, and not at all about part-time positions. 

Zooming in the chart a little shows that while the seasonally adjusted employment figures have been improving steadily when a meaningful amount of time is considered, the economy is still not yet adding jobs at the pace which would be considered desirable (click chart):

The unemployment rate therefore held steady at 5.8% and it remains unclear whether the peak is yet in for this cycle or whether the headline rate of unemployment will head a little higher.

In all likelihood it'll be the latter for mine as the mining construction boom unwinds, and given that growth in the economy appears to be driven almost exclusively by net exports at present but in the face of deteriorating terms of trade, it once again appears more than possible (if not yet probable) that the Reserve Bank's next adjustment to the official cash rate could be down to 2.25% (click chart):

Labour market by state

So, it's another quarter, and yet another article imploring us to speculate in Adelaide real estate. 

I've lost count how many years that is now, but I'd hazard about half a dozen or so.

One of the most significant demographic shifts which has unfolded across most of Australia over the past few decades has been the expansive growth of the dual income household.

This trend has been one of several factors, in concert with falling interest rates, that has allowed dwelling prices to appreciate comfortably almost everywhere, albeit not so dramatically in Adelaide (click chart):

That's been all well and good for the heady years behind us, but what of the future?

One of the principal reasons I've had concerns about South Australia as a destination for property investors over the last six years is that the underlying economy has remained soft, the state's population growth is weak (in part due to net interstate migration) and is forecast to remain so, and jobs growth has been all but non-existent.

If the local economy somehow picks up a head of steam, then that's great and I'll amend my views accordingly, but it has to be said that the indicators really don't look all that promising.

My total employment by state chart - which I have not seasonally adjusted here, hence the somewhat jagged appearance - reveals that only the four major states have been major drivers of jobs growth over recent times.

Indeed, the four major states have added more than 95% of jobs over the past five years (click chart):

The smaller states have struggled to add any jobs at all for fully half a decade now.

This crucial demographic trend is much clearer to see in a column chart.

South Australia has added only 11,000 jobs in five years and has been going backwards since Q3, 2010, giving Tasmania - which has a net position of nil jobs added over five years - a good run for its money as the worst employment market performer (click chart):

May's data was a welcome healthier print for Victoria after some softer data in recent months, while Queensland has been the undisputed boss of jobs growth for the past 12 months (+60,700).

Meanwhile, South Australia produced another weak result and has shed nearly 20,000 positions in the same time period. 

A minor point of concern, one would think, no?

DYOR, of course, and I'm just a bloke sitting behind a desk in Sydney's Martin Place after all, but if that kind of ongoing employment data is apparently a signal to leverage up with gay abandon into Adelaide property, then I surely must be playing a different kind of game to the industry experts.

The unemployment rates by state show an even more concerning picture for the southern states.

Elevated unemployment rates in South Australia (6.8%) and Tasmania (7.6%) are way too high for comfort. Heck, even Great Britain has lower unemployment rates than that (click chart):

In fact, while the monthly figures are necessarily and forever volatile, the data reveals that only two states (Western Australia and New South Wales) have unemployment rates lower than the national average of 5.8%, and only one of those (New South Wales) has been trending lower over time. 

After a period of being close to effective full employment, the rate of unemployment in Western Australia is normalising higher as the volume of mining construction work done tapers off. 

The main argument for interstate buyers investing in property in Adelaide usually seems to revolve around the fact that it's cheap. 

No arguments there, it is comparatively inexpensive, but with unemployment in South Australia high and trending higher, thousands of jobs being lost on a net basis and no available data to date implying a reversal, I'd suggest that you might only want to proceed with care and exercise a great deal of caution. 

After all, cheap today is no use to anyone if it's cheaper tomorrow.