Rate cuts flow through
While it is possible to dismiss all too quickly the results of interest rate cuts, it's also worth remembering that the impacts do take time to flow through the economy in full (and the last rate cut was only delivered in May).
As an example of why this matters? There was intense and often bitter debate through 2011 and 2012 about whether or not interest rates could rescue the housing market. They did, but it took time.
For sure, the most recent data has not all been strong. Economic growth has been a bit below trend at 2.5 per cent, wages growth is tracking at only 2.3 per cent, and business investment plans remain weak. Yet there have been some positive developments in the last year or so too, including:
- the unemployment rate declining to 5.8 per cent, from 6.4 per cent in January;
- annual retail turnover up by 3.9 per cent, above the 5 year average;
- both business confidence and consumer confidence running above their long term averages;
- new car sales at all-time highs; and
- building approvals at all-time highs.
So it's hardly been all bad either. Most notably, the data showed the economy adding a thumping 344,200 jobs in the year to November. Without even looking at the detailed figures, you would intuitively say that jobs growth has been solid, but under-employment remains prevalent, but let's take a look anyway.
People get upset when you show seasonally adjusted employment growth running at close to decade highs. So let's play around with the less volatile trend data instead, which shows employment growth of 293,000 or 2.5 per cent, which is still way ahead of the rate of population growth.
The New South Wales economy is firing on all cylinders, fat on stamp duty receipts and poised for a $70 billion infrastructure boom. The story in the southern and mining states is obviously more mixed.
Interestingly, though, recent data has shown that the building boom is having an impact on the labour market in Brisbane. There is a long roll call of regional towns in Queensland which are feeling the painful impacts of the resources construction downturn.
Yet the employment data for Brisbane - and to some extent the Gold Coast - has been strong enough that the state level data doesn't look too shoddy at all.
The unemployment rate is trending down in Queensland, and in fact the latest unemployment rate recorded for Greater Brisbane was down to just 5.4 per cent. In Greater Sydney it was only 4.4 per cent. The state level data charted below shows the positive trends.
But surely under-employment is still prevalent post financial crisis? Yes it certainly is, although Queensland has been improving a bit of late.
And underutilisation rates tell a very similar story.
Hours worked & participation
Over the last 15 years the number of hours worked per month has expanded very strongly in the four most populous states, but grown only moderately in the southern states.
Arguably, however, it is the annual percentage change in hours worked we should be more interested in. Note the strong improvement in New South Wales (+4.8 per cent) and Queensland (+4.1 per cent).
Employment to population ratios are naturally down from the levels seen at the peak of the mining boom, but have improved in both New South Wales and Queensland lately.
And the same applies to the participation rate.
Overall, there have been positive responses to low interest rates, but clearly plenty of slack in the labour force remains. Market pricing suggests that interest rates will remain on hold for the foreseeable future, unless there is a deterioration in the outlook.
I'll be buying property in Brisbane in 2016, but will be steering well clear of the wave of new apartment supply. I expect some off-the-plan sales to fall over due to lack of deposits.