US nonfarm payrolls freeze up

Hiring freeze

The obvious doesn't really need stating here that things have seriously heated up in the Middle East, and this has sent oil prices soaring, with the Brent crude oil price surging to above $90.

Ouch.  A couple of weeks ago we had the luxury of unleaded fuel prices perhaps in the mid-150s, now you might be paying around $2.20 or perhaps a lot more for a litre, depending upon where you fill up. 

Gas and shipping prices also seem likely to experience a surge of upwards pressure, which will lead to inflationary worries. 

It's less clear how long these pressures will persist for - it's doubtful anyone can say for sure - though no doubt the US will doing its utmost to secure all the oil it can.

Generally central banks might hope to 'look through' temporary supply shocks, particularly if sentiment is also going to take a corresponding hit, but this case is harder to argue for when the headline rate of inflation is already well above target. 

Back to the actual data, and the Bureau of Labor Statistics released the latest US nonfarm payrolls data, which showed an increase in the unemployment rate, albeit just to 4.4 per cent.

Clearly that's not a particularly high level of unemployment, but the jobs growth figures have slowed significantly, and the participation rate fell to the lowest level since 2021 at 62 per cent.

In fact, nonfarm payroll employment fell by -92,000 in February, and the 3-month average employment gain has slowed to near zero.

Source: BLS

Clearly this isn't a great dynamic with rising inflation looking likely into an economy with so little net hiring.

Markets have been twitchy all weekm but to date retail investors have appeared happy enough to buy the dips.

Indeed, the S&P 500 index for the year to date is down by just -1.7 per cent (and is still up 16.8 per cent from a year earlier). 

That's pretty remarkable when you consider that even before the Middle conflict flared up in earnest markets were already roiling on concerns around private credit, and SaaS stock prices were walloped on concerns of AI disruption. 

Interesting week or two ahead by the looks of it. 

James Foster ran through the latest weekly news in more detail here. 

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Economy grew by 2.6pc in 2025

Economic growth picks up

It has been said that the Aussie economy picked up some surprising strength in  the second half of 2025, but that growth was heavily depending on big population growth and heavy government spending.

The national accounts for the December 2025 quarter did partly reflect that reality. 

The estimated population appears to have taken a large jump of more than 100,000 in the December quarter - perhaps this will be revised lower. 

Australia's economy grew up +0.8 per cent in the December quarter, seasonally adjusted, taking annual GDP growth up to +2.6 per cent...but with a timely lift in productivity. 

Public demand increased again by +0.8 per cent over the quarter, and government consumption increased to a new peak of 23 per cent of GDP (h/t Mark the Graph). 

GDP per capita increased for the fourth quarter on the bounce, to be +0.9 per cent higher than a year ago, so it's good to see living standards on the rise again. 

In current prices terms, nominal GDP hit a new high in late 2025.

Dwelling investment growth slowed from +2 per cent in Q3 to +0.6 per cent in Q4, but construction should remain solid in 2026 given the pipeline of housing underway. 

Consumer spending was surprisingly a bit lacklustre and slowed in Q4, as households shored up their finances a little (this weaker figure was also partly due to electricity rebates). 

At the household level, the saving ratio increased from 6.1 per cent to 6.9 per cent, which was the highest level since 2022.

The recent estimated increase in household savings rates has been in part down to lower mortgage interest payments, and this trend will reverse in 2026 as mortgage rates increase again.

Most borrowers in Australia are on variable rate mortgages, so the impact on consumers will be fairly immediate. 

Finally, Australia's terms of trade are off their highs, but still remain at a historically elevated level. 

James Foster ran through the national accounts in more detail here. 

The wrap

Overall, 2025 finished with the economy growing at a fair clip again, pushed along by a bigger government and high levels of government spending, both at the Federal and state level.

As for the outlook for 2026, Middle East tensions and conflicts have historically tended to dent business confidence.

Higher oil and petrol prices and the February rate hike will also serve to dampen consumer sentiment, while market pricing currently sees the cash rate target rising by 25 basis by May 2026, potentially going all the way back up to the cycle highs at 4.35 per cent by February 2027. 

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Building approvals dismal ahead of rate hike

Approvals at 19-month low

Building were expected to rebound after last month's -15 per cent drop, but instead fell another -7 per cent to just 14,564 in January, seasonally adjusted, for the lowest result in 19 months.

Detached house approvals are declining in Melbourne, but a surge of permits in Perth over the past two years has helped to keep the overall figures reasonably solid.

Sydney saw just 649 houses approved in January, partly due to seasonality, of course. 

Unit approvals continued their gentle uptrend in Brisbane, but have fallen back in Sydney and Melbourne of late. 

Adding it all together it was a pretty miserable set of numbers for December and January, and this was obviously all before interest rates were increased in February. 

Annual dwelling approvals fell back to 193,500.

Over the past 19 months, approvals have been running at around 15,900 per cent month, which is obviously a long way short of what the government would like to see (at more like 20,000 per month). 

In other news, public expenditure again looks sets to add to the December quarter GDP growth (+0.3ppts contribution), so the National Accounts seem likely to show a reasonably solid result when they are released this week. 

James Foster stepped through the GDP partials here.

The Reserve Bank of Australia is naturally alert to inflation risks arising from oil and gas supply disruption, so the March meeting result and press conference will be an interesting one to watch. 

---

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Housing prices, the hot and the cold

February home values

Cotality reported the latest home values index for the month of February, with Sydney and Melbourne going slightly backwards over the quarter, and new sales listings picking up in the largest capitals. 

On the other hand, Perth and Brisbane prices have blazed higher by +6.8 per cent and +4.8 per cent respectively over the 3 month period, with Adelaide prices also up by +4.3 per cent. 

Source: Cotality

Within the recent data it's become quite clear that the bottom price quartile has been outperforming, as a direct result of the 5 per cent deposit scheme for first homebuyers.

Thus while Sydney house prices were down by -0.4 per cent over the quarter, unit prices were up by +0.8 per cent over the same timeframe.

There was also an equivalent disparity between affordable houses, where prices rose, and expensive houses, where prices fell.

Source: Cotality

Similarly, regional housing markets have picked up some pace, partly thanks to relatively more affordable prices. 

Rental prices have re-accelerated to rise by +1.7 per cent over the quarter, to be +5½ per cent higher over the year, though Cotality noted that rental inflation has eased in some cities. 

Source: Cotality

You can read the Cotality report in full here.

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In this context, it's interesting to reflect on Australia's capital city price-to-rent ratios.

I remember reading similar ratios in a book published by The Economist perhaps 25 years ago, and they were all doom and gloom at the time flagging massively overvalued markets - but they seemed to take no account of the change in inflation targeting policies and lower nominal interest rates. 

In any case, on a relative basis houses and attached dwellings in Victoria look to be better value now, as do attached dwellings and units in New South Wales. 

Not sure what's going on here with Perth - maybe the statistics are lagging? - but that market has well and truly sailed over recent years. 

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In other news, it looks like energy ETF bets are about to pay off bigly, for obvious reasons.

It seems that a drone strike has impacted the Saudi Aramco refinery in Ras Tanura - the world's largest oil export terminal - while ships are reportedly unable to secure insurance or access the Straits of Hormuz, which will likely lead to oil supply issues. 

An oil supply shock may lead to a nasty inflation surprise for the central bank, even if it does prove to be a temporary issue. 

---

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Podcast: Inflation is still running hot. Construction can’t keep up. And the Olympics are coming

Property Podcast

This week on the podcast Chris and I discussed the following hot topics:

• Inflation came in hot and what another potential rate hike means for buyer confidence
• Why first-home buyers continue entering despite higher rates and tighter borrowing capacity
• The impact of the revamped 5% deposit scheme on bottom-quartile prices
• Why approvals are lifting but dwelling completions remain stubbornly low
• Olympic-driven labour demand in Brisbane 
• Infrastructure projects crowd out housing supply
• The rise in build costs and how higher replacement values are embedding price support
• Does regional outperformance reflect affordability, investor activity or structural shift?

We also had time to answer some of your questions in the Listener Q&A segment at the end. 

Tune in here (or click on the image below):

You can also watch the YouTube version here:

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Listen in to our podcasts

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And our popular Low Rates High Returns Show also remains available on Spotify.

    3. Subscribe for my free daily blog

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My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - check out our free Buy Right podcast series here. 

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Housing credit impulses eases ahead of rate hike

Credit growth eases

Credit growth slowed from December's hot 0.87 per cent (the fastest since 2022) to 0.49 per cent in January, in part due to slower business credit growth. 

Credit growth to property investors remained sprightly at a seasonally adjusted 0.82 per cent in January, but this was ahead of the interest rate hike in February. 

However, monthly housing credit growth overall was a little cooler, pulling back from 0.68 per cent to 0.59 per cent. 

Moreover, with higher interest rates ahead, the growth in housing credit is likely to cool as the year goes on.

Indeed, the derived housing credit impulse may already have rolled over in January. 

Overall, there's still a solid pace of lending to first homebuyers and investors, but it looks likely that price growth will be slower in 2026 than it was last year as sales listings increase. 

---

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Infrastructure boom has a way to run

Construction work done 'eases'

Construction work done eased by -0.1 per cent in the December quarter for a modest decline, although the September quarter was revised up a little. 

Engineering construction pulled back in the December quarter, but much of the recent unwind relates to a previous spike in capital investment in the Northern Territory. 

In reality, there is still a volume of activity happening across resources and infrastructure projects, while there also appears to be a rotation from public sector into private sector activity. 

The value of house construction work done eased a little in the December quarter, with Perth the only major city which has experienced an increase in homebuilding. 

On the other hand, the value of work done on attached dwellings such as townhouse and apartment projects continued to recover throughout 2025. 

Overall, the value of residential construction work done increased by 8 per cent in 2025 to $27 billion.

James Foster ran through the figures in more detail here. 

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In other news, RBA Governor Bullock took the opportunity for a 'fireside chat' update yesterday at a dinner in Melbourne.

The tone of the chat appeared to be fairly sanguine, with seemingly few concerns that inflation is going to 'get away' from the central bank.

Market pricing is looking for a potential further interest rate hike at the May 2026 meeting. 

Source: ASX

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    3. Subscribe for my free daily blog

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By the way, I'm an 8-times published author on finance, investing, and business, so you can check out some of my books here. 

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - check out our free Buy Right podcast series here. 

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Triple whammy for rental supply shock

Inflation stuck at 3.8 per cent

The ABS released the monthly inflation gauge for January 2026, and it remained at a sticky 3.8 per cent reading over the year to January for headline inflation. 

Trimmed mean inflation came in at 3.4 per cent, which was a bit above the median market expectation of 3.3 per cent. 

Source: ABS

Housing remains a key issue, with housing inflation swelling up to 6.8 per cent over the year (from 5½ per cent in December), partly driven by rents and new dwelling costs. 

Not surprisingly, a big ticket item was electricity costs, which spiked 32.2 per cent higher over the year (up from 21½ per cent in December) as government rebates unwind. 

This factor wasn't altogether unexpected, but still bond yields moved a little higher on the sticky inflation release, moving back up to 4.28 per cent for the 3-year Aussie government bond. 

It has been the case historically that inflation can sometimes be 'hotter' in the first month of the quarter - and less so at the end of the quarter - so perhaps partly for that reason markets are pricing interest rates to be most likely on hold in March. 

However, there is now a very good chance that there is another interest rate hike at the May meeting once the next more comprehensive quarterly data are released.

This would take the cash rate target back up to 4.10 per cent, while most other developed countries are eyeing up lower interest rates in 2026. 

You can read through more details on the inflation release with James Foster here.

Rental shocks

In other news, construction work done was well below expectations in the December 2025 quarter, declining slightly from the September quarter.  

Even the discussion of another potential interest rate hike will dampen conditions for developers and the sentiment for housing market investment.

There's also been a lot of media over the past fortnight which appears to be softening up the electorate for a prospective hike in capital gains taxes, which also won't encourage rental supply. 

The ALP government as a general rule appears to favour institutional ownership of rental housing and superannuation fund investment in housing, via the Build to Rent (BTR) model, while not discouraging individual landlords. 

The problem is that most of the potential sites for BTR are not viable to generate the required returns given high construction costs and the increasing cost of capital.  

Rising interest rates

How has Australia seen demand rebound so strongly when most peer countries seem to be shaping up to cut interest rates in 2026?

A big part of the story must be state and Federal government spending which has remained high as a post-pandemic legacy, the spiralling costs of the NDIS disability scheme, and investment in various infrastructure projects. 

South-east Queensland doesn't appear to have enough construction workers to deliver its new housing, road and rail infrastructure, and a wide range of large projects in the lead-up to the 2032 Olympics, including new stadia at Victoria Park and Maroochydore, a new aquatic centre, and the tennis centre expansion. 

Elsewhere, Victoria's $100-billion-plus Big Build continues apace, forthwith in the form of the Melbourne Airport Rail Link, and this is giving rise to some bountiful pay increases. 

Meanwhile the $93 billion proposed Sydney to Newcastle high-speed rail project is all over the newswires this week.

All of this is clearly going to create a lot demand and will require thousands of skilled construction workers, but it's equally not clear where they're all going to live. 

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Get in contact with us today if strategic property investment is your thing. 

    2. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with over 50,000 audio downloads per month, and growing fast.

And our popular Low Rates High Returns Show also remains available on Spotify.

    3. Subscribe for my free daily blog

Subscribe for my free daily blog with over 4½ million hits here. 

You can also catch up with me daily on Twitter here, where I'm far too active daily and have over 16,500 followers. 

By the way, I'm an 8-times published author on finance, investing, and business, so you can check out some of my books here. 

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - check out our free Buy Right podcast series here. 

4. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.