worse than LEH?

GS’s Aus Eco team (Tim Toohey and Co) do a good job, so I was surprised to see them claim that the recent run of data had been the most disappointing in the last six years, in a report they published yesterday. I track this stuff as well, and on my measures the downside surprises were much larger in H2’08, following the LEH shock (which is why the RBA was cutting by 100bps at a time).

I was also surprised at their list of shocks: we know that there are temporary factors at work in a few cases, and other data looks okay.

Monthly trade data was weak due to Chinese New Year (China is such a major importer that you can see the same pattern even in US data); abstracting from the govt policy change that boosted Dec and pulled Jan down, housing finance is trending up; the Westpac Consumer Confidence survey move down was less than one sigma, and in any case the weekly Roy Morgan data shows that it’s bounced; and NAB business conditions were up – not down!

The labour market appears to be balanced with unemployment at ~5.25% for the last three quarters — and job ads are firming up.

That’s much better than 2008, and markedly better than mid 2011.

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10 Responses to worse than LEH?

  1. ssec says:

    “.. abstracting from the govt policy change that boosted Dec and pulled Jan down, housing finance is trending up…”

    Trending up from completely dead you mean? More rate cuts are coming this year:


    • Ricardo says:

      I would say trending up from a large depression caused by the first home buyers grant in 08/9.

      There are only so many home buyers – govts keep trying to bring forward demand, and then panic when it drips into the hole they created.

      Might cut again, might not – hard to say just now.

      Sent from my iPad

      • ssec says:

        Housing is slow moving, but once it starts moving in one direction, it’s difficult to stop. We are talking about the lowest numbers in a decade here… and interest rates are not even that high. It can’t only be due to first home buyers.

        Let’s hope inflation behaves, and further cuts help housing. Otherwise it could turn really ugly before the RBA even notice.
        And if housing weakness morphs into a recession, then ….

        Here is another reason for more rate cuts:

        • Ricardo says:

          i think that we are moving to a higher AUD and lower rate mix of monetary conditions, which ought to support home building. the reason it is not, so far as i can tell, is that the mining sector is sucking up the resources that might have been drawn on by the housing sector. That and finance for developers is very tight.

      • ssec says:

        I 100% agree with generally higher AUD and lower rate mix compared to the past… but domestic inflation has to slow down for rates to come down and without productivity increases that will not happen. So that may mean higher rates than what would be appropriate for the economy, mild stagflation, until no longer sustainable and we go into a recession. Then productivity WILL increase.

        I am not saying this is the most probable scenario, but if domestic inflation does not slow down… salaries rising at 4% p.a. with a high AUD is simply not sustanable IMO.

  2. Rajat says:

    Ricardo, OT, but it’s time to settle our bet: Congratulations – let me know which charity you would like to benefit.

    The US recession on which I was banking to push bond yields further down has failed to materialise. ECRI are still out there sticking to their guns on their recession call and good luck to them. I am only glad that while I have lost $100, it is a lot less than what I would have lost if I had actually purchased bonds in late 2011. It’s also a lot less than what ECRI and Lakshman Achuthan stand to lose if things don’t start to turn down fairly smartly!

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