The 0.8%q/q GDP print looked pretty good at the headline level, and the 2.75%y/y (v. RBA at 2.5%y/y) looked even better – but when you dig a little deeper that is where the good news ends.


Over the last two quarters, there has been a nice increase in consumption, however this has been offset by slowing investment – and with the outlook for further declines of investment and slower growth in Government spending, consumption will need to keep firm (or net exports will have to keep booming) to keep overall GDP growth around 3%yoy.


The RBA cannot do much about net exports (reflecting the fact that they have only limited influence over the currency), so they tend to steer policy based on measures on domestic activity. The simplest regression analysis reveals that GNE (DD + Inv) is much more important for policy – and on this measure we remain near recession.


Sure things looked a little better the last two quarters, however we remain a long way from normal.

I know a lot of readers are interested in nominal GDP – and here the news is a it better – due to a (probably temporary) rise in the terms of trade. It’s up on the quarter, and down only a small amount on the year (note that the YoY % decline was similar to the GFC).

This has boosted nominal GDP a little – though the pace of growth remains weak by historical comparisons.


Myself, i prefer read GDI ahead of n-gdp, as it’s less influenced by inflation.


Again, this measure shows some improvement, but it’s a long way below normal.

Finally, thinking about policy – with the outlook for further declines in the terms of trade, it’s hard to see nominal GDP (or related measures) holding up. And with the bits of the economy the RBA most directly controls (domestic demand and GNE) still very weak, it’s premature to say anything more than that the data remains consistent with ultra-easy policy.

I still think the RBA’s next move is back to an easing bias.

Posted in AUD, economics, monetary policy, RBA | Tagged | 4 Comments

Aussie labour market plumbs new lows (Jan’14 report)

The Jan 2014 labour market report was BAD.


The unemployment rate rose to 6% — exceeding the GFC peak — as the ranks of unemployed women rose (female employment had been relatively stable). Continue reading

Posted in AUD, economics, RBA | Tagged , | 13 Comments

IMF worries about mining bust, says AUD still 5% to 10% rich

Regardless of what you think of the institution, the IMF’s article IV consultation reports are useful as a source of information (and in particular for a summary of what the ‘official family’ is thinking).

The Fund‘s 2013 Australia report reveals that staff think the AUD remains over-valued …

Despite some recent depreciation the real exchange rate, currently in the range of 89 cents to the U.S. dollar, is 5-10 percent above the level predicted by Australia-specific factors from a medium-term perspective

… and that the official family agree …

Like staff, they expressed some surprise during consultations that the exchange rate had remained high despite the decline in the terms of trade, although it has depreciated more recently. Going forward, a lower level of the exchange rate would help balance growth in the economy. Continue reading

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not so hawkish (Q1’14 RBA SOMP)

Finding what you expect is a common failing of human beings — however I doubt it is wishful thinking that’s got me finding confirmation of my expectations in the RBA’s Q1’14 SOMP.

Screen Shot 2014-02-08 at 4.26.41 PM

As ever, the place to start with is the last page. Assuming the cash rate is unchanged at 2.5% until mid 2016, that the nominal AUD is steady at 89c (v the USD or a TWI of 69), and that the price of (Brent) Crude Oil is stable at USD104/bbl, the RBA expects that growth will be sub-trend until mid-2015, and that inflation will return to 2.5% over the projection period. Continue reading

Posted in AUD, economics, monetary policy, RBA | Tagged | 14 Comments

Is the RBA really neutral?

A funny thing happened yesterday. It was not the RBA dropping their easing bias — which was fairly obvious given the Q4’13 inflation surprise — but the way the market traded on the news.

To see why this was odd, we need to rewind so as to give context to market pricing before the statement was released.

Screen Shot 2014-02-04 at 5.01.44 PM

The above charts (from the Q4 SOMP) summarise the situation following the November RBA meeting: their central forecast was for growth to remain below potential (which is thought to be about 3%yoy) until mid 2015. As a result of this weak growth outlook inflation was expected to be around or below the 2.5% target for the entire projection period (the tick up and down mostly reflected the pass-through of a lower exchange rate to prices).

Continue reading

Posted in AUD, monetary policy, RBA | Tagged | 20 Comments

2013 in review

The stats helper monkeys prepared a 2013 annual report for this blog.

Here’s an excerpt:

The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 58,000 times in 2013. If it were a concert at Sydney Opera House, it would take about 21 sold-out performances for that many people to see it.

Click here to see the complete report.

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Where did all the men go? (Oct Jobs report)

There are some interesting stories in the October employment data.

The macro news isn’t great, but the good(ish) news is that the unemployment rate remained basically steady at 5.7% (in unrounded terms is was +0.1).


Continue reading

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The Good, the Bad and the Ugly (Sep jobs edition)

These three charts summarise the state of the labour market — and the September employment report.

The good news is that the trend in hours worked is firm — in typical cycles hours pick up first, then job ads, and finally employment.


The bad news is that we are still seeing job losses at a decent clip — the chart below shows that the September gross flows data revealed a spike in transitions from employment to unemployment. The monthly data is noisy, but an uptrend in separations to unemployment is clear.


The ugly is the decline in the employment to population ratio. The decline in participation has been hiding the weakness in the labour market. It’s tough to find a job, so folks have quit looking for one.


I think there’s decent prospect that the upturn in the interest rate sensitive sectors will eventually lift employment. The hours worked story is a nice lead, and the flattening out (after a hug fall) of job ads is very encouraging.

It’s too early to be sure that the unemployment rate has peaked, and there remain troubling parts of the jobs report, but without an ongoing rise in the unemployment rate it’s hard to see the RBA cutting again.

Following this report, I put the odds of a cut this year at less than 20%

Posted in AUD, economics, monetary policy, RBA | Tagged | 11 Comments

McCrann riffs on Yellen

The Sun’s Terry McCrann has published a great column on the nomination of Yellen and what it might mean for the AUD. The AUD bottomed in early August at ~89c, and has rallied back to ~94c due to the fed’s easier stance, the improvement in Chinese data, and the post election confidence pop.

Given the amount of pessimism out there regarding the AUD, it seems possible that it will break above 95c on nothing more than positioning (grinding out the haters). The move so far has been broadly in keeping with a recovery of AUD commodity prices, but another 5c higher, as McCrann contemplates, would constitute an unwelcome tightening of financial conditions, and may well undo the post-election elation we’ve seen.

In that case, it seems unlikely that 1.00 for the AUD and 2.5% for the cash rate would stabilise the unemployment rate and keep inflation around 2.5%.

McCrann says it is too early to think about a November cut, and i think he’s right – but if monetary conditions tighten, confidence slips, and house price appreciation slows (it may merely be a reset higher in price due to lower rates), it’s easy to see another cut in Q1’14.

Regardless of if 2.5% is the cash rate low, i think it’ll be a long time before we see cash rate above 2.5% (earliest hike looks like 2015 just now).

The RBA would have to contemplate whether than mix is sufficiently positive for the economy that it overrides the negative impact of a dollar at or near parity.

But if not, if unemployment heads back over 6 per cent, it would grit its collective board teeth and cut its official rate.

It doesn’t want to cut further. It does not want to further hit savers, nor provide more fuel for property buying.

But it will if it has to; and a broad brush, a dollar at parity, it would probably have to.

It would also then likely contemplate imposing quantitative restrictions on home lending. Like a minimum deposit requirement.

Posted in AUD, FOMC, monetary policy, RBA, USD | Tagged , , | 23 Comments

troublesome t-bills

Last night’s four week US T-bill auction result was a little odd.

The auction of US$30bn of four week paper was well enough covered (~83bn of bids v. ~30bn of paper), however the results reveal a fairly large change of sentiment.

Typically, these bills are better than cash, and so trade at a lower yield than the overnight fed funds rate — however there was no-one willing to bid below fed funds at this auction (the low bid was 15bps, the median 25bps and the high bid 35bps).

usTbillsA lower 3m rate relative to the 1m rate suggests that the `market` thinks this will be temporary, however the fact that this yield spike has been larger than the similar spike in 2011 (when we last had a debt ceiling debacle) suggests to me that there’s a little less confidence in a solution this time (note the data is from FRED, with today’s closes from Bloomberg as FRED is one day behind).

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