The week ahead with Michael Pascoe
While Tuesday’s Reserve Bank board meeting captures the most attention, the Australian Bureau of Statistics is pulling out all stops to give the RBA plenty to think about.PT4M35S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2apyb 620 349 December 3, 2012
To the extent that betting on an RBA decision can be a sure thing, today's economics releases make an interest rate cut tomorrow more than odds-on.
According to the Australian Bureau of Statistics' business indicators' survey, wages in the September quarter recorded their first fall since the GFC-smashed September quarter of 2009.
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It was only a 0.2 per cent dip and it's only the seasonally adjusted series – the better trend estimate was up 0.7 per cent – but that still summarises a rather disparate bunch of figures that add up to a stronger argument for a rate cut than holding off until February.
After a flurry of economic data, the RBA could be poised to cut rates again. Photo: Louie Douvis
October retail sales numbers were nothing to write home about either. Discounting the flighty seasonally adjusted figure (flat from September to October), the trend series recorded a 0.2 per cent rise. With the odd revision, the trend series now prints as 0.2 per cent for each of the past four months. It's growth, but not much growth.
Combine it with the business indicators' story on wages and falls in company gross operating profits (down 1.7 per cent trend, 2.9 per cent seasonally adjusted) and the case for easing monetary policy again builds further.
The RBA's tough job is to set policy to deal with where the economy might be in a year's time, but softening evident today despite a series of rate cuts lowers the base for stimulus to take effect.
One number to come
The final statistical assistance for the RBA board meeting is October building approvals numbers released at 11.30 tomorrow. Building approvals figures have assumed a greatly enhanced importance in deciding policy as both the RBA and Treasury are betting on a housing industry resurgence to pick up the promised slack from the construction phase of the commodities boom easing.
In a recent speech, governor Glenn Stevens reiterated policy makers' bafflement about why housing construction had been “unusually weak”. Said Stevens:
It is not clear, actually, that the degree of weakness has been adequately explained. Various explanations have been offered – interest rates too high, housing prices falling, zoning restrictions, planning delays, construction costs, lack of 'confidence', all have featured. At present, at least some of the pre-conditions one might expect to be needed for higher construction seem to be coming into place. Interest rates have declined, dwelling prices seem to have stopped falling, rental yields have risen, and the availability of tradespeople is assessed as having improved. We have, moreover, seen a rise in approvals to build. So there is some evidence of a turning point, albeit a belated one.
Thus tomorrow's figures will be very carefully weighed. The fledgling rise in building approvals needs to be built upon, so to speak. It would take a most unusual and unexpected surge in such approvals tomorrow to stay the RBA's hand. A dip or flat performance in those stats at 11.30am should mean the governor's announcement at 2.30pm is a foregone conclusion.
The September quarter national accounts on Wednesday will show an Australian economy that remains strong by international standards. We continue to do much better than we tend to believe, but that view out over the next 12 months is likely to call for getting some monetary policy retaliation in first.
The breakdown of business indicators by industry show wildly varied performances, but underline some of the known drags on the economy, as well as throwing up some questionable results.
For example, did trend company gross operating profits in the financial and insurance services sector really jump by 24.4 per cent in the quarter, let alone soar by 44.2 per cent seasonally adjusted? Trend wages and salaries in the sector were reported as falling by 3.5 per cent.
On the other hand, it comes as no surprise to any journalist that the company gross operating profits in information media and telecommunications were down. The trend estimate for wages and salaries was off 1.1 per cent or 9.9 per cent seasonally adjusted. I suppose I should be glad I concentrate on the trend numbers.
Still out there beyond the business indicators is the public sector impact. For all the chatter about politically-damaged consumer confidence and the impact of North Atlantic crises and whatever China is up to, it is Australia's own little fiscal cliff that is proving the single biggest drag on growth.
State governments running into fiscal brick walls and the Federal Government pursuing a nominal surplus at any cost mean the RBA's is forced to loosen monetary policy in an attempt to compensate.
Enjoy your rate cut.
Michael Pascoe is a BusinessDay contributing editor.