Prime Minister Julia Gillard was condemning Tony Abbott for “talking down the economy” during the week, which made me ponder my regular offerings on the economy. My conclusion was Jack Nicholson-inspired — well, kind of.
It goes something like this: “You don’t want the truth because we can’t handle the truth!”
On the subject of truth, I reckon Treasurer Wayne Swan is playing fast and loose with the truth and we saw him at his best — or is it at his worst? — when he patted himself on the back for the interest rate cut the Reserve Bank (RBA) wisely delivered this week.
His argument was that it was his commitment to a budget surplus that has made it easy for the central bank to cut interest rates. Now there’s some truth in this as the commitment to a political promise to create a surplus is better for the RBA’s calculations than an irresponsible deficit being in train.However, the planned surplus will slow down the economy and so I think the rate cut was delivered to help a faltering economy, which will have to cope with a too-quick rush to a budget surplus.
Also, the flipside of this Swan crowing is that when interest rates were rising 2009 to 2010, then the Treasurer should have been blaming himself! Now that would have been a historically significant example of truth in politics.
So, what is the truth that the PM does not want us to hear?
The good news
Let’s be unbiased by listing good and bad truth. Here goes the good stuff, to keep it positive:• Home prices recorded their best rise in 30 months with the RP Data-Rismark Home Value Index saying capital city prices were up 1.4%.
• Inflation remains low with the TD Securities inflation gauge up 0.2% in September.
• Unemployment fell in August from 5.2% to 5.1% but this good news came from people stopping looking for work!
• Economic growth for the year in the June quarter was a good 3.7% but down from 4.3%. The quarterly rise in the June quarter was only 0.6% which if annualized is a weakish 2.4% growth rate.
• Consumer confidence rose in September from 96.6 to 98.2 but being under 100 means it is still in negative territory and it’s been that way for seven months!
The bad newsNow here’s the bad news:
• Manufacturing has been contracting for seven months in a row.
• The services sector has been contracting for eight months in a row.
• New home sales fell by 5.3% in August, marking the second consecutive month of sharp falls. Sales stand at the second lowest level in 15 years.
• Our trade deficit was $2,027 million in August, following an upwardly-revised $1,530 million (previously $556 million) deficit in July.
• Overall lending rose by 0.2% in August and this is the weakest monthly growth in seven months.
• Housing credit grew by 4.8% over the past year and this is the weakest growth in records dating back to 1976.
• The federal budget ended up in deficit by $43.7 billion but in May the government projected a deficit of $44.4 billion and while this is better than expected, it is still huge at 3% of GDP.
• The Commonwealth Bank Business Sales Indicator (BSI) fell a further 0.4% in August after sliding 5.4% in sliding in July.
• The Government’s chief agricultural forecaster for the sector, ABARES, expects a 3% fall in farm production in 2012/13.
• The Government’s chief forecaster for the resources, BREE, downgraded export forecasts to $189 billion in 2012/13 from the June forecast of $209 billion.
• The NAB business confidence index slumped from 3.5 to -2.1 in August.
But wait, there’s more!
As you can see, the bad news outnumbers the good news and I have left out the fact that La Niña is probably giving way to El Niño, which brings droughts. Then there’s a weaker than expected China, which has hurt in the mining boom and most experts agree that the mining tax is coming at the wrong time, given the weakening commodity prices.You would have to say that the carbon tax isn’t the best impost right now and does put our businesses at a competitive disadvantage in the short- to medium-term.
It’s great that our unemployment is miles better than most other Western economies but it has been helped by mining and related construction, which now are coming off the boil.
More rate cuts to come?
This isn’t talking the economy down, but simply telling it the way it is. Thank God, or is it Glenn, that the RBA has come to its senses and cut rates, and let’s pray we see another on Cup Day.
It’s heartening that one policy maker is handling the truth and responding accordingly. It’s now over to our leadership in Canberra — the place where they always keep it real — not!Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds. www.switzersuperreport.com.au