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How’s our economy performing? | RBA Chart Pack October 2017

How’s our economy performing? Australia Economy Concept

Now that’s an important question if you’re a property investor or in business.

Each month the Reserve Bank meets to discuss the state of the economy and set official interest rates and then releases its minutes to explain the reasons behind their monetary policy decision and a chart pack which I summarise for you here at Property Update .

This month there’s good economic news, even though you may have missed it if you read the mainstream media.

The latest ABS’s figures show we’re creating more jobs than we have done in a long, long time (more than quarter a million jobs created in six months), but wages growth remains low as does consumer confidence.

Anyway… let’s see what the RBA has to say:

INTERNATIONAL ECONOMIC GROWTH

As always, it’s important to start with the international context… 

investor-enquiry-form

Conditions in the global economy have improved.

Labour markets have tightened and above-trend growth is expected in a number of advanced economies, although uncertainties remain.

Growth in the Chinese economy is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk.

Australia’s terms of trade are expected to decline in the period ahead but remain at relatively high levels.

The International Monetary Fund expects global economic growth of 3.5 per cent in 2017 and 3.6 per cent in 2018, compared with 3.2 per cent growth in 2016.

However, the IMF has identified a number of potential risks to the global economy, including inflated asset prices, a growing trend toward protectionism and the outlook for the Chinese economy.

Gdp Growth World

INFLATION

World headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices.

Core Inflation Advanced Economies Small

EMPLOYMENT

Wage growth remains low in most countries, as does core inflation.

Unemployment Rate Advanced Economies

Is this the end of low interest rates?

In the United States, the Federal Reserve has indicated that it will begin the process of balance sheet normalisation in October and that it expects to increase interest rates further.

In the other major economies, there is no longer an expectation of additional monetary easing.

Financial markets have been functioning effectively and volatility remains low.

AUSTRALIA’S ECONOMY

We truly live in “the lucky country” – Australia has had a record run with no recession since 1991…

https://www.dropbox.com/s/dskfc12rn7eko4q/Screenshot%202017-10-24%2019.00.39.png?dl=0

 

And the Australian economy keeps chugging along, expanding by 0.8 per cent in the June quarter.

This outcome and other recent data are consistent with the the RBA’s expectation that growth in the Australian economy will gradually pick up over the coming year.

Gdp Growth

However, economic conditions continue to vary across the states.

Recently, economic growth has been strongest in Victoria, New South Wales and ACT  and weakest in Western Australia.

State Final Demand

And like the rest of the world, Australia is in a low inflationary environment which is of course one of the reasons the RBA can keep official interest rates so low.

The Consumer Price Index (CPI) rose 1.9 per cent through the year to June quarter 2017.

Consumer Price Inflation

Employment has continued to grow strongly over recent months.

Employment has increased in all states and has been accompanied by a rise in labour force participation.

The various forward-looking indicators point to continuing solid growth in employment ahead, although the unemployment rate is expected to decline only gradually over the next couple of years.

State Unemployment Rates

Employment Growth By Industry

However, wage growth remains low.

This is likely to continue for a while yet, although the stronger conditions in the labour market should see some lift in wage growth over time.

Inflation also remains low and is expected to pick up gradually as the economy strengthens.

Wage Price Index Growth Small

HOUSEHOLD SECTOR

The sluggish household sector is a concern.

Retail sales have picked up recently, but low consumer confidence, slow growth in real wages and high levels of household debt are likely to constrain growth in spending.

Retail Sales Growth

At a time when household income growth has remained weak there has also been a further decline in the household saving ratio.

Low growth in household disposable income continues to weigh on spending.

Household Income And Consumption

Having said that Australian households are amongst the wealthiest in the world, with our assets (primarily in real estate) increasing in value faster than our liabilities (due to low interest rates).

Household Wealth And Liabilities

The graph below shows the interesting effect of our current low interest rate environment.

Despite record high levels of household debt, falling interest rates means that this debt is more affordable than ever with average household debt as a percentage of disposable income being at an affordable level.

Household Finances

Consumer sentiment, while remaining  fickle and is slowly picking up, but currently more people are pessimist about their future than people who are optimistic.

When people don’t feel confident about their jobs or their future, they don’t spend.

Consumer Sentiment

OUR HOUSING MARKETS graph of the housing

Conditions in the property markets vary considerably around the country.

After a heady start to the year,

While the CoreLogic September hedonic home value index results recorded negative growth conditions for Sydney, from city to city, the overall housing market performance is as diverse as ever.

The September results confirmed that dwelling values edged 0.2% higher across Australia over the month, led by a 0.3% rise in capital city values and a 0.1% gain across the combined regional markets.

House prices September 2017

Not surprisingly, these figures are mirrored by the other property data providers:

Housing Prices

And as expected at this stage of the property cycle, housing starts are declining as are building approvals for new dwellings.

This is a good thing as supply of new apartments is currently  running ahead of demand, particularly in the Brisbane CBD.

Private Residential Building Approvals

Housing finance and credit data confirm investor interest in the housing market has started to drop off.

APRA is getting its way… the latest ABS Housing Finance data shows a sharp drop in investor housing commitments.

Housing Loan Approvals

THE BOTTOM LINE:Economy

All in all, Australia’s economy is sound and looking a little better as we’re creating more jobs than ever.

At the same time, the world economy, while fragmented is also picking up.

In the meantime our property markets have moved to the next phase, one of lower growth – and that’s a good think as the fast pace of growth, particularly in Sydney and Melbourne was unsustainable in the context of a period of low economic growth with low inflation, low wages growth and low interest rates.

But while our markets are down, they’r not out…

Louis Christopher, of SQM Research, who has the best track records of the many commentators out there, has made the following forecast for next year in his boom and bust report, suggesting more moderate property price growth in 2018 :

Boom and Bust report

WHAT DOES THIS MEAN FOR YOU?

Clearly owning property – your own home and investment properties is the way to wealth in Australia  

1-percent

If you’re looking for independent advice about property  no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are home buyer or a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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