Mixed Messages on the Australian Economy

We’re only a few weeks into the year and already there are mixed messages on what’s ahead for the Australian economy in 2014.

Funny isn’t it? As soon a s everything seems to be setting us up for a great year, some bad news crops up, like rising unemployment.

Anyway…here’s ANZ Bank’s take on this week’s economic news:

1. The December labour force report released yesterday was weaker than expected and a little at odds with some signs of stabilisation in indicators of labour demand (see Chart of the Week below).

Employment fell against expectations for a modest rise and the unemployment rate rose 0.1ppts to 5.85%, marginally below the most recent peak in June 2009.

We had been expecting the tone of the report to be somewhat more positive given job ads were broadly unchanged in H2 2013 and more favourable reads on retail sales and housing activity in recent months.

As a lagging indicator, it may be that the modest improvement in employment growth we expected will come in early 2014.

While that is our expectation, overall labour market conditions are expected to remain relatively soft, with the unemployment rate forecast to rise to around 6% in coming months and remain around that level for around a year or so.

Mixed Messages on the Australian Economy

2 . The weakness in labour market conditions and wages growth in 2013 is expected to have kept underlying inflation in check in Q4 2013 despite some further pass-through from the lower Australian dollar.

3. Australian housing market indicators remain buoyant.

The PCA-ANZ survey of property confidence rose to a new high and housing finance approvals released earlier this week continued to show a strong upward trend in loan approvals for dwelling construction.

For monetary policy, we remain comfortable with our view that the RBA will remain on hold through 2014.

4. Overseas this week:

US economic dataflow was typically more upbeat following the weaker-than-expected non-farm payrolls release last week.

Indeed, solid gains in retail sales, along with improvements in the regional Federal Reserve surveys, suggest that economic conditions in the US economy have continued to improve and that the weak non-farm payrolls data was somewhat of an aberration.

Importantly, AUD/USD fell sharply in response to the Australian and US dataflow and is currently trading a little above USD0.88 against a high of USD0.9080 earlier this week.



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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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