As we continue to work through the health crisis that plagues this country, more and more conversations are turning to the economy.
Are we recovering or are we getting deeper into trouble?
At the same time that businesses are starting to open again, we suddenly get news of staggering job losses and rising unemployment.
Then there is a lot of concern that at the end of September when the current deferral scheme and government support packages expire Australia is going to fall off of a “Financial Cliff.”
So how bad are things going to get?
Are things going to get worse or are we possibly over the worst of it?
That’s what I discuss in this week’s Property Insiders video with Australia’s leading housing economist Dr. Andrew Wilson, chief economist of My Housing Market and we’ll also have a chat about:
- the latest property market data
- RBA Governor Philip Lowe’s spin on the economy
The labour force data for May were an economic train wreck.
Official data from the Australian Bureau of Statistics shows that the unemployment rate rose to 7.1 percent in May, although this only covered the first two weeks of the month.
But if you dig more deeply into the figures the real unemployment rate may in fact be much higher than that.
Here is the snapshot of what’s happened to employment since February:
- Employment has fallen by 838,000.
- The number of people counted as unemployed has risen by 231,000.
- The number of people underemployed has increased by 527,000.
- The number of people who have dropped out of the labour market is 673,000.
- Taken together, the proportion of the working age population ‘under-utilised’ is around 25 percent. Treasury estimate the peak unemployment rate during the Great Depression was 19.9 percent.
Roy Morgan research shows that the unemployment rate was 14.8 percent for the whole of May.
They provide a much more accurate and far more timely jobs and jobless data a full two weeks before the ABS.
The really encouraging indication in the Morgan numbers is that the jobless rate fell slightly from April to May.
This suggests that jobs picked up quite sharply from the first half to the second half of May.
So why isn’t the unemployment data telling a story of staggering like the jobs data?
Because the unemployment data only counts people who were actively looking for work.
A lot of people who lost work in April didn’t bother looking for other work.
They knew there was none to be found.
And so what happened was our participation rate – the share of working age Australians actually working or looking for work – fell sharply.
And don’t forget that JobKeeper has sticky taped our economy together propping up 3 million jobs.
The ABS notes that if all of the 835,000 who lost their jobs in the past two months had actively sought work the unemployment rate would be 11.3% by now.
But there is a chance that we’re over the worst.
This new data is for May, and while this data would normally be considered current, given that many parts of the economy have reopened in the past few weeks, and more parts are expected to reopen in the coming weeks, to some extent the unemployment data is ancient history.
Job slumped over March April and May as business is with you to hibernation but you’re going to expect it from this month as businesses reopen and workers rejoin employers
There has been a significant increase in job ads on line portals over the last month.
After falling by around 70%, SEEK reports job advertising has lifted across its platform since mid-April with job ads now 68.3% of pre-pandemic levels
Policy-makers have focused on total hours worked given the mass exodus from the labour force has distorted the measured unemployment rate.
Hours worked fell another 1%, to be 10% below pre-virus levels.
While weekly payrolls data suggest that employment had started to gradually recover over May, a key test will be the legislated end of the JobKeeper wage subsidy in late September.
About 3 million workers are currently on the subsidy, which Treasury is reviewing ahead of the government’s economic and fiscal update next month.
The treasurer has suggested that the subsidy could continue in narrower form, perhaps with a reduced subsidy for some workers and a focus on the worst-hit industries, such as tourism.
Governor Lowe has warned that it is “very important we don’t withdraw the fiscal stimulus too early”, while pointing to the risk of job losses in construction and professional services when existing projects are completed later this year.
Banks and APRA to soften blow as loan repayment cliff looms
There is a lot of concern that at the end of September when the current deferral scheme and government support packages expire Australia is going to fall off of a “Financial Cliff.”
To save lives, governments moved quickly to stop the spread of coronavirus.
When the economy was crushed by restrictions on movement and “normal life”, extraordinary and expensive measures were put in place in March,
But the concern is that many of these had a 6-month life span.
For example, Australia’s banks have given six months’ grace to thousands of customers under their mortgage deferral scheme, which with the government’s JobKeeper program has enabled households to keep afloat since the pandemic took hold in March.
This generally meant the loan’s term was extended by six months or just accrued the interest, but it gave mortgage holders breathing room.
The big question now is what happens when these schemes run out in September – because it is clear that the economic slump induced by the crisis has some way to run.
I can’t see the government which has spent so much time, money, effort and publicity building a “bridge” to get it across to the other side, to then allow us to fall off a cliff once we get there.
Currently Australian Prudential Regulation Authority (APRA) and the banking industry are in discussions about avoiding the catastrophic impact on the economy and the property market of a wave of foreclosures, particularly in the lead-up to Christmas.
Apparently, a number of solutions are being examined including continuing the deferral schemes for another 6 months, lengthening the term of the loan, using redraw facilities, refinancing at a lower rate, or interest-only repayments.
APRA chairman Wayne Byres told a Senate committee last month that some bank customers would clearly be unable to repay their loans once their repayment deferrals expired, but…
“No one has an interest in going off the cliff, so we have to work out what the next phase is going to be and that will be dependent on the economic situation at the time.”
According to Australian Banking Association data, 779,458 loans worth $237billion have been deferred, including $176billion in mortgages and $60billion in business loans.
Apparently a number of solutions are being examined including continuing the deferral schemes for another 6 months, lengthening the term of the loan, using redraw facilities, refinancing at a lower rate, or interest-only repayments.
The banks have recently started customer check-ins to see if their circumstances have improved or deteriorated and a number of banks have reported that customers on deferrals had reversed their earlier decisions and resumed repayments.
National Australia Bank chief executive Ross McEwan has said about 10-15 per cent of their customers who deferred loans have resumed payments
Last week Mark Hand, ANZ’s group executive of Australia retail and commercial said that about a third of ANZ customers who deferred loan repayments have recommenced paying down their debt.
“[We’re] seeing some customers call us to unwind the arrangement because they’ve got some certainty, they’ve got that confidence going forward,” he said.
At Westpac, more than 4000 home loan customers have cancelled their mortgage support package which included a three-month repayment deferral, with a further three months available on review.
RBA Governor Philip Lowe is optimistic on the near term economic outlook
Governor Lowe recently took part in a panel on the global economy and COVID-19. The main points made by Lowe where:
- Governor Lowe remains optimistic on the near-term outlook.
Lowe noted the shock to the Australian economy was smaller than it had feared.
The RBA now expects hours worked fell around 10% – as shown in the labour data to May – instead of the 20% peak-to-trough fall it had first forecast.
While the pandemic is still a major shock to the economy, Lowe reiterated that Australia had “fantastic fundamentals” and had so far been effective at containing the virus and providing policy stimulus.
Governor Lowe is concerned that higher risk aversion and lower population growth will see the economy “meander”.
The medium-term outlook was more uncertain according to Lowe who was concerned about the next few years of recovery.
Lowe warned that prior to the crisis Australia’s economy has lost some of its dynamism, with, for example, a slower rates of formation of new businesses.
This is likely to be exacerbated by risk aversion and weak population growth – or the “shadow” of the crisis – which would see subpar economic activity for years.
Faced with these challenges, the governor highlighted the importance of structural reform and uptake of technological change to support growth.
- Governor Lowe does not intend to review the inflation target any time soon, but said “it might be worth looking at it again” in a few years.
The governor emphasised that the RBA’s mandate of price stability, full employment and maximising the welfare of the Australian people had served the country well.
Lowe said that over the past 30 years the inflation target had been the best way of achieving its mandate, added “but as things develop over the next few years it might be worth looking at it again.”
Lowe noted “it’s not clear there’s a better framework than the one we have but it’s worth continuing to look at ideas”.
- Low interest rates here for the next few years
In the meantime, the Governor said low-interest rates would be in place for the next few years no matter what framework was in place.
This week’s property data provided by Dr. Andrew Wilson, My Housing Market
Auction clearance rates
Last weekend auction numbers picked up after the quieter previous Queen’s Birthday long weekend.
The preliminary auction clearance rates are reported below with Sydney remaining the strongest performing capital city market.
However at the moment in this time of market flux the exact figures are not as valuable as the market trends.
However, we look forward to following the trends as more vendors place their properties on the market for sale by auction.
Remember there’s a 5 to 6 week lead time from when sellers initially engage a real estate agent to sell their property at auction and the final auction date.
New Homes Listing Index
The number of homes newly listed for sale is picking up, showing vendors are seeing a light at the end of the tunnel and are tentatively tipping their toes in the property market.
While the turnover in property transactions is very low, with about the same number of properties transacted in a month that we transacted in a week in the past, as the following charts provided by Dr Andrew Wilson show, that both the Sydney and Melbourne property markets are showing signs of strengthening.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
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