Call us on 1300 794 893

Your Money

Who hates whom?

Treasurer Wayne Swan relieved himself of a lot of a pressure when he hit out against the billionaires of Australia who apparently are holding back the country. However, it was one of those cursed men of money who actually identified who the country’s numbers man really hates – the Reserve Bank (RBA)!

Harry Triguboff, the managing director of Meriton Apartments, talking to the Australian Financial Review, admitted to actually quite liking Mr Swan and candidly revealed that both he and the Treasurer shared the one inclination – “we both hate the Reserve Bank”.

Undoubtedly Mr Swan hasn’t come out and confessed to these feelings and I reckon we will get a denial sooner or later, though significantly I haven’t seen one to date. But that said, the reasons to put another pin in the voodoo doll he might have of the RBA boss Glenn Stevens increased with the revelation of the latest economic growth figures this week.

Economic growth below expectations

The Australian Bureau of Statistics tells us that our economy grew at a 0.4 per cent pace in the December quarter, which was a big comedown from the one per cent rate that was reported for the previous quarter. By the way, that impressive figure was downgraded to 0.8 per cent.

“So what?” you might be thinking. Well the trouble is that economists with their wonderful but very fallible economic models tucked away in their insightful computers thought the growth rate was set to be 0.7 to 0.8 per cent.

On these figures, they were only half-right or half-wrong but whatever, there has been a gross miscalculation on economic growth and this could have serious implications on the expectations for jobs in the future.

Unemployment concerns

Regular readers would know I have been a bit worried about the chances of a spike in joblessness but the last reading on unemployment showed the jobless rate actually fell from 5.2 per cent to 5.1 per cent. However, it increased again to 5.2 per cent in February. While the jobs created in January went up by some 46,300 jobs, we did lose around 43,000 over November and December. The number of people employed ion February fell by 15,400.

One thing I have learnt over some 30-odd years of teaching and writing about economics is you can’t trust job numbers – they can really make a monkey out of experts and Treasurers as well as Reserve Banks.

The link

One important piece in this emerging economic jigsaw is the link between economic growth and unemployment. Generally we need growth of about three per cent to keep unemployment steady and any number higher than this benchmark suggests the jobless rate could fall. In contrast, if the growth rate were under three per cent you could tip that lots of Aussies would soon be looking for a new job.

Well, the economic growth rate, which is found by adding up the past four quarters is now at, wait for it, 2.3 per cent, which isn’t a good looking reading. 

Australia vs. US

By the way, if we were in the US, the number would be even more worrying as they take the most recent quarter and annualise it by multiplying it by four. So, they could say economic growth is 1.6 per cent. And for your interest, the US economy most recent reading came in at three per cent.

So the world’s greatest Treasurer is now eating the dust of Tim Geithner, the opposite number to Mr Swan in the USA.

Of course, Mr Geithner doesn’t have a troublesome central bank to deal with as the Federal Reserve under Ben Bernanke is throwing money at the country’s bigger and more worrying problems and he has even suggested that rates will be on hold until 2014!

Poor old Mr Swan is stuck with a central bank that’s playing a very cautious game – sorry, a too cautious game. Its reluctance to ease interest rates to where most economists thought they should be until the February “no cut” decision, has been shown to be excessively cautious based on this latest growth number.

The two-speed economy

Buried in the figures you can see the so-called two-speed economy shining through with Queensland’s annualised growth of 8.9 per cent followed by Western Australia with 7.6 per cent. Against this the ACT recorded 2.6 per cent growth, Victoria 1.4 per cent, and NSW had a weak 1.1 per cent.

But it gets worse with Tassie contracting 3.8 per cent while South Australia was down 0.5 per cent and the Northern Territory was off 0.1 per cent.

Industry-wise seven out of the 19 industry sectors went backwards – did not grow – in the December quarter. This poor production performance can only be put down to the interest rate policy of the RBA that has helped force up the Australian dollar, which combined has hurt a hell of a lot of Aussie businesses.

Job creators

Sure the odd billionaire might be fighting against Mr Swan’s carbon and mining taxes but these guys are big job creators and the Labor Party is supposed to be the party of the workers. On the other hand, the RBA is doing its best to destroy jobs just when the economy isn’t as strong as most so-called experts had expected.

I know whom I would hate right now if I was the country’s Treasurer – and it wouldn’t be Clive Palmer, Gina Rinehart or Andrew Forrest – nope, it would be the too cautious RBA boss, Glenn Stevens.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, March 13, 2012

blog comments powered by Disqus
Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300