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A beautiful set of numbers

Just when it looked like the economy was turning sufficiently to believe an interest rate cut was a chance this year, yes I said cut, along comes a beautiful set of numbers.
As Homer Simpson would say if he was an economics commentator or a home loan sufferer: “Doh!”
A survey of economists this week (before the National Accounts numbers came out) had the majority thinking rates were on hold for 2008. A biggish minority thought one more.
Only one economist from TD Securities, Joshua Williamson, went for a late-year cut. Bless his computer program.
What’s interesting about Williamson going for this decision is that his organisation produces a respected inflation indicator, which has remained on the high side.
If anyone can do a better-than-average guess on future inflation, it should be this guy.
The reason why Homer would use the D-word was the overall conclusion from the National Accounts, which is like an eco-check on the economy looking at income, production and spending. The big figure it supplies is economic growth.
After the Reserve Bank met on Tuesday and decided no move on interest rates, economist Craig James from CommSec concluded the “Reserve Bank retires to the sidelines”. That was code for no rises for a while and maybe there’s no more.
Prior to Tuesday, James was more adamant that there was one more to go and then came Wednesday and an economic growth figure of 0.6 per cent.
Some economists thought we might have seen a negative number, so this was big.
Adding this number to the other three quarters’ growth, the annual figure was 3.6 per cent, down from 4.3 per cent.
However, to get a better feeling about what’s happening now, I prefer to copy the Yanks and multiply 0.6 per cent by four to give an annual number of 2.4 per cent.
A lower growth number is better for inflation and rate cuts.
This lower figure gives a better indication about growth and inflation now. Well, not quite.
These numbers refer to how it felt to the three months ending in March. In case you missed it, it’s now June.
The big rate rises were February and March and the effects of these would be just kicking into economic readings now and most of them have been disastrously negative.
This means these numbers this week were overrated for their importance. The next biggie will be inflation on July 23 and that’s why some economists tip a rate rise in August.

James called Wednesday’s figures “a beautiful set of numbers” but we will need drop dead gorgeous ones in coming months to see interest rates fall. 

Published on: Friday, June 06, 2008

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