Higher interest rates closer

Higher home loan interest rates are edging closer.

The Reserve Bank board has acknowledged that prospect.

The board said, in the minutes of its last meeting, that Australia’s banks had already raised their fixed interest rates.

The minutes, which were released today, said board members had noted speculation that “variable mortgage rates might also be increased.”

These are still the dominant product in Australia’s home lending market.

The minutes showed that while board members recognise recent improvements in the global economy, they are not yet convinced that these will be sustained.

This makes it unlikely that the bank will increase its own marker rate of 3 per cent in the immediate future, even though that rate is at a historically low level.

Board members did accept, though, that indicators of Australia’s domestic economy had been better than expected over recent weeks.

But they noted that business credit is still very weak.

The minutes said board members had been reassured by clear signs of wage moderation, although public sector wage growth had exceeded that in the private sector.

But the board added a caution.

It said underlying inflation still remains high in Australia, adding “members were conscious of the need to balance the task of controlling inflation over the medium term with that of supporting economic recovery.”

Recovery:Swan sets his goal

Wayne Swan says getting Australians back to work is now the government’s biggest challenge.

He made the c0mment in an interview with the Sydney Morning Herald, marking the first anniversary of the stock market crash.

The Treasurer forecast in his May budget that Australia’s unemployment would peak at 8.5 per cent in the wake of the crash.

With the nation’s unemployment rate settling at 5.8 per cent, that now seems unlikely to happen.

However figures produced by the Australian Bureau of Statistics show that thousands of Australians have been moved to part, rather than full time work.

Detailed job market figures, that the Bureau is to release on Thursday, will be examined closely, to determine just how serious this has been.

However figures already release suggest that it is the equivalent of the loss of some 200,000 full time jobs.

“…we’ve had a very big reduction in hours worked,” Mr Swan said.

So the government still had a big challenge ahead, in relation to the job market, Mr Swan said.

He warned, too, that there would be no quick recovery to the high levels of economic growth that Australia had enjoyed before the global economic crisis hit.

“The American consumer will not be driving global growth as they were prior to this event,” Mr Swan said.

Demand from Asia would fill that gap. But that would not happen quickly.

“It’s going to take some time for these imbalances to work their way through the global economic system,”  Mr Swan said.

“And it’s going to require sustained reform in both developed and developing countries.”

Recovery:Where are we now?

Kevin Rudd and Wayne Swan keep telling us that we are not out of the woods yet.

But just where has the global financial crisis left us, really?

One of Australia’s leading banks has tried to answer that question, in just two pages.

So we thought we would reproduce the main points here.

The National Australia Bank says global growth appears to have stabilised with Asia leading the way.

But it warns that there is also a risk of markets moving ahead of reality.

The bank says it has revised its estimate of global growth in 2009 to 1.4 per cent.

It said Asian growth – outside Japan – had been very strong over the past month.

The bank said it now expects the Japanese economy to shrink by 5.7 per cent in 2009, rather than the 6.5 per cent it had predicted earlier.

It says it now expects Europe, too, to post better results than previously expected. That is a contraction of just 4 per cent for the year, rather than 4.7 per cent.

But its forecast for the United States remains unchanged, at a contraction of 3 per cent.

The bank did say, though, that it now expects both Russia and Eastern Europe to perform even less well this year than it had previously predicted.

It says, too, that Australia’s performance, relative to the rest of the world, remains “remarkable.”

The bank said that is illustrated by confidence levels in this country surging to a six year high.

The economy:cooking with gas

The shape of Australia’s – eventual – recovery became a little clearer yesterday.

That happened in Federal parliament, when the Prime Minister Kevin Rudd, answered a question put to him by a West Australian Labor backbencher, Sharryn Jackson.

Ms Jackson had asked about developments that had occurred just an hour before question time began  in Parliament, at 2pm.

Mr Rudd said Chevron Australia had just signed three huge deals, to sell gas from its giant Gorgon project, to Japanese and South Korean customers.

He said, too, that Gorgon was just one of 80 resource projects, now under consideration in Australia.

“I am advised that these contracts could deliver up to $70 billion worth of exports over the next 25 years,” the Prime Minister told parliament.

“These are massive projects, that will generate prosperity for years to come,” Mr Rudd added.

He said the Gorgon project, alone, could create 6,000 jobs, in its construction phase.

There would be environmental benefits, too, Rudd said.

“Throughout the Asia Pacific, Australian LNG will  be increasingly important as a reliable, secure, clean energy source to power continued economic growth,” he added, in a statement issued later.

He said Gorgon is now set to become Australia’s biggest single infrastructure investment.

No-one is happier than the Prime Minister, himself, about Gorgon’s bright future.

The global economic crisis has left a huge hole in the Federal government’s revenues.

But it estimates that the Gorgon project, alone, will soon be boosting its revenues by some $40 billion a year.

So what does all this mean to you?

As a West Australian, your correspondent can assure you that money spent, on big projects like these, soon finds its way into the broader economy.

And Chevron is expected to spend some $33 billion, in the construction phase of its Gorgon project.

The job market did weaken last month

Australia’s job market did weaken last month, even though the headline inflation rate remained steady at 5.8 per cent.

The detailed figures, released by the Bureau of Statistics show why.

Total employment, for example, fell by 27,100 during the month.

Full time employment fell by 30,800, a loss that was only partly offset by an increase of 3,800 in part time employment.

Unemployment fell by 2,100.  The number of people looking for full time work fell by 8,800 during the month while the number looking for part time jobs rose by 6,600.

The bureau reported, also, that the critically important work-force participation rate fell to 65.1 per cent in August from 65.3 per cent in July.

The most striking figure, produced by the bureau though, was its relatively new labour force underutilisation rate.

On seasonally adjusted figures, this rose by 0.1 percentage points to 13.6 per cent in August.

This suggests that more than one Australian in eight is “underutilised” at present.

This figure, more than any other in the Statistician’s bulletin, captures what  happened, as the global economic crisis struck Australia’s job market.

Rather than retrenching workers outright, many Australian employers have been putting their workers on short time.

This helps employers keep their best workers, in difficult times.

But it also hits family budgets very hard.

Confidence:A new bubble

The Federal government is facing a significant new problem that is threatening  stable economic management, in still troubled times.

That is the sudden appearance of a confidence bubble.

An index that Westpac and the Melbourne Institute have just published jointly shows that consumer confidence surged this month, rising by 5.2 per cent, to hit its highest level since July 2007.

Westpac’s chief economist, Bill Evans, said:”This is a truly remarkable result.

Indeed it is as:-

- It follows two other surveys, earlier this week, showing that business confidence is also rising sharply in Australia and

- Consumer confidence – on the Westpac index – has increased by 34.4 per cent over the past four months.

Mr Evans attributes this rise to relief, among ordinary Australians, that expected job losses have not materialised.

The Treasurer, Wayne Swan, predicted in his May budget that Australia could see the nation’s unemployment rate hit 8.5 per cent, in the 12 months that were then ahead.

Mr Evans was careful not to call this sudden surge of confidence a “bubble.”

The Prime Minister, Kevin Rudd and Mr Swan also avoided using that word – or anything like it – when they discussed the state of the economy at question time in Federal parliament, shortly after the consumer sentiment index had been released.

That thought, though, was clearly on their minds.

Mr Rudd, for example, was careful to point out that both retail sales and the amount lent for housing fell in Australia during July.

The Australian Bureau of Statistics reported that, on seasonally adjusted figures, Australia’s retail sales fell by 1 per cent in July, while the amount lent for housing fell by 1.7 per cent.

Mr Rudd said these figures confirmed that Australia could well have “a hard road ahead” before it recovers from the global economic crisis.

He said, too, that the opposition is alone in its calls for termination of the government’s stimulation measures in these circumstances.

This is a message that both Mr Rudd and Mr Swan have been pressing for several weeks now.

The new confidence bubble, though, could well make economic management even more difficult in the weeks and months ahead.

It is – essentially – destabilising.

Starting a business? Remember the tax man

Australia is among the easiest places in the world to start a new business.

The World Bank confirms that, in a report it has just released, placing Australia 9th in world rankings on this score.

However, if you are thinking of doing that, there are many things you must consider, before you launch your great idea.

Did you know, for example, that you can expect almost half of your profits to be taken in tax?

The bank’s report puts the precise figure at 48 per cent.

Or that you will be expected to pay tax no less than 12 times a year.

The bank has also calculated that a typical business operator in Australia will spend no less than 107 hours a year, calculating tax payments.

It’s no wonder, then, that the Federal government has asked Ken Henry, the Secretary of the Treasury, to conduct a thorough overhaul of Australia’s hugely complicated tax system.

Private Briefing has great respect for Mr Henry’s abilities.

However, we advise our readers not to take dangerous steps, like holding their breath, while waiting for  significant improvements.

The government has just too much at stake, in terms of its revenue flows, right now.  These have fallen sharply, as a result of the global economic crisis.

The World Bank ranks our close neighbor, Singapore, as the easiest place in the world to set up a new business.

And the island State’s tax take – at 27.8 per cent of profits – is significantly lower than Australia’s revenue grab, too.

Singaporean business people also spend less time than their Australian counterparts, poring over their tax accounts.

Just an average of 84 hours a year.

Best dressed – last off?

Australians have responded to the economic crisis by dressing even more sharply.

That shows up in a  study just released by Access Economics.

The forecaster notes that Australians spent 9.6 per cent more on clothes in June this year than they did in the same month last year.

Access said this was the strongest sales result for Australia’s clothing stores since 2005.

And it makes sense.

It’s not a good idea to look shabby, if the boss might well be casting his eyes over his workforce, to see who could  be retrenched.

Access says Australia’s retail sales performance, through the worst of the global financial crisis, was nothing short of remarkable.

“At a time when most indicators were heading South, retail sales climbed 6.5 per cent,” Access said, in its latest retail forecasts.

It said that happened between November last year and May this year.

And it credits the Federal government’s stimulus package.

“The weight of the Federal government’s cash splash tells the story here,” Access adds.

The interesting bits, as always, are in the detail.

Access notes that the strongest results, in retail trading,  have been in food and clothing stores.

Retail sales growth in the June quarter saw clothing and soft goods retailing up 3.7 per cent.

The household goods sector saw a 3 per cent rise in that time, while cafes, restaurants and take-away food stores enjoyed a 2.3 per cent rise.

The forecaster is not confident, though, that the good times will just keep rolling, for Australia’s shopkeepers.

Access Economics still expects a tough 18 months ahead, it says in its latest estimates.

“The government’s stimulus cash was a temporary windfall which is already starting to fade from the retail numbers,” it says.

And it says underlying income growth in Australia “remains weak.”