Wall Street down despite oil price plunge

A sharp fall in oil prices failed to encourage traders on Wall Street overnight and share prices fell as bank shares dragged the market down.

But there were also wild fluctuations overnight – and the $A moved closer to parity with a falling greenback, trading – a short time ago – at 97.97 US cents.

The Dow Jones industrial index closed 92.65 points down at 10,962.54.
The S&P 500 also closed down, losing 13.39 points to end at 1,214.91.
And the tech heavy NASDAQ composite index fell 2.84 points to close at 2,215.71.

But there was better news, in after hours trading, when the chip maker, Intel, reported a 25 per cent rise in its second quarter profits.

Fed chairman Ben Bernanke’s bleak assessment of US growth prospects was among the main market movers last night, US time.

In testimony to the US Senate Banking Committee, he said:”the possibility of higher energy prices, tighter credit conditions and a still deeper contraction in the housing market all represent significant downside risks to the outlook for growth.”

But Bernanke warned, also, that the Fed must stay “particularly alert” to any sign that inflation is getting out of control.

Oil futures fell by almost $US7 a barrel, after Bernanke spoke.

But there were some share price rallies throughout the day.

However traders’ confidence evaporated late in the day, causing share prices to plunge.

Traders believe the US credit crunch still has some way to go – and they suspect that last week’s run on the Indymac bank won’t be the last.

So bank shares continued to fall.

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Feds still slashing spending

The Federal government’s razor gang is back at work, slicing government spending programs.

Finance Minister, Lindsay Tanner, revealed that in a speech he gave in Melbourne yesterday.

It was an odd phrase to use.

The original razor gangs were part of the violent mobs, or “pushes,” that afflicted Australia’s new colonial cities, back in the 19th Century.

A former journalist, Russell Schneider, adopted the term, and adapted it to apply to the Fraser government’s cost cutting programs, after the Whitlam years.

And it has not only stuck, but acquired a new respectability.

Those, like Tanner, who use it, usually do so to show that they how determined they are to cut wasteful government spending.

And that, certainly, was Tanner’s intention, too.

It’s no secret that he had a razor gang hard at work, before the Rudd government produced its first budget in May.

Tanner was speaking at the 160th anniversary celebrations for the Royal Melbourne Hospital.

And he did not resist the temptation to boast.

“The savings in the budget helped us cut the real growth in government spending from 5.2 per cent in 2007-08 to 1.1 per cent in 2008-09,” he said.

The point was worth making.

The Howard government, ultimately, was a bigger taxer and a bigger spender than the Whitlam government ever was.

Howard, though, managed to disguise that fact, by calling the GST a State tax, arguing that the States got all that money.

Neither the Statistician or the Federal Auditor General ever accepted that definition.

They declared, rightly, that the GST is a Commonwealth tax, because the Commonwealth collects it.

And once that is added back into the nation’s books, the Howard government could be clearly seen taking a bigger slice of Australia’s national output in tax than the Whitlam government ever did.

Naturally, it spent accordingly.

But back to the present.

“The Razor Gang 2 special taskforce has been formed in my department,” Tanner said

“Every dollar a government spends is a dollar that a family or individual does not have to spend as they wish,” he added.

“It’s a dollar that won’t be creating jobs in the private sector,”

Unless, that is, the private sector manages to get a lucrative government contract, to do the government’s work.

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RBA still nervous about inflation

Wayne Swan sees the latest job figures as “encouraging.”

But Glenn Stevens won’t share that view.

The Reserve Bank Governor is more likely to be influenced by the IMF’s latest report, which warns that Australia’s inflation is more likely to rise than fall.

Most economists, though, believe that the surge of almost 30,000 new jobs, revealed in the Statistician’s June labour force figures won’t cause the Reserve Bank chief to raise interest rates next month.

Especially as it followed a sharp contraction in May.
The opposition sees the latest rise in Australia’s total employment as misleading.

Its spokesman, Andrew Southcott, said the Department of Education, Employment and Workplace Relation’s leading indicator of employment has now fallen over six straight months.

That indicator, of course, does not carry as much weight as the Statistician’s labour force figures.

But it can’t be ignored, either.

The Treasurer told reporters in Canberra yesterday that the Statistician’s job figures give Australians good reason to be optimistic about the economy.

But two surveys, earlier this week, showed that the confidence of both business people and shoppers is close to recession levels, right now.

Soaring petrol prices, high interest rates and falling share prices have all hit hard.
There is, also, good reason to treat the latest job figures with some caution.

The collapse of both business and consumer confidence has been quite sudden.

And recruitment procedures are, traditionally, slow.

So many of the 30,000 new jobs that appeared in June might well have been, effectively, arranged the previous month.

The Reserve Bank, of course, is still very worried about the impact that higher food and fuel prices will have on Australia’s already high inflation rate.

It is even more worried, though, about what will happen later this year, when the money, flowing from the lucrative resource deals that have just been negotiated, starts washing through the Australian economy.

That could give inflation a sharp boost.

Mr Stevens will keep his finger close to Australia’s interest rate trigger for several more months at least.

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Job growth surges despite slump in confidence

Australia’s job market stayed surprisingly strong in June, with 29,800 people finding work.

Most of the new jobs- 24,000 in fact – were full time.

The Australian Bureau of Statistics also reported today that the number of Australians unemployed fell by 2,800 in June, taking the nation’s unemployment rate down slightly to 4.2 per cent.

The critically important workforce participation rate rose slightly, from 65.2 per cent in May to 65.3 per cent in June.

The actual rise in Australia’s unemployment was almost three times that the nation’s economists had expected.

They had predicted employment growth of just 10,000 in June.

The June figures are particularly surprising as surveys released this week have shown that both business and consumer confidence have slumped to near recession levels.

And other figures showed a steep fall in the number of Australians taking out loans to build new homes over recent months.

Those developments probably mean that even though the latest job figures are – undeniably – strong, they will probably have no implications for interest rates.

At least not immediately.

Timing factors are probably at work.

The slump in business confidence came quite recently, as petrol prices soared and share prices fell.

And the new jobs, created in June, would have followed recruitment procedures that had been in progress for several weeks.

The Reserve Bank is not likely to relax its vigilance on rates, though.

It is still worried that inflation might take off again, later this year, when money from lucrative resource contracts, recently negotiated, starts washing through the Australian economy.

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Why house prices will rise

House prices in Australia’s capitals won’t stay soft for long.

The nation’s population is growing strongly.

And the number of new houses being built in Australia has plunged.

Australia’s population grew by almost 332,000 last year.

Fifty six per cent of that increase came from migration. The rest was due to natural population growth.

So, by any reasonable measure, a large number of new homes will be needed.

Both apartments and traditional houses.

But the Statistician reported yesterday that the number of loans taken out, to buy new homes, plunged 13.5 per cent in May.

And the industry reports that the number of loans taken, to buy or build new homes, is now running at levels more than 20 per lower than we saw at this time last year.

The result?

The Housing Industry Association’s chief economist, Harley Dale, said Australia is presently seeing a shortfall, of almost 40,000 a year, in the number of new homes being built.

There are several reasons why that is so.

Interest rates are high.

Petrol prices have been rising sharply.

So both consumer and business confidence have plunged to near recession levels.

Where, then, should you purchase your new investment property?

Perth and Brisbane would both appear to be good bets.

Both cities are the capitals of resource rich states, that are likely to boom over the year ahead.

And the population growth rates in both are well ahead of the national average.

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Scarce orders hit business confidence

Nothing shakes business confidence quite as much as an empty order book.

And many Australian companies are facing that trauma right now.

That is reflected in the National Australia Bank’s latest monthly business survey and economic outlook bulletin.

Different industries, of course, have been affected in different ways.

If you are selling supplies to Australia;s big mining companies, for example, you are probably still smiling.

But many business people are far from happy.

Indeed, the bank reported that business confidence throughout Australia  has plummeted to its lowest point since 2001.

NAB said business conditions had deteriorated “sharply and unexpectedly” in June.

“Overall, the survey suggests that domestic demand has slowed a lot – to 2.5 to 3 per cent per annum ,” its economist, Jeff Oughton, said.

This will greatly increase interest in the June labour force figures, which the Australian Bureau of Statistics plans to release tomorrow.
If they, too, show a sharp downturn, the risk of another early rise in interest rates will virtually disappear.

Australia’s job market was quite strong in the early months of this year.

But an unofficial indicator, released by the Roy Morgan organisation, suggested that Australia’s unemployment rate dropped by 0.1 percentage points, in the June quarter, to 5.9 per cent.

Recruitment companies report, though, that new hirings have fallen sharply over recent weeks.

The bureau’s figures will give a much broader picture, when they are released at 11.30 tomorrow morning.

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Climate change:will your beach be all washed up?

How will climate change affect your favourite beach and your lifestyle?

People living on the New South Wales Central coast will be able to discuss issues like that, with senior Federal politicians later this week.

That will happen when the House of Represenatives Committee on Climate Change, Water, Environment and the Arts visit Lake Macquarie on Thursday.

This hearing is destined to be among the first of many, on the microeconomic and local aspects of issues raised in the Federal government’s Garnaut report.

Similar meetings will be held, over the coming year, in most parts of Australia.

Professor Garnaut, himself, explained his report to a public meeting in Perth yesterday, the first of several such meetings to be held nationally.

The parliamentary committee’s chair, Jennie George, said important issues would be raised at the Lake Macquarie meeting.

“Climate change, particularly projected sea level rise, has serious implications for coastal areas,” Ms George said.

“Much of Australia’s population and infrastructure is in the coastal zone.,

“The growth in population along the coast is also increasing pressure on the environment in many areas,” she said.

The Garnaut report, on the implications of climate change, also encouraged local communities to think seriously about what they can do, to meet its challenges.

“Many people will have thoughtful contributions to make,” Ms George said.

“And this open public forum will allow them to have their say,” she added.

The central message of the Garnaut report is also compelling.

All Australians have a part to play in managing climate change.

So you will need to be prepared, when your call comes.

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Emmission trading:the politics

Australia needs a robust emmissions trading scheme, if it is to avoid the worst results of climate change.

So what are its chances of actually getting one?

It is, of course, too early to say, just yet.

But it would certainly take great political courage.

Especially as petrol prices would start rising in 2010.

That, of course, is the year in which Kevin Rudd and his government will have to face voters, in the next scheduled Federal elections.

One thing we can be sure about, before then, is that the prime minister won’t be entertaining himself, with videos of the old television program, Yes Minister.

He certainly won’t want to hear Sir Humphrey telling the world, once more, that “a courageous decision” in politics, is one that will cost you the next election.

Equally, though, it is nonsense to declare, as some analysts have, that the Federal government is now facing tougher decisions, than any other government before it.

What about those two World Wars, last Century?

Unarguably, though, the decisions the government now faces will be tough enough.

Even the government’s own climate change adviser, Professor Ross Garnaut, says strong public education programs will be needed.

Media proprietors, throughout Australia, will be delighted to hear that.

The “rivers of gold” – as Kerry Packer once called advertising revenue – will soon run again, even if the Murray Darling system stays dry.

There will be big obstacles, though.

The opposition is playing its cards close to its chest.

However most analysts would be surprised if Brendan Nelson does come out strongly in support of a robust emmissions trading scheme.

His pledge of a 5 cents a litre cut in petrol excise is not an encouraging sign, for those who want serious action.

The government has its own problems, too.

Its main man, Kevin Rudd, is no orator.

He has not yet presented the climate change message with the necessary clarity, brevity and force.

And he doesn’t have a lot of time.

The bureaucrat within him is  still in the ascendant.

That won’t be good enough, as the going gets tough.

And it certainly will.

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