Month: April 2016

The credit impulse for Australia remains in neutral – Feb 2016

I’ve just updated the Australian Debt & Credit Impulse page of this blog with the latest trends on the 1) credit impulse and 2) overall debt levels in Australia. You can read all of the background on the credit impulse and its importance on that page too. I thought it worthwhile posting the top line view of the annual growth in new credit for the private sector.

Private sector growth in new credit going sideways – February 2016

Overall momentum in the annual growth in new credit for total private sector credit remains fairly neutral. This highlights that the lack of acceleration in credit growth is likely to continue contributing to slower spending growth.

Annual growth in new credit for the total private sector remains at $26b, nearly 50% below the peak reached in Oct 2014. The current level of growth equates to roughly 1.6% of annual GDP (at Dec 2015). This is within -1 SD of the average growth in new credit over the last year and highlights the overall lack of credit acceleration at a total level.

Source: RBA, The Macroeconomic Project

The trend in the annual growth of new credit for the two main elements, Business and Mortgage+Personal, differ somewhat.

Annual growth in new credit for Mortgage+Personal peaked back in August 2015 at $22b. This has slowed to $12b as of Feb 2016. In historical terms, the growth in new credit for mortgages remains very high. But for this measure, it is the slope of the curve that matters – and in this case it is negative. This will likely place continued pressure on further acceleration of house prices at an aggregate level.

The annual growth in new credit for Business looks slightly more positive over the last six months, but that growth has also stopped accelerating over the last two months. From the low of $7b back in June 2015, annual growth in new credit for Business is now at $14b (slightly down from its peak in Dec 2015 of $18b). This more neutral level of annual growth in new credit for Business is not supportive of accelerating levels of growth in aggregate demand in the coming months. This is consistent with reports of lower expected investment spending by business.

As of Feb 2016, Australia has $2.53t in total private debt outstanding. This represents $161.2b annual growth in outstanding debt (just the change in the total value of the outstanding stock of debt between Feb 15 and Feb 16). In nominal terms, this is the largest annual change since Oct 2008. The majority of the current $161.2b increase in the stock of total private debt is attributed to the increase in outstanding mortgage debt of $110b. Outstanding business debt grew by $54.6b and outstanding ‘other personal’ debt declined by $3.4b. Mortgages represent 61% of outstanding private debt in Australia.

In real terms, total Private debt to GDP for Australia currently sits at 140.6% and is approx. 9% below the all-time peak reached in November 2008.

Source: RBA, ABS, The Macroeconomic Project

You can read more detail here.

Advertisements

Labour market performance among states is shifting – Feb 2016

The latest labour force data for February 2016 was released last week. Despite the issues around the data, it remains one of the most important pieces of information about the economy. The February release continues to show that employment growth is slowing and has virtually caught up to the slowing labour force growth at a National level. As the gap between employment and labour force growth narrows, the rate of decline in unemployment has been slowing. In this post though, I want to highlight the state based results. There are some sobering insights around the performance of various state labour markets, most notably in NSW. As in a previous post, looking at the state based results is a proxy for tracking the transitioning of the economy. As employment growth in key mining states, such as WA, has been fading, NSW and to a lesser extent, VIC, had been more than offsetting the declines. In fact NSW has accounted for the majority of the National employment growth, especially full time employment, over the last year. This looks to changing.

National overview

National employment growth has continued to slow along with the growth in the labour force. The current cycle of slowing employment growth does not seem to have bottomed yet.

Source: ABS

The narrowing gap between employment growth and labour force growth means that the decline in unemployment is also slowing.

The slowing growth in employment has been driven by slower growth in both full time (FT) and part time (PT) employed persons.

Source: ABS

The slowing of FT employment growth means that both FT and PT employ growth are now at similar levels again.

State labour market indicators

The state employment growth data annual versus latest quarter highlights the degree to which performance among the states has started to shift.

Source: ABS

Over the last year, NSW had ‘over-performed’ in terms of employment growth – the state accounted for 57% of the National growth in employment yet represented 32% of all employed persons. QLD was the only other state that had over-performed on an annual basis in terms of share of employment growth – QLD accounted for 24% of the National annual employment growth and 20% of all employed persons in Australia.

In the latest quarter though, these numbers have shifted. Share of employment growth in NSW is now on par with its share of employed persons – 33% of National employment growth in the latest qtr. QLD now accounts for 33% of National employment growth in the latest quarter, well above its 20% share of employed persons. Vic comes in third, accounting for 28% of National employment growth in the latest quarter, just above its 25% share of all employed persons.

The National employment growth engine has stalled – NSW

The NSW picture becomes more concerning when you break down that employment growth into FT and PT share. In the last year, NSW accounted for a large 86% of the National FT employment growth, well above its 32% share of all FT employed persons.

In the latest quarter, FT employment in NSW has declined.

This is a large turnaround in performance:-

Source: ABS

In the latest quarter, its only VIC and QLD that are making relatively large contributions to National FT employment growth. The other notable state is SA where FT employment has shifted from declining on an annual basis to stabilizing in the latest quarter.

In NSW, the decline in FT employment has not been offset by any increase in PT employment growth either. Furthermore, PT employment growth in NSW appears to have plateaued. The trend looks poor:-

Source: ABS

Despite the fact that FT employment has declined in the last 2 months, total employment is still growing in NSW at just above that of the labour force:-

Source: ABS

This means that unemployment is still falling in NSW. The unemployment rate in NSW has fallen by -0.15%pts in the latest quarter. If you were to just look at the unemployment rate, you’d be misled into thinking that the labour market in NSW was performing OK. But as the gap between employment and labour force growth becomes smaller, it means that the decline in unemployment is also slowing.

VIC – employment growth is still holding on

In VIC, employment data was revised upward from the previous month. The Jan 2016 release had growth of total employed persons in VIC for Jan at 2.0k persons. That Jan growth figure has now been revised up to 4.4k persons. The underlying trend is such that growth in FT employed persons appears to have peaked back in Nov 15 and PT employment growth has been declining since late 2015.

Source: ABS

The overall growth in employed persons in VIC has fallen below that of the labour force and, as a result, unemployment is now growing again in VIC.

QLD – the new growth engine?

QLD is the only other state where employment growth appears to be relatively strong. But the monthly trend shows that PT growth has taken a negative turn. As well, FT employment growth in QLD appears to have plateaued, albeit at a relatively high level:-

Source: ABS

Growth in employment overall remains higher than that of the labour force (that gap is narrowing though), hence unemployment continues to fall in QLD.

Labour market performance in other states

The other states are not showing positive signs of employment growth. Overall employment growth in SA has slowed to that of the labour force in the latest month – this has been driven by a slowdown in growth of PT employed persons (which is no longer growing in the latest month). In TAS, FT and PT employed persons has been declining for over 5 months and that decline has been higher than the labour force growth, so unemployment has started to grow again. Employment has been declining in NT for nine months, in line with the labour force, hence the unemployment change has been small. In the ACT, employment growth has peaked back in Nov 2015, but because the labour force growth has been slowing faster than employment growth, unemployment has been declining.

I’ll cover the labour market in WA shortly.

Unemployment indicators

Across the states, the decline in unemployment has started slowing and, in some states, unemployed persons has started growing again in the more recent time frames:-


Source: ABS

The most notable negative shift has been in VIC. The most notable positive shift has been in WA.

Unemployment rates can be misleading – the case of WA

Quoting an unemployment rate alone can be misleading which is why I never do it on this blog. Take for example, the labour market in WA. According to the previous chart, unemployment has been declining in WA based on the 6mth and latest quarter data. Just looking at the unemployment rate, it appears that unemployment peaked back in Oct 2015 at 6.3%. The unemployment rate in WA has fallen further to 6.1% as of Feb 2016. But this hardly looks like a robust labour market.

In WA, employment is declining, driven by declining numbers of FT employed persons. The growth in PT employed persons has not offset the decline in FT employed persons.

The reason why unemployment is falling in this scenario is that the labour force is declining faster than employment:-

Source: ABS

The declining labour force is the result of falling population and participation in WA. In other words, workers are leaving the state due to a lack of job opportunities, especially in mining. As the size of the working population shrinks, so does demand (for everything) and so does tax revenue.

Labour force – population shifts between the states

Part of what is driving some of these state trends is the shift that has taking place in labour force growth by state.

Source: ABS

The shift from NSW-led growth in the labour force to VIC and QLD-led in the more recent quarter is obvious. Its unclear what is driving slowing labour force growth in NSW. The problem facing VIC now is that employment growth isn’t keeping pace with this growth in labour market – hence the growth in unemployed persons. This will be one to watch.

In QLD, the growth in the labour force has remained above that of employment growth.

Also worth mentioning is WA (as well as TAS and NT) – where the labour force has declined in the latest quarter.

At a National level, there are two reasons why the labour force growth is slowing:-


Source: ABS, The Macroeconomic Project

The first is that underlying population growth has slowed. The chart above shows that what population adds to the labour force has slowed from over 23k persons/month to just over 15k/month. For the moment, I’m ignoring the last two months estimates of population growth in the chart above – they are always low.

The second is that changes in labour force participation are back to detracting from the labour force i.e. people are leaving the labour force. In fact, in the latest quarter, participation rates only increased in QLD and VIC and held steady in SA.

Sample rotation

This slow-down in the labour market has appeared on the radar quite quickly. It’s worth noting that it could be the result of changes to the ABS survey rotation (the incoming survey group having a lower employment to population ratio than the outgoing sample group), rather than a marked deterioration in activity during this time. I’ll remain cautious and keep checking in each month to see how the trends are shaping up.

There is clearly a shift occurring in the dynamics of the state labour markets. This is important because NSW has been such a large and positive driver of the improved National labour market over the last 18 months. It appears that NSW is no long that employment growth engine. So far, it’s not clear that employment growth in the better performing states of QLD and VIC will make up the difference.