RBA Rate Decision – September 2017
Today, Governor Lowe and the Reserve Board met and, as widely anticipated — and it’s going to be a bit of a broken record — the cash rate remains on hold at 1.5%.
So with a cash rate on hold, and basically all the levers doing their thing, I wanted to focus in on jobs —the unemployment story of the Nation — because this is going to be the catalyst that drives us forward. We have seen really sluggish wage growth in the marketplace, so it’s important to understand these. Let’s have a look at them:
From the ABS data we’ve got, we can basically see that in July the unemployment rate dropped from 5.7% down to 5.6%. We created around 27,900 new jobs. In saying that, we did have another 1,100 people join the unemployment ranks — but, on whole, we’re reducing that down.
To put that into context; what we want to talk about is what has been the long-term unemployment rate across Australia? Dating from 1978 right through to 2017; the long-term average of the unemployment rate has been 6.9%. At 6.9%, it sort of gives you some context as we’re currently sitting at 5.6%. The worst story was way back in 1992 — with the recession we had to have — when we had unemployment sitting at 11.2%. Now, the best unemployment rate we’ve seen was a rate at 4% back in 2008.
Again, to put it into context — the actual unemployment story, or the employment story of the Nation, is actually sitting pretty reasonably. Now, we’d love to get it down because the further that goes down, the more pressure it puts on wage growth. And that’s a good news story. More people earning more money — they’re potentially going to go out and spend that money.
We also want to correlate this to business confidence. We’ve been talking about this — if you watch these videos on a regular basis — last year I was talking about businesses need to get out and start spending and get the economy moving.
Now, the only time business will spend is when they have the confidence.
In terms of how the economy’s moving. If we look globally, we can see quickly that some of the other economies around the world are actually doing fairly well. Europe starting to continue its momentum; the US is performing okay; China’s doing okay; Japan’s doing okay — that’s a good news story. And it is blowing into their business confidence numbers that we’re seeing. So we did see business confidence hit 12 — now, that’s from a reading of 9 from the previous month. In July, it hit 12.
These types of business confidence numbers are really encouraging when you consider that the long-term average is around 5. It’s really important to understand that we’re getting those numbers over time. And it’s really important to understand that since around 2008, we’re starting to see these new business confidence numbers come through. Hopefully, this means business is investing. Because when business invests, this means jobs; and jobs obviously means growth. Again, that’s a good news story.
The last thing I want to say to round this conversation around employment out on, is the ANZ job numbers. We’ve seen since the start of the year that the ANZ their job numbers are up 6.5% . That’s a good number. That’s basically saying: from this time last year, we’re up 6.5% on creating new job ads, which means that hopefully, again, more employers are employing.
So, rounding that out: I’m actually reasonably okay with where the economy’s sitting right now. And that’s exactly the same position in which the RBA is sitting. They’re saying: the levers are doing their jobs. When we start to look at the lending lever and the macroprudential regulation that’s coming into play, we’ve also started to see that that’s also having an impact. We’re definitely seeing a lower number of interest-only loans. We’re definitely seeing a lower number of investor loans as well. This also says to us that the broader property market is now starting to slow.
If we have a look at the CoreLogic numbers that have just come out on the National Housing Conditions, they’re also telling us this story. In Sydney we saw no growth in the month — and in terms of the quarterly growth; it’s starting to slow and this means we’re coming off the peaks we saw back in late 2016. And this is a good news story. Melbourne is continuing to grow, but not at the fastest pace that it was growing at in certain parts of this upward cycle. There are still people who are reasonably bullish about Melbourne’s market. Hobart‘s also been another standout; but coming off a low base. Certainly, I think a lot of investors are now looking at the Hobart market because of the very attractive yields there. But, just remember, this market does have very quick ups, and then some sluggish- or long-term flat periods. So you want to know what you’re doing in this particular market.
Our two declining markets are still Darwin and Perth. These markets are still in negative — and they’re still continuing to retract in a negative basis on a quarterly and month-to-month basis. Canberra is another good news story. But if you’re looking to invest in Canberra, just remember the Land Tax is very prohibitive and you’ll be giving away a lot of your returns to the Government there.
Overall, the Australian property market’s looking good. Adelaide is also continuing to grow — it’s just not at the pace we’re seeing in other markets. Also, Brisbane‘s housing market’s doing very well — but their unit market is also one to be very, very careful of, due to an oversupply.
Broadly speaking, there are definitely opportunities in the Australian property market. But we’re definitely starting to see that these higher interest rates and higher costs to hold are pinching down on investors and the investor appetite.
Again, I think that’s good for a long-term sustainable property market.
So that’s why, more than ever — and we keep saying this — you need to get that asset selection right. You need to be going into the markets where supply is low and demand is high if you want to achieve the very, very best returns. Which is capital growth, and also some strong rental yield returns over time.
I hope you’ve enjoyed this video and look forward to chatting with you next month.