Property experts make the argument that house prices can’t fall in Australia as we have very low unemployment. But it begs the question if a fall in house prices leads or lags a fall in employment?
The Unconventional Economist set out to answer this question last month and found that in the United States, employment started falling approximately 9 months after house prices hit their peak and started declining. In the United Kingdom and Ireland, employment started falling 6 months after house prices had peaked and started its decent.
Rising house prices lead to rising consumer confidence through the wealth effect. During the boom times, consumers were using their homes as ATMs, often spending beyond their means. But just as rising house prices buoyed consumer confidence, when house prices hit tipping point and start to fall, the purse strings tighten in less time than a drop of a penny. Australians are now saving and paying down debt, and in a big way.
The retail sector is Australia’s largest employer accounting for about 19 percent of GDP. When consumers stop spending beyond their means, retailers must start reducing hours and trimming positions. And they are doing just this.
Tonight’s Channel Ten 6pm news bulletin interviewed some retailers whom say times are still extremely difficult in our two speed economy and the margins are just not present to keep a full workforce. Unfortunately, they are letting staff go. But, Channel 10 reporters indicated soft retail conditions were a result of on-line purchases made overseas, and ignored any effects of a worsening domestic economy where living and house costs are spiralling out of control and where consumers are paying down debt as evident in a large spike in the net savings ratio. I guess this is done, not to impact consumer confidence any more!
But those retailers are lucky – their doors are still open, if only just. On Tuesday, the receivers of clothing and footwear retailer, Colorado announced the closure of 140 stores and the loss of 1040 jobs. On Wednesday, Ferrier Hodgson, Administrators for Angus & Robertson said a further 42 stores would close in the next four weeks, with another 519 employees out of work.
May job figures were released by the ABS, Thursday week. During the GFC, full time jobs were traded for part time jobs as uncertainty settled in. In early 2010, as confidence returned the domestic economy, those part time jobs were traded up for full time jobs.
But as the stimulus starts to wear thin, house prices and consumer confidence are once again falling, and we are once again losing full time jobs while part time jobs show a small uplift. At the same time, Fitch ratings is reporting mortgage delinquencies are at levels not seen since before the GFC.
But will there be a $900 spending handout and a First Home Owners Boost to save us this time?
» Australia’s Colorado retail chain to close – Reuters, 14th June 2011.
» Retail woes worsen as bookseller sacks 519 – The Sydney Morning Herald, 16th June 2011.
If unemployment increases before housing prices fall, then Australia truely is different. Unemployment and under-employment have been on the increase for a few years. When the Government counters resort to not counting one hour a week of work as unemployed, then something is not right.
Retail as been in a slump for a few years too. That comes from retailers I personally know and its only been Gerry Harvey and Bill Evans (Westpac Bollocktician) that have been saying there’s no problem. Recently we all know Gerry’s stance on this now.
I wonder what percentage of Aussies are buying on line? I don’t think its’ that big to the extent it cracked the retail sector. I think (emphasise think) it is mainly due to people not having money, or enough money.
If it is true that mortgage debt + credit card debt + personal finance debt is approx. $1.3 Trillion, then that would explain a lot and the rest of the world we’re coming to join the club.
Mining, how is 8.4% GDP contribution + <2% employment to the economy going to bail us out of this. 50% of what Mining generates comes to Australia and the other half, overseas. Maybe, we don't have China. And who's whispering the rumour FutureBoom? FutureBoom sounds like a shrine to me, the Shrine of hopes and luck wishes.
I noticed Christopher Joye recently referenced a blog post that used Google Insights for Search as an indicator of unemployment within Australia against the ABS unemployment rate.
This is a bit fluid in being an approach to a leading indicator, so I tinkered in Google Insights myself, comparing the relatively more popular search for “the dole” with the same search term used by the author “unemployment benefits”. While the graphs are reasonably similar, the author notes a downward trend in unemployment through March (as also occurs with “the dole”). However, through May there has been a recent lift in searches. I excluded the partial month of June.
Joye post here:
http://christopherjoye.blogspot.com/2011/06/new-data-source-is-australias.html
Referenced post here:
http://ricardianambivalence.wordpress.com/2011/06/15/google-unemployment/
Sample search here:
http://www.google.com/insights/search/#q=the%20dole%2Cunemployment%20benefits&geo=AU&date=5%2F2008%2037m&cmpt=q
$10,000 Vendors Boost has just been handed out in the latest Queensland State Budget. Our hard-earned dollars are being flushed away to save the bubble.
AverageBloke, that’s real bad news. I wonder how many house warming parties will turn into mortgage stress dilemmas cause of this. There have been some significant property price declines in QLD and still nobody bought in. This $10, 000 bucks seems like a dangerous ingredient to the mix for some (many?) people. $10K is about (I think) one year worth of unemployment benefits, given to anyone that puts their hand up for a home loan. This is a crime, if you can’t afford the house now, keep saving cause you still won’t be able to afford the house in 8 years when it doubles in price (if that’s your belief), so don’t buy now. How about $10K or one year of unemployment benefits no matter what? Doesn’t seem right nor fair in invest peoples’ money in a venture that may not go anywhere other than down the dunny.
Interesting how the media and C. Joye (post above) are blasting the greatness of the *low* unemployment rate, and how good it is for housing. Has anyone considered (not specifically people in this blog) exactly how the unemployment rate is calculated or determined. Voodoo mathematics. Commonsense tells me that this economy does not look like an economy with such low unemployment (or strong employment). Commonsense is telling me that this $10, 000 bucks is a bad move.
Surely there are better ventures to invest tax payer’s money into, surely.
BotRot, Voodoo mathematics for sure. The AFR today has an article with the headline “An Army of Jobless. If unemployment is 4.9% why is it 2.7 million people can’t find work?”
The artcle starts with “You’d be hard pressed to find a more deceptive set of statistics about the Australian economy than our unemployment data. . . ” Aparently, Australia has 2.7 million people who either want to work (and have fallen between the cracks) or who want more work.
Excellent comment BotRot. It’s also interesting how the likes of Wayne Swan and Glenn Stevens trot out and tell us that everything is ok because of this (coming) boom and that incomes/wages are increasing. Well, I don’t understand how incomes are increasing when income tax revenues are decreasing (as published on a .gov.au website).
I was reading somewhere there they were using 1 hour of part-time work as an indication that an individual was ’employed’.
Also CJ forgets the growth in a section of our society known as the ‘working poor’. These are the low wage earners who really can’t afford to save, buy a basic home, rent a basic home etc etc.
A employed person should be classified as somebody who is able to survive on their income (i.e. their wage is above the poverty line). Unfortunately our government does not want to change the status quo otherwise the figure would be significantly higher than 4.9% if the underemployed were removed from the employed statistics. This is not as rosy as they seem.
Yoda has confession to make – “Yoda tight arse when comes to consumption and saving for rainy day”. Yoda cost of living pressure mean even Yoda has had to use credit card in June 2011 for essential purchases – NEVER BEFORE !!!!!
And this is before we get taxed for Carbon Dioxide !!!
Yoda ask – Why is our elected government bringing in a Carbon Tax when they were elected not to bring one in?
Yoda say – If Wealth Destructon of the Australian people was the aim of the current government they are doing a fine job and should get an award.
Retail in depression.
Like most stats for which ‘the people’ hold the Government to account; you gotta take em with a grain of salt. Two that come to mind are
1. Inflation
2. Unemployment
The US stats for inflation and unemployment are so warped is scary. Take this for example the use of hedonics (quality corrected pricing) to adjust the price of goods and hence impact CPI. Bearing in mind that CPI is what our central banksters are here for (to keep it within a range target); so if we keep CPI artificially low then we also keep central bank interest rates low
Of course ABS also use hedonics….and we are also good at twisting the numbers
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6202.0 – Labour Force, Australia, May 2011
“COMPARABILITY OF SERIES
From April 1986, the definition of employed persons was changed to include persons who worked without pay between 1 and 14 hours per week in a family business or on a farm (i.e. contributing family workers). For further information, see paragraphs 22 and 23 of the Explanatory Notes in the February 2003 issue of Labour Force, Australia (cat. no. 6203.0).”
(source http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6202.0Explanatory%20Notes1May%202011?OpenDocument)
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The net result?
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Since February 2008 the amount of Australians in full-time work has decreased from 7.693 million to 7.660 million in February 2010, ABS figures show.
Part-time work, meanwhile, has increased from 3.035 million to 3.311 million.
source: http://news.smh.com.au/breaking-news-business/australias-underemployment-rate-growing-20100326-r1ah.html
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But we have FULL employment… or do we?! The GOV is looking good folks and we are all very happy – well that’s what the stats say. So April’s in full time employment (FTE) drop of 49K went unnoticed
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“The seasonally adjusted Australian unemployment rate was steady at 4.9 per cent in April, as announced by the Australian Bureau of Statistics (ABS) today.
The ABS reported the number of people employed decreased by 22,100 people to 11,436,500 in April. The decrease in employment was driven by a decrease in full-time employment, down 49,100 people to 8,056,800. The decrease in employment was partially offset by an increase in part-time employment, up 26,900 people to 3,379,700.”
source: http://www.abs.gov.au/ausstats/abs@.nsf/mediareleasesbyReleaseDate/415E45C10019E913CA2578A9001387AC?OpenDocument
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Lets now throw those that have given up (not counted in the ABS stats) and people disability allowances, also not included.
….
The $10,000 Boost in Qld will not help the slide in prices much this time because it only works well when you have low interest rates. If the Reserve starts to cut and the Government keeps handing out money they may stop the slide but like all things in life you have to face the music sooner of later and it looks like that time is just around the next bend. If the cost of borrowing overseas stops the Big Banks from lowering lending rates then its game over. Debt will have it way in the end, Jusk ask our mates in the USA & Europe 😉
New Mortgage Credit 6.4% p.a. – Mortgage Interest Rate 7.8% p.a. = Negative 1.4% Mortgage Credit Money Supply = Mortgage Credit DEFLATION = Housing price DEFLATION
Household cardiac arrest very soon = ZIRP = worthless AUD
Simple enough!
Only if China stops buying our Coal, Gas and Minerals.
AverageBloke, consider this…
ASX Mining companies market cap ~ $600 billion
Housing market cap ~$4 Trillion
If housing falls 1.5% per quarter, household wealth declines $240 billion p.a.
$240 billion p.a. is ~ total gross mining export from Australia
AverageBloke, you are so funny.
@ AverageBloke China is looking at ramping up its trade with other nations to buy mineral resources from, this is due to OZ prices get
Wow you lot are a bunch of chicken littles!
I LOVE the smell of this fear. Bargains galore. Last time I saw this happen I made over 500% within 18 months on the U.S. stock market. And over 200% on the AUS stock market.
Feed the fear on property guys, it makes me richer. Anyone selling now by choice is a complete idiot.
Ok guys, get your flamethrowers out and burn me to a crisp! I might even bother reading your comments.
FEED the FEAR you little chickens. Feed it! I am hungry.