Confidence falls & employment growth shifts.
Another three minute market update.
Confidence
The theory was that confidence would lift after the federal election, but the Westpac Melbourne Institute Consumer Confidence Index actually fell by about 2 per cent during October.
The index now sits at 108.3 – which actually means little to most of us – but if I put it another way, 100 means that half the community are optimistic & half are pessimistic. So, a 108.3 reading means that slightly more see the glass half full rather than half empty. But not a lot more of us are seeing the sunny side of the street.
Another surprise was the fall in the ‘whether now is a good time to buy a dwelling index’. This score fell 10 per cent from 140 index points to 135, with the biggest falls in NSW (down 23 per cent) & Queensland (down 11 per cent).
There were similar falls in April this year, following media speculation about interest rates moving upwards. October’s decline comes on the back of talk about a housing bubble; declining affordability & pending market correction.
If we are not careful, we will talk ourselves out of a good thing. The Westpac Melbourne Institute Good Time to Buy a Dwelling Index is a near prefect bellwether as to the future direction of the housing market. If this current slide in confidence continues, expect the recent gains made in housing prices & sales to plateau & maybe even fall in about six months’ time.
I still believe that interest rates will fall early next year & stay low for a considerable time. The housing ‘heat’ that some are talking about is more like room temperature at present, rather than something approaching boiling point. It really isn’t hot enough yet to get in the pool or turn the air-conditioning on.
Employment
Westpac Melbourne Institute respondents also remain concerned about jobs. Many expect unemployment to rise over the year ahead. As a result, most of us remain cautious about our own finances.
For the year ending September, there were 96,000 jobs created across Australia. Unemployment remains steady at 5.6 per cent. Not a bad result, until you drill down into the details. Nationwide, 5,000 full-time positions were actually lost over the past year & 965,000 people (or about 8 per cent) in the work force are underemployed – meaning they would work longer if they could get the work.
Labour hoarding continues too, with 14 per cent of the labour force being what the ABS calls “underutilised”. I don’t think the Bureau means all those hours wasted at work on Facebook & Twitter or those extended coffee & lunch breaks, but many in the workforce are doing exactly this – not because they really want to – just that there isn’t enough work to keep them fully occupied.
Unless we see a strong labour market – and growth in full-time work – any housing recovery will be short lived; let alone a housing bubble.
Where jobs are being created has now shifted too. Close to half of the new jobs over the past 12 months are now in Queensland. 50,000 new positions were created across the sunshine state since September 2012, 20,000 of which were full-time.
Jobs are still being created in NSW (up 16,000 last year); Victoria (up 15,000) & Western Australia (up 14,000) but less now are full-time. New South Wales actually lost 35,000 full-time positions in recent months. That, to me, suggests a ‘cooling’ residential market, not a ‘rampant’ one.
Victoria created 10,000 full-time jobs last year, which will help support their residential market & whilst WA saw 5,000 new full-time jobs, the state’s exposure to iron ore & mining projects suggests a downward trend in employment growth (and housing demand) over the near-term.
Queensland’s capex (capital expenditure) exposure is focused more on coal & LNG projects. Coal projects are winding down & LNG capex might have also peaked, but the LNG projects are very large with long durations. This means, to us, that any resource slowdown in Queensland will be slower & more gradual than in WA & even NT.
Australia’s future LNG projects will need to be delivered much more cheaply than those currently under construction. Whilst we are likely to be the largest LNG Asian exporter in coming years, our continued growth in natural gas exports is likely to ease after this current wave of LNG projects come online. Capital that could be spent on increasing our export capacity now has other, more profitable destinations that did not exist when our natural gas export development began a decade or so ago.
In order to compete, the only way we can reduce costs is to lower wages; shorten approval times/costs & lower operational standards. Future LNG workers are likely to get paid less than many are being paid today. That will have an impact on rents; investment returns; sales rates & end property prices; and not only in regional towns but in our capital cities too.
For the record – according to the state accounts – 35 per cent of WA’s economy is based directly on mining/resources. Australia-wide it is 10 per cent; in NT 19 per cent & in Queensland 10 per cent, too.
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