Australian firms suffered the worst slump in conditions since the 2008 global financial crisis as evidence mounts that the economy slowed in the latter part of last year. The business conditions index -- measuring hiring, sales and profits -- dropped to 2 in December from 11 a month earlier, a National Australia Bank Ltd. report showed Tuesday. A gauge of employment fell to 4 from 9 in November, while profitability plunged to zero from 8. A separate confidence index was unchanged at 3. NAB Chief Economist Alan Oster said the drop had been “broad-based” across all states and industries outside of mining. “These declines taken at face value suggest a significant slowing in business activity,” he said. “There could be some implications for the labor market and business capital expenditure.” The Australian dollar fell after the report, buying 71.47 U.S. cents at 12:10 p.m. in Sydney compared with 71.57 before its release. The result dovetails with slower economic growth in the third quarter as falling property prices threaten to throw a wet blanket over the Australian economy. Money markets are increasingly nervous and traders are pricing in about a 70 percent chance of an interest-rate cut by the end of the year -- despite the central bank saying it expects the next move to be an increase. “Interpreting data around the holiday period can be difficult,” Oster said. “With confidence remaining below average and forward orders having also declined, our expectation is that, at the very least, a significant portion of the decline in business conditions will persist.” While Australia’s wage growth has been anemic in the past five years, hiring has accelerated since 2017 and consumption held up as households opted to save less. The concern now is consumers will hunker down in response to declining property prices, known as the wealth effect, which could hit already struggling retailers hard. What Our Economists Say... “The Reserve Bank will likely be concerned that vulnerability has become more broad-based. A weak print on CPI, private sector credit and house prices later this week could cement a rate cut signal -- if not action -- as soon as next week’s meeting. Once fear takes over, it’s difficult to rein in.” -- Tamara Mast Henderson, Bloomberg Economics https://www.bloomberg.com/news/arti...grandpas-give-way-to-next-generation-of-women
Australian economy Financial ‘misery index’ climbs sharply as RBA mulls another rate rise By Shane Wright June 5, 2023 https://www.smh.com.au/politics/fed...-mulls-another-rate-rise-20230604-p5ddq7.html Australians’ financial misery is at its highest level since the start of the global financial crisis amid growing expectations of another increase in official interest rates that will take the Reserve Bank’s income hit to someone with an average mortgage to almost $17,000. As new figures show a surging cost of transport – from catching a train to insuring a car – the “misery index”, which tracks the impact of movements in interest rates, inflation and unemployment, is climbing due to high inflation and the Reserve Bank’s aggressive tightening of monetary policy. Another interest rate rise would take the cumulative hit to an average mortgage to $17,000 a year, adding to the financial misery of Australians.Credit: Louie Douvis After last week’s larger than expected 5.75 per cent increase in award-linked wages, a rise in the volatile monthly measure of inflation and data showing a jump in capital city house values, financial markets put the chance of a rate rise at the RBA’s meeting on Tuesday at 40 per cent. Surveys of economists show about one in three expect the RBA to take the cash rate to an 11-year high of 4.1 per cent. About half of those not tipping a rate rise this week believe the bank is waiting for more inflation data before increasing rates in July or August. Since the RBA started lifting rates in May last year, the cumulative increase on the monthly repayment on a $600,000 mortgage has climbed from less than $2200 to about $3500. Another quarter-percentage-point increase this week would push monthly repayments to $3600. Over a full year, the impact is now on track to reach $17,000 in extra repayments on a $600,000 mortgage. Such a large increase in payments is adding to the misery index – created by economists in the 1960s. Analysis by University of Melbourne economists Guay Lim and Sam Tsiaplias shows Australia’s misery index is now just short of the point reached early in the global financial crisis. During the September quarter of 2008, the RBA had official interest rates at 7.25 per cent, unemployment was 4.2 per cent and inflation reached 4.8 per cent. During 2022, the misery index jumped by almost 220 per cent as inflation and interest rates lifted sharply. In the 12 months to the start of the global financial crisis, the index increased by a relatively modest 62 per cent. Lim said the misery index would remain elevated, noting that while inflation had come down a little over recent months, both the jobless rate and official cash rate had gone up. AMP Capital chief economist Shane Oliver warned if the RBA pushed ahead with another interest rate rise, the chance of a recession that left the entire country miserable would climb. “The risk is steadily rising that the RBA will hike rates too far and knock the economy off the narrow path into recession,” he said. KPMG chief economist Brendan Rynne said while there was pressure on the Reserve Bank to consider an interest rate rise on Tuesday, there was also evidence that previous increases were starting to bite. “The case for the RBA to pause in the June meeting is strong, as the RBA may want to have time to receive additional data flows, especially when the monthly inflation data is volatile, and April’s inflation figures do not capture the full extent of services inflation,” he said. “[But] a pause will not mean the inflation fight is over.” Motorists are increasingly miserable, according to research from the Australian Automobile Association released on Monday. The average household cost of transport jumped 7.4 per cent through the first three months of the year.Credit: Felicity Caldwell Its measure of transport affordability shows a 7.4 per cent jump in the cost of an average household’s annual transport-related costs during the first three months of the year. Per week, the increase is $28.31. The measure is different from the Australian Bureau of Statistics’ consumer price index, which tracks various transport-related costs. The bureau put transport inflation at 0.6 per cent in the March quarter for an annual rate of 4.3 per cent. The AAA said registration and compulsory third-party insurance costs increased 7.3 per cent in the quarter, servicing and tyres rose by 8 per cent, vehicle insurance prices jumped by 8.4 per cent and tolls (where applicable) lifted by 3.2 per cent. It also includes public transport costs, which it found increased by 5.1 per cent, while roadside assistance prices inched up by 0.5 per cent. Car loan repayments have also soared due to interest rates and sticker prices. The largest increase in household transport costs in the quarter was in Brisbane, up $34.39 a week to $500.52. Melbourne had the second-largest jump, up by $34.06 to $502.73 a week. Sydney remains the most expensive capital city at $510.80, up $18.28. As a share of income, the most expensive capital city is Hobart, where the figure hit 18.4 per cent in the quarter. In Melbourne, it increased to 17.5 per cent, while in Sydney it edged up to 16 per cent. The cheapest capital remains Canberra at 14.4 per cent, due in part to the absence of tolls and low spending on public transport. AAA managing director Michael Bradley said the rising cost of transport was increasing the stress on household budgets. “Transport is a significant and unavoidable expense for households and is one of the key drivers of inflation,” he said. “Government at all levels must consider these cost pressures when formulating policy.” Treasurer Jim Chalmers said family budgets were under pressure from inflation. “While inflation is moderating, it is still higher than we’d like for longer than we’d like, and Australians are under the pump from rate rises that started before the election,” he said.
Why is transport costs rising? I thought the price of oil & petrol was going down? I know here in California especially the SF bay area people have mostly abandoned public transport and just drive everywhere now so the cost is rising. Also now in California they have toll lanes on some of the highways if you want to avoid traffic.
I don't live over on the East Coast where conditions are different but I 'll assume the following. Roads are congested and they have a bunch of toll roads. (No toll roads in Western Australia where I live). People are living further from centre due to housing sprawl and 'cheaper' to buy a house. Fuel costs here, paying average AUD 2.06 per litre in Sydney, (AUD7.80 per gal). Travel distance are very large in Australia. Where I live, nearly the majority of vehicles are 4x4 diesel. Larger vehicles.