Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
The economic news to start 2016 has been mixed, but the positives are probably a better guide to how things are likely to pan out.
The big picture is admittedly looking a little grim.
With Saudi Arabia and Iran puffing out their chests and jutting their jaws at each other, there are jitters about the supply of oil from their region.
And the first data on China for the year, the Caixin purchasing managers’ index (PMI) released on Monday, hit a three-month low in December, putting the prospects for Australia’s minerals exports in further doubt.
Already, according to data on Monday, the RBA’s index of commodity prices hit a 10-year low in December to be down by 55 per cent from its mid-2011 peak.
That was the catalyst for the seven per cent drop in the Chinese share market, and the suspension of trading by the authorities, on Monday.
But the share market’s reaction may not be the best measure of the significance of these economic trends.
For one, the price of crude has not surged higher – the smart money says the bluster and posturing in the Middle East will not lead to a disruption in supply.
And the recent trend in the Chinese PMI is hardly out of the ordinary – it’s only marginally below the average for the past few years, when economic growth chugged along at over seven per cent annually.
Most likely, a thin new-year market and the reluctance of big investors to put all their cards on the table early in the quarter exacerbated the market reaction.
And the local economy’s solid performance in recent years just proves the idea that it’s hostage to minerals prices is a myth.
And there has been plenty of good news.
The ANZ-Roy Morgan weekly gauge of consumer confidence, reported on Tuesday, rose last week to be just a smidgin shy of its highest level since early 2014.
The Dun and Bradstreet survey of businesses, also revealed on Tuesday, showed capital spending in the seven surveyed sectors it covers rose in the latest two quarters, and is expected to pick up a little more.
And although the overall measure of business expectations is around the same level it’s been since early 2014, it’s worth remembering that employment growth has accelerated sharply over that same period.
So the mood among businesses, while not necessarily euphoric, is still good enough to sustain solid, job-creating growth.
That D&B survey confirmed the signal from the Australian Industry Group’s survey on Monday.
It showed Australia’s manufacturing sector expanding in December, with the best three months since the post-crisis recovery of 2010.
And the survey’s measure of employment picked up further, to be now well above the level it averaged last year, when the labour market was already generating the fastest rate of jobs growth in five years.
It hasn’t all been good news, but it’s been good enough.