Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
It’s not hard to find warnings of the coming economic slump.
Your favourite internet search engine will have no trouble finding plenty of references to Australia’s coming recession, and even plenty of claims that we are already in one.
Or that although we’re not actually in a recession, that’s only because the definition is wrong.
Or that it feels as though we’re in a recession, so we must be, and who cares what the statistics say anyway?
But the fact is that there are plenty of indicators saying the economy isn’t heading over a cliff after all.
The NAB’s monthly measure of business confidence and conditions on Tuesday was one.
The bank’s measure of business conditions, an average of separate gauges of trading conditions, profitability and employment, rose sharply – the biggest monthly rise in the history of the indicator.
The August level of the conditions index was at its highest since late 2009, as the business environment was being poisoned by the global financial crisis that had come to a head the year before.
And it’s important that two of the components of the conditions index – trading conditions and profitability – were up strongly, accounting for all of the improvement in overall conditions.
The other, employment, was still weak.
That means businesses won’t be troubled by their traditional nemesis, accelerating wages growth, for a long while.
A separate report from the Department of Employment on Tuesday was a reminder that there is, as the Reserve Bank of Australia puts it, a degree of slack in the economy.
“Research undertaken by the Department of Employment shows that there are more than enough applicants with relevant qualifications, or appropriate skills and experience, for vacancies in almost every occupation,” the report began.
So there’s plenty of room to grow as the economy undergoes its transition away from the mining investment boom.
The NAB survey appears to confirm that the transition is finally under way.
“This outcome adds to the mounting evidence that AUD depreciation and record low interest rates are having the desired effect and helping to offset the weakness in mining,” NAB’s economists said.
That’s not to say the economy doesn’t face challenges.
The quarterly survey of business capital spending from the Australian Bureau of Statistics last month offered no hope of a pickup in growth led by business investment over the coming year.
But that may not be as much of a problem as it seems.
The recent narrowing of the gap between economic growth, measured by gross domestic product, and employment growth suggests the economy is now being driven by sectors with a high ratio of labour to productive capital.
That would be consistent with employment growth close to the long run average over the past year, despite all the doom and gloom.