Warning – the economy might actually be a whole lot stronger than we thought.
Okay, little bit of a news flash.
You know that “moderation” in house prices we’ve been waiting for? That little bit of a pause we were expecting to let reality catch up? That softening, that slow-down, that plateauing?
Might not be coming.
In fact, in as much as there was a slow down / pause / time-out in the naughty corner, it might already be behind us.
And the next boom might only be a few months away.
How do I know this?
Well, I don’t. Not for sure. Some economists will tell you they have a crystal ball, but sooner or later the market comes along and gives them a swift kick to the crystal balls and their reputations shatter.
But, you’re always operating with less than perfect information.
And the thing that really jumped out at me was this report from the economists at CBA.
They were taking a look at the labour market data, and I was shocked at how strong recent months had been.
In my mind I’m still assuming that the labour market is still softening, wages growth is weak, and there’s little fire coming from that sector of the economy.
But that’s not what the data says at all.
In fact, if you believe the last four months, the economy is gearing up for another bull run.
And I know a lot of my readers are a canny bunch, and don’t put too much stock in the “official” numbers. And they’re right to be sceptical. So when they say the unemployment rate is 6%, you have to take that with a large grain of salt.
That said, the trends are useful. If the unemployment rate is going down, from whatever number it is, then house prices are normally growing.
So even if I don’t believe (or care about) the exact levels, I am watching trends.
And as I said, right now, the trends are actually pretty promising.
The take home chart from the CBA report is this one. It compares employment growth with GDP:
You can see that they tend to move together – which makes sense: you need to employ people to make stuff.
But right now a gap has opened up. Employment growth is heading north. We’ll have to wait and see what GDP does.
So the gap will probably close pretty soon, based on past experience. But which way? Will employment correct, or will the economy bounce?
Again, hard to say for sure, but the employment data is looking pretty solid.
Because when you break it down, all the signs are good.
Like the split between part time and full-time employment growth. We’ve actually seen a switch-out, with full-time employment growth picking up, at the expense of part time employment growth.
That’s a good thing. Firms tend to employ people part time when things are tentatively picking up, and when the future seems more certain, start employing people on a full time basis.
And when you break it down by state, it’s also looking strong across the board.
Victoria continues to lead the way (“spectacular” was the word CBA used), but growth is also holding up in NSW, and there’s been a quick bounce back in Queensland.
And even in the smaller states, and even in WA, we’ve seen employment growth pick up strongly in the past four months.
This is especially good news for WA. I can hear the pollies across the Nullarbor breathing a huge sigh of relief. Employment growth has picked up, and the unemployment rate has dropped significantly.
Perhaps WA has turned the corner?
So it’s all looking pretty solid.
Surprisingly solid even.
But look, I don’t want to lay my crystal balls on the line here. These are early days, and you can’t be too certain about which way trends are going until they’ve had time to properly establish themselves.
But by then, everyone knows about them.
So the scenario I want to flag is that the economy has actually got more traction than we thought. That’s going to keep feeding through to employment growth, and that in turn will help drive property demand and property prices.
Property price growth moderated over the first half of this year (though Sydney and Melbourne are still pushing at double digits), but maybe that’s all we get. Maybe once the rubber hits the road and the economy really gets going, we’ll start pushing back towards 10, 12 percent growth.
And when you look at the population growth data, that’s not so far fetched.
Of course, it could all still get derailed by something. Trump could bomb someone or China could get the wobbles. But in the absence of any sort of shock, you’d have to think that the most likely scenario is continued growth from here.
Economies do move in cycles after all.
We might not be quite ready to lock it in, but we need to start thinking and planning for it.
So watch out! Good times ahead.
What’s the feeling in your crystal balls?