Markets
Local:
The ASX200 index fell again in September to finish the month -2.84% down.
Global:
The S&P 500 was down -4.87% in September, bringing its YTD return to 11.68%.
The Dow Jones Industrial Average decreased -3.50% for the month and was up 1.09% YTD.
The Stoxx Europe 600 Index also declined by -1.6% over the month.
Gold:
The spot price for Gold continued to trend lower, moving down to US $1,848.
Iron Ore:
Iron Ore price increased by US $2 from its August figure to finish September at US $119.50/Mt.
Oil:
Brent Oil price continued its upward trend in September reaching US $90.71 /bbl.
Property
Housing:
CoreLogic’s national Home Value Index (HVI) recorded a 0.8% rise in September as the recovery trend moved through an eighth consecutive month of growth.
The rise follows a 0.7% lift in August (revised down from 0.8%) taking the quarterly pace of growth in national home values to 2.2%. Quarterly growth has eased from a 3.0% gain in the June quarter, reflecting a slowdown as advertised stock levels rise, helping to take some heat out of the market. The September quarter saw Adelaide recording the highest capital gain at 4.3%, followed by Brisbane at 3.9% and Perth at 3.6%. At the other end of the growth spectrum is Hobart where values were down -0.2% over the quarter, taking the southern capital to a new cyclical low.
Economy
Interest Rates:
The RBA decided to leave the cash rate target unchanged at 4.10%. This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.
Retail Sales:
Retail sales in Australia increased by 0.2% mom in August 2023, compared with market estimates of 0.3% and after a final 0.5% growth in the prior month. The modest rise highlighted that consumers continued restraining their spending as interest rates remained elevated.
Bond Yields:
Australia’s 10-year government bond yield fell below 4.6%, retreating slightly from 12-year highs as the Reserve Bank of Australia kept its cash rate unchanged at 4.1% during its September policy meeting.
The yield on the US 10-year government bond approached 4.6% by the end of September, down from previous highs during the month as inflation measures showed some signs of easing.
Bitcoin:
Bitcoin prices traded mostly sideways in September in a range between $25,000 and $27,000 before finishing the month at $27,155, a 5.1% monthly increase.
Exchange Rate:
The Aussie dollar stayed steady in September against the American dollar, at $0.646, and gained slightly against the Euro at $0.610.
Inflation:
Australia: The monthly Consumer Price Index (CPI) indicator rose 5.2% in the 12 months to August 2023. This month’s annual increase of 5.2% is up from 4.9% in July. Annual inflation remains below the peak of 8.4% in December 2022.
USA: The annual inflation rate in the US accelerated for a second straight month to 3.7% in August from 3.2% in July, above market forecasts of 3.6%. Oil prices have been on the rise in the previous two months, which coupled with base effects from last year, pushed the inflation higher.
EU: The inflation rate in the Euro Area declined to 4.3% year-on-year in September 2023, reaching its lowest level since October 2021 and falling below the market consensus of 4.5%.
Consumer Confidence:
The Westpac-Melbourne Institute Index of Consumer Sentiment slipped 1.5% to 79.7 in September from 81.0 in August. Sentiment has languished at deeply pessimistic levels for more than a year now. Since the survey began in 1974, the only comparable period of such sustained weakness was during the recession of the early 1990s when even weaker levels held for more than two years. Persistent pessimism has continued despite easing fears of further interest rate rises. This has seen a clear lift in the confidence of mortgage holders, up 7.8% in the latest month. However, this gain was more than offset by a 6.1% fall in the confidence of renters and a 5.8% fall in the confidence of consumers that own their home outright.
Employment:
Australia: The seasonally adjusted unemployment rate stood at 3.7% in August 2023, unchanged from July’s three-month high and matching the market forecast. With the participation rate increasing to 67.0%.
USA: Total nonfarm payroll employment rose by 336,000 in September, and the unemployment rate was unchanged at 3.8%. Job gains occurred in leisure and hospitality; government; health care; professional, scientific, technical services; and social assistance.
Purchasing Managers Index:
The Judo Bank Australia Manufacturing PMI was revised higher to 48.7 in September 2023, from a preliminary of 48.2 and compared with 49.6 in the previous month. The latest reading signaled a seventh monthly decline in manufacturing operating conditions. Although the pace of deterioration accelerated since August, it remained modest overall. Results above 50 points indicate expansion, with higher results indicating a faster rate of expansion.
US Services PMI:
The S&P Global US Services PMI fell to 50.2 in September 2023 from 50.5 in August, below market expectations of 50.6, preliminary estimates showed. It was the slowest rise in business activity in the current eight-month sequence of growth. Service sector firms saw a solid decrease in new business, following pressure on customer purchasing power from high inflation and interest rate hikes.
US Global Manufacturing PMI:
The S&P Global US Manufacturing PMI was revised higher to 49.8 in September 2023, surpassing the preliminary estimate of 48.9 and exceeding August’s final reading of 47.9. The latest figure pointed to a fifth consecutive month of contraction in the sector’s health, albeit only fractional. Output increased at a marginal pace that was nonetheless the fastest since May. In contrast, job creation remained moderate, and new orders continued to decline for the fifth consecutive month, reflecting the impact of high interest rates and inflation on consumer demand.
Adviser Numbers:
The industry had around 28,000 advisers on the FAR at the start of 2019, eventually reaching under 16,000 after the final adviser exam deadline last October, stabilising at around the 15,800 mark. Analysis of the ASIC Financial Adviser Register showed a net loss of 599 advisers for a final tally of 15,584 registered planners to close the 2023 FY.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS Wealth Data
Comments
Australia’s Population Change
Recent population data released from the ABS shows that Australia’s population continues to grow rapidly. In the year ending 31st March 2023, Australia’s population increased by 563,200, putting 12 month growth at 2.2% and quarterly growth at 0.7%.
Unsurprisingly, net overseas migration (NOM) remains the biggest driver of population growth, accounting for 81% of total growth over the year to March 2023. NOM remains at record highs – in the March quarter alone, there were 152,200 net arrivals, driven largely by the return of international students for Semester 1 and a low level of departures.
The Intergenerational report released earlier this year highlights 3 key areas, population, participation and productivity to be the key drivers of economic growth over the next 40 years. As has been recognised for decades, Australia’s population is ageing, impacted by Australians living longer and having fewer children. Australia’s population growth is expected to slow over the next 40 years, growing at 1.1% a year, compared to 1.4% a year over the previous 40 years. By 2062-63, life expectancy is projected to be 87 years for men and 89.5 years for women. With an ageing population, Australia’s labour force participation rate is also forecast to decrease from the current record high of 66.6% to 63.8% by 2062-63.
Mirroring the lower forecasts of other advanced economies, such as New Zealand, the United States, and the United Kingdom, Australia’s productivity is expected to grow at 1.2% per year, which is down from 1.5% in the previous Intergenerational Report.
Significantly, this year’s Intergenerational Report is the first to focus on the global transition to net zero, which the report states ‘may be the most profound driver of change in the economy’.
The report outlines two ways climate change will impact the labour market and Australia’s productivity: the creation of new job opportunities and decline of labour productivity due to rising temperatures.
Firstly, the transition to net zero will create job opportunities. This is particularly likely in the mining and manufacturing sectors, as Australia has some of the largest reserves globally of critical minerals needed to produce clean energy technologies, such as lithium and cobalt. By 2040, growing exports of critical minerals and energy-transition minerals have the potential to create over 115,000 new jobs while contributing $71.2 billion to GDP, according to recent independent modelling for the Department of Industry, Science and Resources.
Secondly, labour productivity in certain sectors is at risk of decline due to rising temperatures. The greatest impact will be seen in labour-intensive roles, such as labourers, technical and trades workers, and machinery operators, due to exposure to outdoor temperatures and the physical efforts of the role. Industries will need to adapt to increasing temperatures in innovative ways to sustain the size and productivity of their workforces.
In summary, immigration has transformed Australia into the successful multicultural society it is today. Rapid population growth has made our houses more valuable and enabled our businesses to make larger profits by creating a bigger market. Yet population growth incurs costs and has masked falling productivity growth alongside heightened pressure on key services and rapid inflation of property prices. This has undermined living standards and fuelled the current rental and housing crisis. Supply cannot readily keep pace with Australia’s current population trajectory. Interestingly enough, it was the period of low immigration during COVID-19 that finally enabled wage growth to pick-up, rents to fall during the pandemic and unemployment to hit record lows!
It is vital to bring population policy to the forefront of policy debate and understand that it is not a limitless panacea for economic prosperity but a policy tool which must be carefully managed in the interests of the population at large.
Sources: Deloitte Access Economics
The Housing Shortage
The benchmark report released by the Urban Development Institute, indicated over the 2022 calendar year, greenfield lot sales almost halved and settled apartment sales fell to their lowest level since the global financial crisis as buyer demand plummeted, thanks to higher interest rates, surging construction work and fears about builder failures.
With both house-and-land and new apartment sales expected to be subdued again this year, the Urban Development Institute forecasts that dwelling completions will “retract sharply” and fall about 50,000 below the 200,000 dwellings needed annually to meet the federal government’s plan to build 1 million homes over five years from 2024 under the National Housing Accord.
The medium to high-density sector has increasingly become an important part of Australia’s residential real estate market, with units steadily making up a larger portion of Australia’s housing stock. In August, CoreLogic estimated that units made up 25.9% of national housing stock and around 30.4% of Australia’s capital city housing stock, up from 19.6% and 22.9% respectively, at the start of 2010.
The continued reliance on the unit sector to deliver fresh housing stock is particularly evident across some of Australia’s largest capitals, including Sydney and Melbourne, as well as the ACT, where limited land supply has made further development of low-density dwellings increasingly difficult.
However, the latest National Housing Finance and Investment Corporation (NHFIC) ‘State of the Nation’s Housing’ report forecasts a national housing deficit of approximately 106,300 by 2027 (later upgraded to 175,000), with around 59% of the shortfall expected in the unit market.
Figure 1 shows the latest ABS building approvals data by property type. In July, 4,490 units were approved for construction, down -19.9% from the month prior and -39.8% below the decade average. Excluding a handful of volatile months, the trend in new unit approvals has largely held below the decade average since mid-2018 and well below the trend in house approvals since late 2017.
On the demand side, a stronger-than-expected level of net overseas migration has seen overall housing demand skyrocket. This has occurred amid high levels of overseas arrivals, and about a 25% drop off in departures relative to the pre-COVID average. Figure 2 displays the annual trend in net overseas migration by state. In the year to March 2023, net overseas migration reached a new record high, with 454,400 people added to Australia’s population. At the current average household size, this equates to an additional 181,723 households.
Australia is on track to fall more than 60,000 new homes short of the 240,000 total needed in the first year of an ambitious new housing affordability crisis-busting program. The Housing Industry Association’s National Outlook have recently forecasted just 178,839 new apartments, townhouses, units and houses will be built next year.
In 2025 the projections suggest only 195,105 homes will be added to the nation’s housing supply. It comes after a recent national cabinet meeting pledging to make Australia’s housing shortage a key focus, adding 200,000 homes to a previously declared target of building a million new residences across the nation by the end of 2029.
Further housing supply reforms are also on the horizon, with the NSW Government focused on driving more supply through collaboration with all levels of government, communities, and the private sector.