Chinese New Year impact seen in slowing arrivals data for Feb

The Short Term Arrivals and Departures data for Feb released this morning seems to reflect the impact of the Chinese New Year falling in early Feb. Clearly many Chinese arrivals were in the country before the actual date and showed up in the strong Jan numbers. February sees a reversal of that January strength.

Total arrivals were up just 5.9% from a year ago (the slowest rate of growth since May last year) while the 12 month running total showed a healthy 8.5% increase (both figures seasonally adjusted).

When we consider the Chinese data we see arrivals up just 1.8% on the same time a year ago (the slowest growth rate since the 10.3% fall in Jan 2015, also the result of Chinese New Year effects). This still equates to an increase of 23.6% for the previous 12 months; which is only slightly weaker than the record high from last month. The more stable Trend series showed an increase of 23.9% from the same time a year ago and a 23.7% increase over the course of the past 12 months. The boom in arrivals in China is still very much in place despite what these Chinese New Year effected numbers might suggest.

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Arrivals & Departures data shows China still on the up-and-up

As the ABS quickly play catch-up with the Overseas Arrivals & Departures data we see the March data released today. Yesterday we also saw the release of the TRA International Visitor Survey for the final quarter of last year (see here for commentary). We’re now starting to get a much clearer picture of the current state of play for tourism.

The Arrivals data for March shows total arrivals up 11.5% from the same month last year; the total for the past 12 months is now 7.3% higher than at this time last year. The seasonally adjusted data for the Chinese arrivals shows that the dramatic spike-up we saw in the Feb data (on the back of the Chinese New Year) has fallen back, as we would have expected. In spite of this arrivals remain 22.8% higher than a year ago. With the wild level of seasonality in the Chinese numbers we would much prefer to focus on the Trend data and here we see arrivals up 18.8% on the year. The Chinese visitor boom is still very much in place although the rate of growth is just as definitively slowing; 6 months ago the 12 month running total was growing at a rate of 23.5%; that’s now fallen back to 18.1%.

Departures are also still growing healthily (+12.3% from a year ago) despite the somewhat weaker A$ making foreign travel for Aussies that much more expensive. We would normally expect this relationship to be lagged by between 6 and 12 months (i.e. people make travel plans a long time in advance so changes in cost can take quite a while to filter through into actual travel outcomes). However, as the chart below shows, the A$ has been falling pretty consistently for nearly two years now and there still appears to be no impact on overseas travel. Perhaps we’ve just got so wealthy and used to foreign travel that we’re going to do it whatever the cost?

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Very strong jobs numbers, but focus on revisions and the Trend and it’s less exciting

The ABS jobs data for May has surprised on the upside. New jobs created (according to the headline seasonally adjusted series) were at 42,000; well in advance of estimates that centred around 12,000. However, what has been less commented upon is the fact that the April decline (originally slated as 2,900) has been sharply revised to a fall of 13,700. The ABS makes particular note of some problems with the original data from WA, although they claim that this has been removed from the seasonally adjusted series for both WA and Australia.

The headline seasonally adjusted unemployment rate has fallen to 6.0% while April was revised down to 6.1% (from 6.2%). the Forex markets have reacted strongly to the headlines and the A$ initially jumped almost a whole cent, but has now started to lose much of that gain; the reasons for that become clear when we look more closely at the data.

Given the issues that the ABS have been having for some time with the seasonal data (and today’s comments about the WA data will not ease people’s minds about this anytime soon), we really should be paying much more attention to the less exciting, and certainly less volatile, Trend data. Here we see the Trend unemployment rate down to 6.0% from an unrevised 6.1% in April. Trend employment rose by 15,700 while the April rise was revised up slightly to 21,300 (from 19,100). These are positive figures, and suggest that the labour market is tracking pretty well, but they are nothing like as dramatic as the seasonally adjusted data would suggest at first sight.

When we consider the data for Queensland a focus on the Trend series becomes even more important. The Trend unemployment rate in QLD was unchanged at 6.5% in May (although April was revised down from 6.6%) with a total of 3,700 new jobs (after April was revised up from +2,500 to +4,500). The second chart below makes clear that this level of jobs growth is just about enough to keep pace with working population growth, so without further increases in jobs growth we remain unlikely to see the Trend unemployment rate falling much faster.

For the record, the seasonally adjusted data for QLD showed 18,700 new jobs (with April revised up to +7,300 from +5,200) and an unemployment rate at 6.3% (after April was revised down to 6.6% from 6.7%). However, we would once again stress that when considering the State data we must insist on Trend analysis.

The ABS will release regional labour force data next Thursday at which point we will be updating our Conus Trend series for all the regional areas in Queensland together with Male/Female and Youth data for the Cairns region.

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RBA cut Cash Rate to 2.25%. Just shows how much we know!

Just a few days ago we posted explaining why we thought the RBA would not be cutting the Cash Rate today (you can read it here), but we have been proven sadly wrong with the RBA cutting 25bps from the Cash Rate to 2.25% at today’s Board meeting. Clearly Terry McCrann’s credibility, unlike ours, will be taking a sharp spike upwards.

In the rate decision (available in full here) the Bank note that “growth is continuing at a below-trend pace, with domestic demand growth overall quite weak” and that “(t)he economy is likely to be operating with a degree of spare capacity for some time yet.” The Board also note that, although the A$ has weakened against a rising US$ in recent months that the Aussie has strengthened “less so against a basket of currencies.” and that, “It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.

The final paragraph of the announcement (so often studied closely for signs of what might happen next) gives no real clues as to whether this is the first of a series of cuts, or if this is all there is. “For the past year and a half, the cash rate has been stable, as the Board has taken time to assess the effects of the substantial easing in policy that had already been put in place and monitored developments in Australia and abroad. At today’s meeting, taking into account the flow of recent information and updated forecasts, the Board judged that, on balance, a further reduction in the cash rate was appropriate. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target.

We remain rather surprised by the decision and will wait to see in coming months whether our rather more sanguine outlook on the Aussie economy proves to be reasonable. The forex markets have sold the A$ off by just over one US cent since the cut, thereby helping, at least in part, with the forex revaluing the Bank are wishing for.

US jobs sends A$ lower

The release overnight of the US jobs report for September has seen the A$ fall almost a full US cent. The non-farm payrolls for Sept saw a strong increase of 248,000 (above expectations) combined with large upward revisions to the data for July and August (combined revisions added another 69,000). The unemployment rate in the US has now fallen to a 6 year low of 5.9% (from 6.1% in August).

Dampening the news somewhat was the fact that the Participation Rate once again fell, this time to 62.7 (from 62.8). To put this figure in some context we need to bear in mind that participation in the US in the years pre-GFC was running at about 66. This was a similar level to here in Australia at that time. The large decline in US participation has greatly assisted in pushing the unemployment rate down, while in Australia participation, although slightly weaker than pre-GFC, has fallen nowhere near as far and as a result we have seen our unemployment rate rise (currently at 6.1%). Those contrasting a sub-6% unemployment rate in the US with our own situation need to to bear that (significant) difference in mind.

News of the strong jobs data boosted talk of a rate hike in the US sooner rather than later and, as a result, the US$ rallied strongly. The A$ fell by almost a full US cent and is presently trading around US$0.867

How much does a weaker A$ help tourism?

There is a well held belief that if the Aussie $ continues to weaken that we will see direct positive flow-through into the tourism industry. It’s a belief that is founded on some sound, and apparently reasonable, assumptions based on the fact that as the A$ falls travel for non-A$ based visitors to Australia becomes cheaper, and that foreign travel for Aussies becomes more expensive and that, therefore, there will be a larger number of Aussies who will choose to holiday at home. That all makes perfect sense. However, does the actual evidence support the theory?

Over the past 14 years we have witnessed significant moves in the A$; and equally significant shifts in the travel patterns of both Aussies and visitors to Australia. The graph below makes that clear.

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We are going to split this time series into 4 “eras”.

  • Era 1 is from March 2001 to June 2008. This was the run-up to the GFC. The Aussie appreciated strongly and Aussies began to travel abroad in large numbers
  • Era 2 is the GFC period from June 2008 to December 2009. The A$ crashed, then bounced strongly. Domestic travel fell sharply and international arrivals almost flat-lined.
  • Era 3 is the post-GFC period from December 2009 to June 2011 when the A$ rallied to its high of around US$1.10.
  • Era 4 is from June 2011 to June 2014 when the A$ started to weaken, but travel abroad, at home and from elsewhere all grew.

So what do we see when we consider international, domestic and foreign travel during these “eras”? The table below tells us by comparing the annualised growth rates for each of the indicators.

Era A$  International Visitors Domestic Travel Foreign Travel by Aussies
1 +9.7% +1.7% -0.3% +6.9%
2 -4.9% -1.3% -5.7% +10.5%
3 +13.1% +5.2% +4.9% +9.2%
4 -4.2% +3.5% +3.7% +6.7%

What we see is that during the period of strongest A$ appreciation (i.e. Era 3 from Dec ’09 to Jun ’11) all sectors of the tourism market grew at their fastest (or almost fastest) rates. Domestic tourism grew at a faster rate as the A$ appreciated 13.1% pa than it did when the A$ fell at 4.2% pa.

Also interestingly, Aussies travelling abroad actually grew at their fastest rate during the period of the GFC when the A$ depreciated; and foreign travel has continued to grow strongly even with the A$ weakening since June 2011.

There will of course be plenty of factors which we are not considering in this simple analysis (things such as the delay between the currency move and the actual travel caused by the fact that travel plans are often made well in advance of the actual travel). However, what it does demonstrate is that simple lines such as “the Aussie $ weakening will cause a boost to tourism”, or the converse “a strong Aussie $ will see tourism suffer”, are far too simplistic and may not actually be the case (at least in the short term). What the data shows us is that there are many more factors influencing peoples’ decisions to travel, both in and out of the country, than the level of the Australian dollar. The tourism industry would do well to remember that.

UPDATE: Mark Beath at Loose Change has also been looking at the exchange rate and tourism today (although from a very different angle). You can read his piece here.

Unemployment rate jumps; QLD looks awful

Today’s labour force data from the ABS for July is a shocker. Jobs, which had been expected to rise by about 12,000, actually fell 300 (and June’s increase was revised lower to +14.9). The headline seasonally adjusted unemployment rate jumped to 6.4% (from 6.0% in June); the increase slightly mitigated by the fact that the Participation Rate increased to 64.8 (from 64.7). However, it is worth noting that full-time jobs were actually up strongly (+14,500) and so far this year are up 110,000; which is more than total jobs created for the year. We are seeing a significant shift from part-time to full-time jobs nationwide.

Queensland’s data is even less inspiring. Total jobs fell by 12,600 in July (with June’s small increase revised down to just +1,700). Unlike at the national level, Queensland full-time jobs accounted for almost all the decline (down 12,000) this month and have now  fallen by 2,300 this year while total jobs are up 24,200. In the Sunshine State jobs creation has all been part-time. The headline unemployment rate in QLD came in at 6.8% (up from 6.3% in June) and this is made all the more disappointing by a fall in the Participation Rate to 66.2.

The scale of the surprise in the seasonally adjusted data is already making some commentators suggest that we should be looking at the ABS Trend data instead. Doing so paints a less dramatic, but still weak, picture. Trend employment growth nationally was its lowest in 9 months (+4,600) while the Trend unemployment rate remains stuck at 6.1%, up from 5.7% a year ago. The Trend data for QLD shows employment up 1,300 (its slowest rate of growth in 8 months) and the Trend unemployment rate increased to 6.5% from 5.9% a year ago.

The weakness of this data has reignited the possibility of further rate cuts from the RBA and, as a result, seen the A$ fall sharply against the US$. The Aussie fell about half a cent on the release and is now trading just below US$0.93.

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Fed taper continues as US growth picks up

Overnight the Fed have announced that their tapering of bond buying will continue, with another $10bn per month knocked off the plans. The Fed will now be buying just $25bn per month with the policy set to come to an end (as planned) in October. The announcement was no surprise to the markets.

In other news the US economy was shown to have grown more strongly than expected in the second quarter. Annualised GDP growth in Q2 came in at 4% while the decline in Q1 was revised from a fall of 2.9% to 2.1%. The dip in Q1 was clearly related to the shocking winter weather experienced in the US but the strength of the Q2 numbers show that the (slow) recovery in the US remains on track. For the first 6 months of the year the US economy has grown at about a 1% annualised pace.

The news from the US has seen the A$ trade slightly lower overnight at currently sits at US$0.933.

Inflation rate ticks higher

Data released this morning by the ABS shows that the Consumer Price Index (CPI) measure of inflation ticked up to 3% for the year to June (from +2.9% in Q1). Data for the second quarter shows that prices rose 0.5% after a 0.6% increase in Q1.

While the headline data shows inflation moving to the top of the RBA’s target band of 2-3% the RBA themselves will be more focused on two “core inflation” measures; the Trimmed Mean and the Weighted Median. These measures remove some of the volatility from the price index and will give the Bank a more realistic picture of the true trajectory for prices. However, the story is a similar one. Trimmed Mean rose 0.7% for the quarter and 2.9% for the year while the Weighted Median was up 0.6% q/q and +2.7% y/y. The average of these two core measures for Q2 was +0.7% q/q and +2.8% y/y which is a slight move up from the data last quarter which stood at +0.6% q/q and +2.65% y/y.

What all this means is that any chance (remote, in our view) of another rate cut from the RBA has now been made even less likely. The forex markets have certainly taken that view with the A$ rallying about half a US cent after the release.

It is worth noting that since the Cash Rate was cut to 2.5% we have seen average core inflation increase from 2.4% to 2.8%. As a result the “real” Cash Rate (adjusted by core inflation) has been negative for the past 3 quarters. The last time we saw a negative real Cash Rate was in 2009 following the slashing of the Cash Rate (from 7% to 3%) in response to the GFC. At that time average core inflation was still running some 0.5% above the RBA’s target, but by the time it fell below 3% again the Cash Rate had already been hiked to 4.5%. We are not expecting a hike from the RBA any time soon but certainly believe that the next move will be up (potentially by the end of this year).

The CPI data for Brisbane shows an increase of 0.6% q/q and +3.2% y/y.

Among the more interesting price changes for the year are:

Alcohol & Tobacco +7.1%; Education +5.1%; Insurance & Financial Services +1.0%; Communications -0.3% and Clothing & Footwear -0.6%.

Note that CPI is calculated using a basket of goods and services but is calculated ONLY in the capital cities and as such there may be significant differences when comparing price changes in the regions

Lest there is any doubt…what Stevens thinks about the A$

At a speech in Hobart today RBA Governor Glenn Stevens very clearly laid out his current thoughts on the strength of the A$.

“But lest there be any uncertainty about this, let me be clear, again, that the exchange rate remains high by historical standards. There is little doubt that significant parts of the trade-exposed sectors still find it quite ‘uncomfortable’: it continues to exert acute pressure for cost containment, productivity improvement and business model change. When judged against current and likely future trends in the terms of trade, and Australia’s still high costs of production relative to those elsewhere in the world, most measurements would say it is overvalued, and not by just a few cents. Of course, we live in unusual times, with interest rates at the ‘zero lower bound’ in several major jurisdictions. Nonetheless, we think that investors are under-estimating the likelihood of a significant fall in the Australian dollar at some point.” (my emphasis)

The full speech is available here.

The A$ has fallen about half a US cent in the past hour.