Get Ready for the Full-Employment Recession
Kanebridge News
    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,614,335 (+0.67%)       Melbourne $994,236 (-0.05%)       Brisbane $963,341 (+1.45%)       Adelaide $854,556 (-1.91%)       Perth $827,309 (-0.33%)       Hobart $759,718 (-0.29%)       Darwin $667,381 (+0.62%)       Canberra $1,007,406 (-0.44%)       National $1,037,260 (+0.22%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $750,961 (+0.91%)       Melbourne $497,942 (-0.57%)       Brisbane $535,693 (+0.31%)       Adelaide $419,051 (-1.28%)       Perth $437,584 (-0.67)       Hobart $516,868 (-0.64%)       Darwin $347,954 (-4.64%)       Canberra $497,324 (-0.10%)       National $524,930 (-0.09%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 10,416 (-208)       Melbourne 14,951 (-211)       Brisbane 8,223 (+52)       Adelaide 2,527 (+10)       Perth 6,514 (+149)       Hobart 1,343 (+29)       Darwin 248 (-7)       Canberra 1,065 (+22)       National 45,287 (-164)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,842 (+1)       Melbourne 8,108 (+15)       Brisbane 1,720 (+26)       Adelaide 459 (+19)       Perth 1,750 (+6)       Hobart 209 (+4)       Darwin 403 (+1)       Canberra 928 (+7)       National 22,419 (+79)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $790 (+$10)       Melbourne $600 ($0)       Brisbane $630 ($0)       Adelaide $620 (+$20)       Perth $660 ($0)       Hobart $550 ($0)       Darwin $700 ($0)       Canberra $690 (-$10)       National $662 (+$2)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $590 ($0)       Brisbane $625 ($0)       Adelaide $480 (+$5)       Perth $590 (-$5)       Hobart $470 ($0)       Darwin $550 (+$15)       Canberra $565 (-$5)       National $589 (+$1)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,061 (-35)       Melbourne 5,308 (+108)       Brisbane 3,854 (+1)       Adelaide 1,161 (-25)       Perth 1,835 (+6)       Hobart 376 (-10)       Darwin 138 (+1)       Canberra 525 (-5)       National 18,258 (+41)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 6,806 (-66)       Melbourne 4,431 (+62)       Brisbane 1,997 (-30)       Adelaide 323 (-15)       Perth 609 (+30)       Hobart 153 (+3)       Darwin 210 (-15)       Canberra 537 (+30)       National 15,066 (-1)                HOUSE ANNUAL GROSS YIELDS AND TREND       Sydney 2.54% (↑)      Melbourne 3.14% (↑)        Brisbane 3.40% (↓)     Adelaide 3.77% (↑)      Perth 4.15% (↑)      Hobart 3.76% (↑)        Darwin 5.45% (↓)       Canberra 3.56% (↓)     National 3.32% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND         Sydney 5.19% (↓)     Melbourne 6.16% (↑)        Brisbane 6.07% (↓)     Adelaide 5.96% (↑)        Perth 7.01% (↓)     Hobart 4.73% (↑)      Darwin 8.22% (↑)        Canberra 5.91% (↓)     National 5.84% (↑)             HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.8% (↑)        Melbourne 0.7% (↓)     Brisbane 0.7% (↑)      Adelaide 0.4% (↑)        Perth 0.4% (↓)     Hobart 0.9% (↑)        Darwin 0.8% (↓)     Canberra 1.0% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)        Melbourne 1.1% (↓)     Brisbane 1.0% (↑)      Adelaide 0.5% (↑)      Perth 0.5% (↑)        Hobart 1.4% (↓)     Darwin 1.7% (↑)      Canberra 1.4% (↑)      National 1.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND       Sydney 25.8 (↑)      Melbourne 26.6 (↑)        Brisbane 26.8 (↓)     Adelaide 22.5 (↑)      Perth 31.4 (↑)      Hobart 24.3 (↑)        Darwin 26.7 (↓)     Canberra 25.5 (↑)        National 26.2 (↓)            AVERAGE DAYS TO SELL UNITS AND TREND       Sydney 24.5 (↑)      Melbourne 25.5 (↑)      Brisbane 26.1 (↑)      Adelaide 23.6 (↑)      Perth 31.2 (↑)      Hobart 24.6 (↑)      Darwin 38.8 (↑)      Canberra 28.0 (↑)      National 27.8 (↑)            
Share Button

Get Ready for the Full-Employment Recession

Job growth is soaring yet output is falling, by one measure. Blame a historic slump in productivity.

By GWYNN GUILFORD
Mon, Jun 5, 2023 8:39amGrey Clock 4 min

You would think from May’s blowout jobs report the economy was booming.

Here’s the puzzle: Other recent data suggest it is in recession.

The dichotomy emerges from the divergent behaviour of employment and output, two key indicators of economic activity.

In May, employers added 339,000 jobs, bringing the total number of jobs added this year to nearly 1.6 million, a gain of 2.5% annualised.

But real gross domestic income, a measure of total economic activity, shrank in both the fourth quarter and the first quarter. Two negative quarters of output growth are one indicator of a recession.

The economy has gone through periods where output has expanded faster than employment, but seldom the other way around, said Ryan Sweet, chief U.S. economist at Oxford Economics.

What explains these dissonant signals is productivity, or output per hour worked: It is cratering. That raises questions about whether the much-hyped technology adoption during the pandemic and, more recently, artificial intelligence are making a difference. It also raises the risk that the Federal Reserve will have to raise interest rates more to tame inflation.

Labor productivity fell 2.1% in the first quarter from the fourth at an annual rate, and was down 0.8% in the first quarter from a year earlier, the Labor Department said Thursday. That is the fifth-straight quarter of negative year-over-year productivity growth—the longest such run since records began in 1948.

Those calculations are derived from gross domestic product, which shows output rising at a 1.3% annualised rate in the first quarter. But another key measure—gross domestic income—declined, implying an even bigger productivity collapse.

GDI is the yin to GDP’s yang, measuring incomes earned in wages and profits, while GDP tallies up purchases of goods and services produced. In theory, the two should be equal, since someone’s spending is another’s income.

They never exactly match because of statistical challenges. Lately, though, the divergence is dramatic. “Over the past two quarters, real GDP shows the economy expanding by 1.0%, not far off potential growth, whereas GDI shows it contracting by 1.4%, which amounts to a decent-sized recession,” said Paul Ashworth, chief U.S. economist at Capital Economics. The divergence is ominous: GDI previously undershot GDP dramatically during the 2007-09 financial crisis and in the early 1990s recession, Ashworth said.

The second quarter is also shaping up to be weak. S&P Global Market Intelligence sees second-quarter real GDP expanding at a 0.8% annual rate; Morgan Stanley projects 0.3%. The Atlanta Fed’s GDPNow model estimates 2%. Most economists don’t forecast GDI.

Usually, employment plummets during recessions because as factories, offices and restaurants produce less, they need fewer workers. That clearly isn’t happening. “If you look at the early 2000s, that was what was called a ‘jobless recovery,’ because employment took a long time to come back even though the economy was growing,” said Sweet. “This time around it could be the opposite—the economy could be contracting, but you’re not seeing job losses.”

One reason could be labor hoarding. After struggling to hire and train workers during the pandemic-induced labor crunch, employers are now balking at letting them go, even as sales slip, given the labor market’s unusual tightness. There were 10.1 million vacant jobs in April, well above the 5.7 million people looking for work that month. Some firms—particularly services such as restaurants and travel-related businesses—ran short-staffed for the past couple of years and are still catching up.

A possible sign of this is hours worked per week, which in May fell slightly below the 2019 average, after having surged during the pandemic. This drop has been particularly sharp in retail and leisure-and-hospitality—industries that have been especially strapped for workers. The unemployment rate also rose in May, one sign of a potential cooling in the labour market.

It’s “not that technology got worse in the last year, but that businesses were selling less stuff and they’re nervous about their ability to attract employees, so they’re holding on to their employees,” said Jason Furman, an economist at Harvard University who served in the Obama administration. It is also plausible, he said, that the shift to working from home generated a hit to productivity, whose impact grows with the cumulative loss of creative exchange and mentoring.

Productivity growth is important in the long run because it is one of two engines of economic growth, the other being an expanding workforce. Sweet, the Oxford Economics economist, notes businesses have been spending on equipment, software and intellectual property, investments that should eventually raise productivity. Though it may take many years, so should recent advances in artificial intelligence.

A more imminent concern is that when workers produce more, companies can raise wages without increasing prices. When productivity falls, it is harder to keep inflation in check.

This could make things even more challenging for the Fed. “Companies probably have the ability to pass on higher prices to consumers if they want to,” said Neil Dutta, head of economic research at Renaissance Macro Research. “That would be problematic for the Fed.”

Moreover, if GDI is a better indicator of output than GDP, “it would mean that the economy has slowed more than we had thought, without bringing down inflation that much,” Furman said. That might mean it will ultimately take an even bigger economic pullback “to bring inflation down.”



MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Money
The 7 lasting impacts of COVID for Australian investors
By Bronwyn Allen 29/03/2024
Money
Australia’s February Inflation Comes in Lower Than Expected
By JAMES GLYNN 28/03/2024
Money
Taylor Swift Joins Elon Musk on Global Billionaire Rankings
By Michael Kaminer 27/03/2024
The 7 lasting impacts of COVID for Australian investors

A leading Australian economist says two years on, the long term implications of COVID for the economy have emerged

By Bronwyn Allen
Fri, Mar 29, 2024 3 min

AMP chief economist Dr Shane Oliver says the effects of the pandemic continue to reverberate across the world, with seven key lasting impacts leading to a more fragmented and volatile world for investment returns”.

Perhaps the biggest impact is that the pandemic related stimulus broke the back of the ultra-low inflation seen pre-pandemic,” said Dr Oliver. Together with bigger government and reduced globalisation, this means a more inflation-prone world. So, a return to pre-pandemic ultra-low inflation and interest rates looks unlikely.

Here is a summary of Dr Oliver’s explanation of the seven key lasting impacts of COVID for investors.

1. Bigger government

The pandemic added to support for bigger government by showcasing the power of government to protect households and businesses from shocks, enhancing perceptions of inequality, and adding support to the view that governments should ensure supply chains by bringing production back home. IMF projections for government spending in advanced countries show it settling nearly 2 percent of GDP higher than pre-COVID levels.

Implications for investors: likely to be less productive economies, lower than otherwise living standards and less personal freedom.

2. Tighter labour markets and faster wages growth

After the pandemic, labour markets have tightened reflecting the rebound in demand post-pandemic, lower participation rates in some countries and a degree of labour hoarding as labour shortages made companies reluctant to let workers go. As a result, wages growth increased, possibly breaking the pre-pandemic malaise of weak wages growth.

Implications for investors: Tighter labour markets run the risk that wages growth exceeds levels consistent with two to three percent inflation.

3. Reduced globalisation

A backlash against globalisation became evident last decade in the rise of Trump, Brexit and populist leaders. Also, geopolitical tensions were on the rise with the relative decline of the US and faith in liberal democracies waning ... The pandemic inflamed both with supply side disruptions adding to pressure for the onshoring of production [and] heightened tensions between the west and China we are seeing more protectionism (e.g.,with subsidies and regulation favouring local production) and increased defence spending.

Implications for investors: Reduced globalisation risks leading to reduced potential economic growth for the emerging world and reduced productivity if supply chains are managed on other than economic grounds.

4. Higher prices, inflation and interest rates

Inflation [due to stimulus payments to households and supply chain disruptions] is now starting to come under control but the pandemic has likely ushered in a more inflation-prone world by boosting bigger government, adding to a reversal in globalisation and adding to geopolitical tensions. All of which combine with ageing populations to potentially result in higher rates of inflation.

Implications for investors: Higher inflation than seen pre-pandemic means higher than otherwise interest rates over the medium term, which reduces the upside potential for growth assets like shares and property.

5. Worsening housing affordability

the lockdowns and working from home drove increased demand for houses over units and interest in smaller cities and regional locations. As a result, Australian home prices surged to record levels. Meanwhile, the impact of higher interest rates in the last two years on home prices was swamped by housing shortages as immigration surged in a catch-up. The end result is now record low levels of housing affordability for buyers

Implications for investors: Ever worse housing affordability means ongoing intergenerational inequality and even higher household debt.

6. Working from home

There are huge benefits to physically working together around culture, collaboration, idea generation and learning but there are also benefits to working from home with no commute time, greater focus, less damage to the environment, better life balance and for companies lower costs, more diverse workforces and happier staff. So the ideal is probably a hybrid model.

Implications for investors: Less office space demand as leases expire resulting in higher vacancy rates/lower rents, more people living in cities as vacated office space is converted, and reinvigorated life in suburbs and regions.

7. Faster embrace of technology

Lockdowns dramatically accelerated the move to a digital world. Many have now embraced online retail, working from home and virtual meetings. It may be argued that this fuller embrace of technology will enable the full productivity-enhancing potential of technology to be unleashed. The rapid adoption of AI will likely help.

Implications for investors: a faster embrace of online retailing at the expense of traditional retailing, virtual meeting attendance becoming the norm for many and business travel settling at a lower level.

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Money
The Reason the Office Isn’t Fun Anymore
By RAY A. SMITH 18/01/2024
Lifestyle
How Much Caffeine You Should Actually Have—and When
By SUMATHI REDDY 11/01/2024
Lifestyle
A Flurry of Bidding Has Started on a Mint Condition Spider-Man Comic
By LIZ LUCKING 22/12/2023
0
    Your Cart
    Your cart is emptyReturn to Shop