Australia splurges on Melbourne Cup all the while...

Melbourne Cup & Interest Rate Cut

First Tuesday of Novemeber each year is Melbourne Cup - the race that stops the nation.

Only 30 mins before the race begun, the Reserve Bank of Australia (RBA) cut the official interest rate by 75 basis points to 5.25%. This follows a string of bad news starting to filter out about the fragility of the Australia economy. Despite all signs pointing to a economic recession ahead for Australia, we managed to spend over A$100 million on the Melbourne Cup day, a record amount. The winner of the cup was Viewed - at odds of 41 to 1 - Perhaps the same odds of Australia and the world going through a mild world recession.

It was Only a couple of weeks ago the Australia Government announced a $10.4 billion economic stimulus package, and in doing so, halved the avaliable surplus. Could it be that Australia spent a lot of its stimulus package on the gallops today... and whats left over will help pay for Xmas pressies. Afterall, the Government wanted to stimulate the economy. Perhaps they have helped filled the pockets of the bookies instead, and we all know that will somehow help GDP and employment figures...

Bad news Monday (3rd Nov)

Performance of Manufacturing Index (PMI)

The AiG Performance of Manufacturing Index was released yesterday which showed the worst result for manufacturing in Australia for 16 years (since the PMI started in 1992).

Summary:

- this month’s result reflects a combination of the uncertainties and loss of confidence associated with the worsening of the global financial crisis, slower world growth, particularly in the developed economies, and weaker domestic consumer demand.
- These factors were reflected in declines across all components of the Australian PMI® in October. Production fell for the fifth consecutive month and more strongly than in recent months. This reflected the ongoing decline in new orders, which fell for the sixth consecutive month. In line with the easing of production, employment fell for the eighth month in October and at a more rapid pace.
- On the positive side, input and wages costs growth eased significantly in October, while selling price growth also eased solidly.
- Inventories and supplier deliveries fell markedly. Exports fell.
- Manufacturing activity fell in all states.

Housing prices suffer record quarterly fall

Also yesterday the Australian Bureau of Statistics (ABS) released housing activity for the September 2008 quarter.

Last (Sept) Quarter:

- House prices fell by 3.3 per cent in Brisbane, 2.5 per cent in Canberra, 1.9 per cent in Melbourne, 1.8 per cent in Sydney, 1.1 per cent in Perth and 0.1 per cent in Adelaide.
- House prices rose by 0.7 per cent in Hobart and 0.1 per cent in Darwin.

For the 12 months till end of September 2008:

- Perth recorded the biggest annual fall in house prices of any capital city in the year to the September quarter, down 4.1 per cent compared with a 2.8 per cent increase nationally.
- Brisbane's 12 month growth is 5.6 per cent.
- Adelaide has the strongest housing market, growing at 9.7 per cent over the year.
- Melbourne grew by 8.1 per cent over the last year.

So the longer term growth numbers still look rosey and distort the falls over the last 3 months. If the Sept Qtrly figures continue, we could see falls in housing prices across Ausrtralia of 10-15 per cent (mininium) by this time next year.

My next post will go into more detail about the outlook for housing in Australia and why debt levels are of a huge concern...

Cheers,
Scott

(Lets hope my gloomy economic predictions are wrong like my Melbourne Cup picks - Zipping and Mad Rush)