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Archive for October, 2012

Interest Rate cuts, provide significant stimulus to WA

Posted by cegan on October 13, 2012

The Interest Rate cuts have worked in some parts of the country and not others. ACT and WA who have the highest wages in the country and the lowest unemployment rates have seen significant growth in retail trade, housing construction and in Western Australia’s case the creation of nearly 20,000 jobs in the last two months as retail trades seven days a week. 

If you analyse the Labor Force Statistics from the ABS, they show as the Mining boom has cooled down, other industries are filling the gap. August saw retail grow by 1.4% in the month, or around $88 million dollars, the result was 8000 jobs, mainly female being added to the economy. While the Male employment rate roughly stayed the same. As the West pointed out in its coverage, retail spending has rebounded strongly on the West Coast. 

Here has been the catch 22 in regards to Perth, we have been stimulated by a massive mining boom that has pushed interest rates higher to prevent higher inflation within the economy. Which has impacted eastern states economies not going through the same mining boom. But as the mining boom has cooled off, the economies in the eastern states have been supressed for so long and they are in such a thrifty mode, that interest rate cuts have not worked in the states where wages have barely moved, unemployment has moved higher and the economy was already in a weakened state. 

However it has most definitely worked in Western Australia, First Homebuyers are flocking back to the market, retail spending is booming and job creation is growing faster than anywhere else in the country. If we look at the seasonally adjusted figures, the amount of new jobs created in Western Australia was only second to NSW on seasonally adjusted figures. 13,000 in NSW to 11,000 in WA. Participation rate has moved up to 69.1 in Western Australia, compared to 60.5 in Tasmania. 

So we have two Australia’s, one that is battling to respond to Interest Rate cuts and another that is. While clearly the mining boom in Western Australia is cooling, the extent of economies weakness in states such as Queensland and Tasmania (6.3% and 7.3% unemployment rates respectfully) will keep the WA economy booming in retail and construction. Employment and population growth continues to grow, which will then make it more attractive for migrants to move. 

So as interest rates continue to be cut to give a stimulus to the eastern seaboard, the retail, construction environment should see WA maintaining a sub 5% unemployment rate. Victoria’s economic growth in the 2000’s was largely credited to population growth. WA has both a population, mining stimulus and now a cash rate reduction. 

While in Queensland you lost 20,000 jobs and the amount employed is roughly the same as the GFC in 2009, unemployment rate similar to what there was during the worst of the recession in that state. Western Australia’s economic fundamentals are generally very good and enters a period of cash rate reductions at a time when the economy has not even flat lined. 

Higher wages play a part and a housing policy by the State Government when it got elected to deflate as much as it could the housing Prices. The Report of a Nation by the Local Government Association, credits the Governments infrastructure development, land creation policies to have encouraged young people from throughout the country to live in Western Australia. So demographics play a part, Western Australia is younger than the rest of the country, it has more people working, is more productive and have the money to have more kids. 

One of the negativities of Japan’s future economic growth is the view that its older demographics play a negative forecast for future economic growth. 

Even without mining, Western Australia’s economy will stay resillient in the next year due to the stimulus of having the rest of the country in a far worse shape than we are. 

Nearly 20,000 jobs created in 2 months is a sign of an economy that is expanding at a pretty impressive rate, while in Queensland they have lost 20,000 jobs in one month. Showing that mining is not the only pre-cursor to strong job creation. 

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