SCOREBOARD: Boom backtalk

Inaccurate, irresponsible calls on the demise of the mining boom set the backdrop for this week's local data.

There’s been a lot of press, a lot of commentary about the end of the mining boom recently. A wild-eyed falsehood if ever I have heard one, based on nothing other than a serious misunderstanding of global growth dynamics and the commodity cycle more broadly. But, it does add to the significance of some Australian data out this week. For mine, prices will ebb and flow, but the broad underlying trend hasn’t changed. It’s not going to for quite some time.

Now this chatter reflects a problem that regular readers of Business Spectator would have been alerted to some years ago (in these very pages). And that is the bias in public discussion toward extreme and unjustified pessimism – a pessimism that is completely detached from reality. That this problem has gained more attention recently (this year) is only a good thing, but long overdue. So I welcome the Reserve Bank’s comments on Friday highlighting the issue. I differ with the RBA’s Guy Debelle on the root cause of it though, as job losses in the media are only a recent event. In contrast, the pessimism has been with us for years.

Moreover, the media has only been one component. So for instance media may have written and commented about it, but it wasn’t only journalists who kept repeatedly stating that Australia was suffering a "non-mining recession” or that "the whole eastern seaboard was in a recession”. Retail spending was the weakest in 50 years and property prices were going to collapse if you remember correctly. As for the steel industry, well our union leaders were only too eager to tell us that it was gone – "on the verge of collapse’.

So it wasn’t just media. That is a dangerous oversimplification. These were Australian economists, business and union leaders making these comments. The worst part of it was and as I noted at the time against considerable hostility (yes, I wept) there was never any evidence for it. Indeed members of the Reserve Bank board noted only late last year the "subdued demand conditions” when in fact the broad dataflow showed demand was strong and accelerating.

Remember all of this when you hear/read all the rot about the mining boom ending. It should be viewed in the same light as every other bit of pessimistic drivel that the nation has had to endure. At the very least it is very important that readers keep these events in mind when we get an update on Australian investment figures this week. So on Wednesday at 1130 AEST we get construction work done which is followed up by capex on Thursday at 1130 AEST.

Why? Business investment has a habit of being very volatile – or lumpy as its termed. The quarter-on-quarter fluctuations can be huge, which is what got economists, the RBA board and the commentators more broadly, into trouble in the December quarter. Recall at that time demand growth slumped to 0.2 per cent on the back of a 0.7 per cent fall in business investment. This naturally sparked all sorts of worry that the sky was falling – economists forgetting that it followed a spike the previous quarter.

The problem we face this time is that business investment in the March quarter was strong and business investment being what it is (volatile), the risks are we get weak investment for the June quarter. In an environment where people are talking about the end of the mining boom and we’ve had some high profile companies talking about how much investment they’re pulling in, this is likely to spark panic and heighten calls for the RBA to slash rates. We’ve already had the recession call. Currently, a slip in investment for the June quarter isn’t the forecast, but it is certainly the risk following a strong March quarter.

That’s the big Australian data for the week and it is an important one following recent commentary. Outside of the investment numbers we get building approvals on Thursday at 1130 AEST and then private sector credit on Friday at 1130 AEST.

Looking abroad, I suspect the key market event will be comments from Fed chair Ben Bernanke on Friday. It’s the Jackson Hole Symposium and rightly or wrongly, this is viewed as the podium from which Bernanke announces extreme policy decisions. QE3 is coming and there was another step in that direction when a letter that Bernanke had written to a US congressman was released, in which Bernanke said there was scope for more Fed action.

Prior to that, it’s worth watching out for house prices on Tuesday night, consumer confidence on Wednesday night, alongside a revised estimate of second-quarter US GDP (expected to be 1.7 per cent from 1.5 per cent). On Thursday morning we see the Beige Book alongside personal income and spending and the PCE deflator.

As for European data, the main releases are the German IFO survey tonight, followed by German inflation on Wednesday and unemployment on Thursday. Inflation for the EU follows on Friday.

That’s about the lot, hope you have a great week…

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

Follow
@AdamCarrEcon on Twitter.

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