Scoreboard: Growth watch

With the US market trading for only half the day following Thanksgiving, Friday’s session was non-descript. The S&P500 and Dow were both off about 0.1 per cent although the Nasdaq rose 0.4 per cent and closed at 4059.

About the most interesting news flow over the weekend concerned the Thanksgiving Black Friday sales. They were okay, with a 2.3 per cent lift annually, and the key pattern to emerge was the strong growth in online sales. Including ‘Cyber Monday’ sales, the National Retail Federation is expecting sales to be around 4 per cent higher than last year, which is pretty good.

Other than that, just note the Australian dollar sits at 0.9133 which is about 40 pips higher than Friday afternoon at 1630 AEDT, while gold rose about $13 to $1250 and crude (West Texas Intermediate) rose 0.5 per cent ($92.72).

Not the most exciting of weeks then really with commodities, the Australian dollar and stocks little changed. I suspect the action will pick up a bit more this week as it’s set to be a fairly big week in terms of the data flow. For me the domestic flow will be centre stage, although we do see some key US data as well – the US payrolls report (our Friday) and the ISM index (out tonight).

But the way I see things at the moment, the US jobs recovery is strong and the ISM index points to an acceleration in growth. Even if both of these indicators should stall this month, that doesn’t change the picture for me. I’d need to see sustained weakness in those indicators. Conversely, if they’re strong well that’s just same old, really – the US is experiencing one of the strongest recoveries on record, while the Fed and its lackeys, desperate to keep printing money, describe it as one of the weakest.

Now to the Australian data. This includes GDP on Wednesday, which is my key interest. The consensus at the moment is that GDP rose by solid 0.7 per cent. Yet annually GDP is expected to be 2.5 per cent higher, which is below trend but not for any of the reasons that get bandied around.

The consensus is that the economy is weak. I don’t subscribe to that view at all but I have to admit the recent data-flow – that is, the headline national accounts – doesn’t look good and doesn’t support my view. That doesn’t mean my view is wrong at this point though. One reason for that is it’s already abundantly clear that the reasons offered for the ‘weak’ Australian economy are not correct and there is no ambiguity here. That model is wrong.

Conversely, it’s fair to say that the balance of evidence suggests my non-consensus view is the correct one – certainly the partial indicators are behaving as my model predicts – but I need to see that in the national accounts. In the build-up to that print we get some more key – and highly volatile – partials, or building blocks, today and tomorrow. These include inventories, net exports and the government accounts.

My expectation for the government accounts is that they’ll be weak – perhaps very weak – in order to offset some of the strong private sector demand figures we’ve seen. I should note that it’s also worthwhile keeping an eye on building approvals, house prices and TD’s inflation gauge today. Retail sales are out tomorrow.

The Reserve Bank’s meeting (decision on Tuesday 1430 AEDT) is, for me, less interesting. No one is looking for them to cut and recent statements don’t point to a near-term easing. In the RBA board’s own words: “given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate”.

The board is at the moment trying to juggle an exchange rate target with the surge in housing momentum – a problem of its own making and an unnecessary one. But with that in mind, housing is picking up sharply and the currency is weaker at 0.9132 – no cause for them to cut then. Otherwise, what can they say? We already know the global and domestic economies are accelerating and yet the Reserve Bank recently revised its growth forecasts down. It won’t change that view quickly.

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

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.