The Distillery: Split job

Scribes are divided on what Australia’s jobs numbers are telling us, while others examine the foreign takeover talking points around GrainCorp and WCB.

Wage growth, or lack thereof, has commentators pondering the broader impact on the stuttering Australian economy. One scribe suggests the lack of wages pressure is an indication the jobs market is worse than feared, while others mull the flow-on effect on inflation. Is deflation a major risk, and if so, can we do anything about it?

Meanwhile, views on the likely results of the two most talked about takeovers in Australia – GrainCorp and Warrnambool Cheese and Butter – are being altered on a weekly, and sometimes daily, basis. One jotter takes time out to highlight an irony missed amid all the GrainCorp chatter, while another outlines why the stoush for WCB isn’t over yet.

In the labour market, The Australian Financial Review’s economics editor Alan Mitchell wonders whether Labor’s industrial relations policy has seen some unexpected benefits.

“Did Kevin Rudd and Julia Gillard find the industrial relations equivalent of the magic pudding? Their Fair Work law used labour market regulation to increase the bargaining power of unions. The widely expected outcome was an improvement in wages and conditions for employees but at the cost of higher unemployment. But if Labor’s industrial relations law has made the labour market less efficient, it is not screaming out from the data.”

The Australian’s David Uren takes a different tact, suggesting the lowest annual wage growth since 2000 hints at a weaker jobs market than the current stats show. It may be a sign the low inflation rate is deeply entrenched.

“In the latest monetary policy statement, the Reserve Bank said inflation could rise into the top half of its 2 to 3 per cent target band if the Australian dollar repeated its fall from early this year, but this seems unlikely. The September quarter inflation figures were a little higher than many expected, but the surprising fall in wage growth shows there is no upward momentum at all in the biggest source of costs in the economy.”

The lack of inflation has caused many to speculate about the risks of deflation. The AFR’s David Bassanese isn’t convinced, however, that deflation is a risk to the Australian economy. If it were, he doubts we could stop it, but with little evidence of deflation around the world, it’s time for monetary policy to be tightened.

“Ostensibly, these global policies are in place to fight off the lingering risks of deflation – or falling prices. But only in Japan has deflation so far been evident, and even if deflation did become more widely entrenched in Europe and America, it is not clear this could or should be avoided through monetary stimulus. Indeed, to the extent extreme monetary stimulus has so far been successful in holding up consumer price inflation, it’s mainly been through pumping up asset prices and beggar-thy-neighbour currency devaluation.”

Indeed, there is a growing fear among investors that monetary policy has been kept too loose for too long and, given central bankers are erring on the side of caution with data that is often at least a month old, it’s a fair case to make.

In company news, the tension in the Coalition ranks over the GrainCorp takeover appears to be intensifying, leaving The Australian’s Andrew White to note an underappreciated irony: Labor is the only party calling for approval of the acquisition.

“Given the toxicity of its relationship with business in its final term in government, it's passing strange to hear opposition leader Bill Shorten and treasury spokesman Chris Bowen speaking so strongly in favour of the deal and in chorus with much of the business community. It's tempting to imagine that there must be some in the Coalition who just wish Archer Daniels Midland would take heed of the heated political debate and quietly go away, removing the need for them to make a decision that has unpalatable consequences whichever way they go.”

ADM, however, appears unlikely to be going anywhere soon.

The AFR’s Fleur Anderson sees both sides of the debate, with the national interest threatening to trump the economic argument. Still, Anderson contends the arguments shouldn’t be confined to the notion of ‘selling the farm’.

“One suspects those farmers opposing the acquisition by ADM must groan every time they hear a friendly politician lament Australia ‘selling the farm’ to foreigners. For those with skin in the game, foreignness is not the problem here. The extraordinary bidding war between Bega Cheese, Murray Goulburn Co-operative and Canadian rival Saputo for Warrnambool Cheese and Butter Factory shows it’s market clout and competition that matter, not xenophobia.”

Speaking of the dairy war, Canada’s Saputo has again found itself in the front seat to wrest control of WCB but, according to the Herald Sun’s Terry McCrann, the race is far from won. If it were a normal takeover battle, McCrann advises, then the unconditional bid from Saputo would have been the end of it. But given the desperation of the other suitors, there’s another chapter or two yet to be written.

The Australian’s Sue Neales, meanwhile, takes time to explain why the small dairy group is so highly sought after. It seems the Victorian company has three things going for it: a loyal group of suppliers, a great location and modern facilities. All of which belie the group’s low profit numbers.

So the week ahead promises to have another twist or two in this saga, with the latest rumours surrounding the prospect of yet another bid from Murray Goulburn. Given it is waiting on regulatory approval, Murray Goulburn still has the problem of buying time – and that is getting incredibly expensive.

In resources, The Australian’s Robin Bromby discusses the progress of commodity prices since the global financial crisis – and it’s not as pretty a picture as the sharemarket, with most metals well off their pre-crisis highs.

Still in resources, one man who knows all too well about the performance gap of equities and metals is former rich-lister Nathan Tinkler. The coal magnate’s wealth has dissipated, and with creditors closing in, Fairfax’s Michael West spotlights the history of the Newcastle local. Despite the two fortunes he has made, he may never have actually made a profit.

Another resources name facing its share of troubles is mining giant Rio Tinto. Its problems, far less worrisome than Tinkler’s, lie in Mongolia, where an impasse with the government shows no signs of abating, according to Business Spectator’s Stephen Bartholomeusz.

Finally, The Australian’s Judith Sloan takes aim at the new media venture from three Australian super funds, while Fairfax’s Elizabeth Knight presses on with analysis of the recent troubles at David Jones. It seems there are several investors ready to let their feelings of frustration known to the board at the retailer’s upcoming AGM.

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