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JobKeeper keeps on keeping

(Please note due to issues with the data dashboard we are not able to provide a direct link to the graphs used in this article. However most of these graphs can be accessed through the FWPA data dashboard).

 

The rapidly moving COVID economy continues to amaze. Recent GDP data for the June quarter shows a -7.0% decline in economic activity. To put this in historic context there is none. This is the largest fall since quarterly measurement began in 1959 with the previous record being -2.0% in the June quarter 1974.

However, that was good in global terms. Only 3 countries performed better with South Korea, Finland and Denmark recording economic contractions in the June Quarter of 3.2%, 4.5% and 6.9% respectively.

Rather than recession the economy appears to be in suspended animation as State and Federal governments in conjunction with the RBA provide stimulus measures which are facilitating unprecedented liquidity. Direct assistance in the June quarter reached $52.0 billion consisting of JobKeeper $31.0 billion, Boosting Cash Flow for Employers $16.0 billion and other COVID assistance from State Governments of $3.6 billion.

Profits are up as companies have been able to cut costs, assisted by JobKeeper, at a greater rate than falling sales income. By comparison, reflecting reduced hours worked, compensation of employees was down below 50% for the first time since September quarter 1959. However, the average payment to employees is up as part time and lower paid workers bear the brunt of the unemployment impact.

Household income rose 2.2% during the period. However rather contributing to consumption, this fell a record -12.1% and contributed 95%of the fall in GDP reducing the annual contribution to growth by -7.1%. Where did the money go? The inability to shop or concern about the future saw the household saving rate increased 19.8% the highest rate since 1974.

The more current Labourforce data for August shows hours working increasing 1.6 million or +0.1% as many States start to reopen. In Victoria, still under lock down, hours worked was down -4.8%. Overall, this had the benefit of reducing the official unemployment rate from 7.5% in July to 6.8% in August. Instinctively this seems a much greater shift than the activity data would suggest and reflects the positive impact of the JobKeeper program in keeping people on payrolls.

Other data defying gravity is the housing approvals for July. Total monthly dwelling approvals for July were 13,840 compared with 12,358 in June and some +6.3% greater than the same period 12 months ago. On an annualised basis total dwelling approvals were 171,880. This is very promising and in more normal times would suggest the pipeline of building activity is being backfilled.

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This strengthening result is also reflected in the housing finance data for July where lending to households for dwellings excl refinancing was $18.916 billion. This represented an annual change of +11.8% compared to $16.925 billion in July 2019 and a month on month change +8.9%.

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Against this background softwood timber sales from local production has continued to grow and was 3.08million m3 for the 12 months ending July 2020 a gain of +7.03% on July 2019.

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This contrasts with the decline in softwood imports from a peak of 918,627m3 year-ending December 2018 to a current level of 459,124m3 year-ending July 2020. It is clear imports continue to provide important flexibility in the supply chain. This reduction in apparent consumption is reflected in the building work done data series with preliminary results for the June quarter for new houses indicating a reduction of -5.5% on the previous quarter.

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Overall, the GDP data for June and the more recent economic data indicates is that the transfer payments from government are doing what was intended and supporting the economy during the COVID lockdown. However, the challenge for policy makers will be how to transition the economy to the new “COVID normal”. With this in mind all eyes will be on the Budget to be announced on 6 October. Time will then tell if progress at the macro level will continue to support demand for housing.

Posted Date: October 2, 2020

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