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Speaker 1: Welcome to Fear and Greed Q and A, where we

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Speaker 1: ask and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Michael Thompson and every Monday morning we are joined

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Speaker 1: by economist Stephen could Coolis to look at the week ahead.

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Speaker 1: You'll find him at the kook dot com that's t

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Speaker 1: g k o uk dot com and sharing his views

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Speaker 1: on LinkedIn as well. Stephen, good morning.

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Speaker 2: Good morning, Michael, Stephen.

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Speaker 1: It's a big week coming up. It's a short week

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Speaker 1: because we do have the The East Long weekend at

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Speaker 1: the end of the week, but it's also one of

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Speaker 1: those weeks where things are changing day by day because

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Speaker 1: of the crisis in the Middle East. I want to

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Speaker 1: start with one of the One of the things we

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Speaker 1: get this week is the minutes of the Reserve Bank

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Speaker 1: Board meeting from a fortnight ago. And this is going

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Speaker 1: to be really interesting because this was the split decision.

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Speaker 1: This was the five to four decision in favor of

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Speaker 1: increasing rates. And look, I don't know, are these the

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Speaker 1: most anticipated RBA minutes in a long time because of

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Speaker 1: the insight into that split.

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Speaker 2: You're quite right, Michael. Normally the minutes come out and

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Speaker 2: they're pretty much go through to the keeper, because we

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Speaker 2: know that the RBA Governor, Michelle Bullock, after each interstrate

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Speaker 2: announcement updown or steady, gives a press conference and she

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Speaker 2: talks to the media for a good forty five minutes

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Speaker 2: or so where she outlines a whole lot of information

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Speaker 2: that was covered in the board meeting discussing interstrate settings,

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Speaker 2: and because of that, the minutes come out. Oh yeah,

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Speaker 2: it's just a I won't be a rubber stamp of

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Speaker 2: her press conference in it. In a way. However, as

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Speaker 2: you said, this is the one that five people of

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Speaker 2: the nine member RBA Monetary Policy Board voted for higher rates,

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Speaker 2: four people voted against it. Now we don't know exactly

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Speaker 2: why this time around there was that split in the decision.

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Speaker 2: Suffice to say, it does appear as four people are worried,

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Speaker 2: and even the five we voted for the hike, for

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Speaker 2: that matter, are worried about the contractionary effects of the

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Speaker 2: oil price shock, the petrol shock that we're seeing it

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Speaker 2: petrol two seventy five, three dollars three twenty five a later. Goodness,

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Speaker 2: it does hurt, and it's a very instant hit to

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Speaker 2: household spending and consumer confidence.

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Speaker 1: And considering that was two weeks ago, right, that was

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Speaker 1: that was and things have deteriorated significantly since then. Suddenly

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Speaker 1: those four board members who voted against a hike maybe

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Speaker 1: go okay, maybe they were maybe they were under something.

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Speaker 2: Yeah, and we know from history of oil price shocks,

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Speaker 2: because there's been a few of them in the last

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Speaker 2: fifty odd years, is that and we're seeing this here already,

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Speaker 2: and this is the bordin. It's, by the way, one

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Speaker 2: of the first indicators that we've got that incorporates the

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Speaker 2: oil price shock, because all the data so far as

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Speaker 2: for February, you know, the price shock hadn't happened then,

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Speaker 2: and even March it was just sort of working its

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Speaker 2: way through. This is smart people, the nine members of

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Speaker 2: the RBA board discussing what do we do about it?

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Speaker 2: And we do know that when we consumers householders are

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Speaker 2: putting more money to drive the same distance. We're not

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Speaker 2: driving any further, but it's costing us more. We tend

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Speaker 2: to cut back spending elsewhere in the economy. The economy

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Speaker 2: slows down. We know from logistics that the oil shock

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Speaker 2: on agriculture, mining, airfares and air travel and the cost

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Speaker 2: of getting the goods to the supermarkets, to use that

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Speaker 2: sort of cliche example, but it's a very good example.

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Speaker 2: Is going up, and we consumers still have a long

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Speaker 2: memory of the effect of that high inflation in the

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Speaker 2: post COVID period. We didn't like it. We hunkered down,

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Speaker 2: and that's why I think there's this discussion that's going

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Speaker 2: to be revealed a little bit in these board And

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Speaker 2: this is continuing to this day. It's, as you said,

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Speaker 2: every day we're discussing this issue. The inflation effects are obvious. Yes,

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Speaker 2: consumer pricing next will go up, But what about the

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Speaker 2: implications for growth and therefore the unemployment rate?

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Speaker 1: Because next week, I think next week we get household

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Speaker 1: spending figures, but we'll discuss that kind of next week.

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Speaker 1: But in terms of being an effective handbrake on spending,

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Speaker 1: you put the oil price shock up against the two

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Speaker 1: interest rate hikes that we have now received so far

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Speaker 1: this year, and you'd have to say, the petrol prices

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Speaker 1: are going to do a heck of a lot of

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Speaker 1: work here in cooling things, in cooling growth, right they are.

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Speaker 2: And it's sort of a really curious thing. So when

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Speaker 2: you think about why is petrol such a hot button,

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Speaker 2: super hot button for consumers is and for the economy

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Speaker 2: more broadly, and we know this from the debate on

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Speaker 2: mortgage interest rates. Only a third of the population have

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Speaker 2: a mortgage, a third of people rent, a third of

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Speaker 2: people own a house without a mortgage, and a third

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Speaker 2: of people rent. So that's why it's that lumped instrument

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Speaker 2: that we talk about. And when there's been this discussion, oh,

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Speaker 2: why is it only the mortgage holders that are sort

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Speaker 2: of suffering pain when interest rates go up to cool

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Speaker 2: inflation down and the other two thirds of the household

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Speaker 2: sector get away scott free. We know that internal combustion

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Speaker 2: engine cars and transport and that broader inflation shock impacts

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Speaker 2: a much much larger part of the population. So that's

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Speaker 2: one of these things that you do actually get a

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Speaker 2: much bigger and broader hit to the economy. When petrol

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Speaker 2: prices go up, it impacts a higher percentage of the population.

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Speaker 2: And that's why, as we saw last week, some of

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Speaker 2: the A and Z Roy Morgan consumer sentiment numbers were

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Speaker 2: not just bad, they were outright depressing. They were rotten numbers.

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Speaker 1: Yeah, let's park that and we'll be keeping a very

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Speaker 1: close eye on the RBA minutes tomorrow when they are

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Speaker 1: released at. Building approvals is another one that we get

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Speaker 1: this week. It's one of those kind of forward looking

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Speaker 1: indicators that I don't want to be unkind to them,

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Speaker 1: but people often overlook them a little bit because it's

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Speaker 1: probably not as sexy, say as house prices. But what

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Speaker 1: does it tell us right now? What are we expecting

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Speaker 1: to see?

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Speaker 2: Building approvals are effectively the mechanism and the cumulative total

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Speaker 2: of when you or a building company turn a piece

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Speaker 2: of land into the approved dwelling, be it a freestanding

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Speaker 2: house high rise apartments. You need to get it approved

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Speaker 2: by your local council before you can dig the foundations

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Speaker 2: and start your building. So a couple of things there.

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Speaker 2: It's a very volatile number. The number of high rise

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Speaker 2: apartments from month to month can cause a big percentage

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Speaker 2: change month or a month. That's why they're volatile and

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Speaker 2: very hard to forecast. Secondly, we do want to see

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Speaker 2: the trend increasing over time because even aside from that volatility,

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Speaker 2: we have a housing shortage, so we need that number

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Speaker 2: to keep rising, even though in the last few months

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Speaker 2: it sort of dip back down. So we had that

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Speaker 2: encourage and growth through the latter part of twenty twenty five,

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Speaker 2: I need to sort of a bit of a brick wall,

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Speaker 2: part of the pump going into that. So we want

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Speaker 2: to see an increase coming through. And as you said,

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Speaker 2: it is a really potent leading indicator for housing construction

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Speaker 2: activity because you get the building approved and then in

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Speaker 2: the weeks and months ahead, yesh, you start digging the foundations,

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Speaker 2: you put up the bricks in the wall, and the

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Speaker 2: prefab window frames and all this sort of stuff. So

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Speaker 2: it is actually a great leading indicator for the construction sector.

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Speaker 2: And this week we want to see some sort of

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Speaker 2: rebound from the relative weakness that we've seen in the

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Speaker 2: last few months.

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Speaker 1: I mentioned house prices. Now we actually do get monthly

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Speaker 1: house prices this week. There's a lot of the heat

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Speaker 1: seems to have come out of the auction market lately.

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Speaker 1: How much do you think we're going to see that

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Speaker 1: then flowing through to house prices, and how much of

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Speaker 1: that is due to not just the two rate hikes

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Speaker 1: that we have seen, but really the expectation that they

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Speaker 1: were coming and the potential for more.

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Speaker 2: Yeah, just over the last few months we have seen

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Speaker 2: the rate of house price increase cooling off a little.

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Speaker 2: Now we know that there's a massive I want to

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Speaker 2: repeat massive divergence in the strong cities and the weak

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Speaker 2: cities in terms of house prices. Melbourne price is actually

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Speaker 2: down a little bit, not catastrophic, but they're just ticking

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Speaker 2: flat to down. I think we describe it as allowing

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Speaker 2: for that volatility. Sydney, the most expensive city in Australia,

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Speaker 2: has also shown signs of flattening out, so almost no

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Speaker 2: growth in house prices last four months or so. Then

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Speaker 2: we've got the boom cities Perth, Brisbane, Adelaide still booming,

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Speaker 2: but the rate of booming has declined, if that makes sense.

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Speaker 2: So price is still going up in those cities, but

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Speaker 2: not at the same pace. There's a little bit of

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Speaker 2: evidence that the rate of increase is cooling off a

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Speaker 2: little bit. And as you said, that affordability challenge. If

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Speaker 2: we get higher on ployment rate, that's not a good

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Speaker 2: thing for the house price side of the economy. But

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Speaker 2: for the here and now, the nationwide house price meat

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Speaker 2: is probably going to be up about point six percent,

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Speaker 2: down from the numbers that were around about one percent

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Speaker 2: per month back in the latter part of twenty twenty five.

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Speaker 2: And as I said, Sydney and Melbourne of the weaklings

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Speaker 2: at the moment in terms of house price changes. We'll

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Speaker 2: be looking at that with a huge amount of interest.

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Speaker 2: In as you said, the auction clearance rates have taken

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Speaker 2: a hammering in the early part of the year. Just

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Speaker 2: chuck in a couple of rate hikes and the petrol

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Speaker 2: price shock, and maybe we're in the early stages of

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Speaker 2: something of a house price pullback.

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Speaker 1: Last one, job vacancies, right, they're a really interesting one.

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Speaker 1: They do tend to lead the labor market. But number one,

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Speaker 1: how are they actually calculated? But to what else can

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Speaker 1: they tell us about the strength of businesses? For instance,

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Speaker 1: because you must have a certain amount of confidence if

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Speaker 1: you are a business going out there and advertising for

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Speaker 1: somebody to join you.

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Speaker 2: Correct. And I love the job vacancy series because it

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Speaker 2: is a guide to demand for labor. As you said,

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Speaker 2: if your business is sort of muddling along, you think

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Speaker 2: you need more stuff, but you say, oh, I'm not

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Speaker 2: going to put that ad on the internet to get

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Speaker 2: an extra staff member for my business. So it's a

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Speaker 2: sign of economic demand for workers. And so when job

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Speaker 2: vacancy is a rising and are booming, it's a sign

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Speaker 2: that the economy is strong. Oh, I need to advertise

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Speaker 2: to get more staff. My business is strong. I need

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Speaker 2: more workers to make my business function. So when they're up,

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Speaker 2: it's a sign that unemployment will come down. When they're falling,

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Speaker 2: it's a sign of softness in the economy. Now, that's

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Speaker 2: a long winded way of saying that for the last

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Speaker 2: couple of years, they have been tracking lower that the slow,

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Speaker 2: sluggish economy until recently we're sort of seeing demand for

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Speaker 2: labor weaken. The unemployment rate had ticked up a little

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Speaker 2: bit compared with two years ago, three and a half

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Speaker 2: to round about four and a quarter percent, and so

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Speaker 2: the economics worked. Love it when economics works. That sort

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Speaker 2: of The falling vacancies was in line with the softening

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Speaker 2: labor market. However, for this week's number there for February

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Speaker 2: again so predate the oil shock. We've seen in other

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Speaker 2: labor demand surveys from the private sector SEEK and the

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Speaker 2: A and Z Job Vacancy series, these sorts of indicators

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Speaker 2: that there has been a flattening out or even a

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Speaker 2: slight uptick in demand for labor. Again, it could just

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Speaker 2: be bouncing along the bottom sort of cliche, but we'll

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Speaker 2: be looking at these with a huge amount of interest

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Speaker 2: because if there is a little bit of a recovery,

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Speaker 2: actually says that the labor markets are quite resilient going

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Speaker 2: into what is a nasty shock from the oil price

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Speaker 2: and the petrol price.

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Speaker 1: It is going to be a very big week. Thank

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Speaker 1: you for taking us through it this morning, Stephen, Thank you, Michael.

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Speaker 1: That was Economist Stephen coucoulis better known as the Kok.

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Speaker 1: You can find him at the Kook dot com t

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Speaker 1: t k o uk dot com. Follow him on LinkedIn

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Speaker 1: as well, where he shares his insights. I'm Michael Thompson

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Speaker 1: and this is Beer and Greed Q and a