New ABS figures show two of the four pillars are crumbling – agriculture & mining

New quarterly employment by industry data confirm falling employment levels in two of the so-called four pillars of the Queensland economy: agriculture and mining (see chart below). Regarding the other two pillars, construction employment appears flat and the ABS does not report tourism employment figures quarterly, because, technically, tourism isn’t an industry, but a category of expenditure.

twopillarsIncidentally, regarding tourism employment numbers that have been generated in the past, the tourism minister has apparently been using incorrect data to talk up the sector, as reported in the Brisbane Times today. Well done to Far North bloggers Pete Faulkner and Mark Beath for having spotted the incorrect data in the first place (e.g. see Pete’s post at his Conus blog).

For more on the Government’s four pillars plan, see my post from last week:

ABC radio interview on unemployment, the 4% target and the four pillars plan

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ABC radio interview on asset leases

At a BDO economic outlook breakfast I attended at the Brisbane Convention Centre this morning, Treasurer Tim Nicholls announced that the Government would consider asset leases as an alternative to the previously announced sale of the power generators and the (weird) non-share equity interests in Energex, Ergon and Powerlink (see my previous criticism of non-share equity interests in Government should just sell Energex, Ergon and Powerlink). I would prefer the originally proposed sale, rather than the long-term lease of the power generators, because I expect selling them would raise more money and would allow the operators to fully realise efficiency gains. However, leases of electricity distribution and transmission network assets currently on the books of the government-owned Energex, Ergon and Powerlink are probably a better option than the non-share equity interest alternative, which I thought was a weird, slightly tricky financial instrument.

As I’ve commented before, my feeling is that we’d be better off selling all of the assets. But leasing assets over a very long-term (e.g. 50 years) gets us a large part of the way toward private ownership, even if it isn’t perfect and there is always the risk of government interference down the track. The Government is still putting up a proposal that should yield significant efficiency gains (i.e. long-term leases), even though those gains may be lower than if the assets were sold. Unfortunately, Strong Choices was a weak, uninformative and unconvincing campaign (see my post Failure of Strong Choices now obvious), and the Government has had to accept political reality and find alternatives for politically toxic though economically desirable asset sales.

I more or less made these points in my interview with Rebecca Levingston on 612 ABC Brisbane this afternoon:

What to do with asset leases

Posted in Budget, Energy | Tagged , , , , , , , | 2 Comments

Vehicle sales affected by weak consumer confidence & Gen Y habits

vehiclesales_Aug14New motor vehicle sales in Queensland in August were almost 9% lower than in August 2013, according to ABS data released yesterday. There are at least three contributing factors:

  • persistently weak consumer confidence (see Consumer sentiment slumps as budget worries weigh),
  • members of Generation Y having lower rates of car use and ownership than members of earlier generations at the same age (see the Urbanist on Why is Gen Y driving less?), partly because many of them live in the inner city, so they’re less likely to buy new cars as they start to earn money, and
  • baby boomers retiring and economising.

Given the importance of demographic factors, it’s possible new car sales won’t rebound strongly when the economy eventually improves. With lower rates of car ownership, I expect we’ll see increased demand for public transport and apartments in the inner city, so perhaps all those apartment towers being built in inner city Brisbane will be needed after all.

Posted in Brisbane, Housing, Transport | Tagged , , , , , , , | 4 Comments

If you want to understand the East Coast gas market, come to this presentation

With the first LNG exports from Curtis Island off Gladstone expected later this year, it is timely to consider what the linkage of our domestic gas market to the international market will mean for gas prices in Australia. A Grattan Institute study, Getting Gas Right, has found increases of more than 80% in wholesale gas prices may result. This will have significant impacts on industrial users of gas. For example, the anticipation of this gas price increase has led Stanwell to re-commission a coal-fired generator at Tarong, as the economics of coal-fired power production have improved relative to gas-fired power production (see Electricity providers return to coal-fired power as natural gas export revenue soars). Also, households will face significant increases in gas prices, although the proportionate price rise will be less than the wholesale price rise because the gas itself contributes only a fraction of the cost of supplying gas to households. The Grattan Institute study found that Queensland household gas bills may rise up to $60 per year.

Given these significant developments arising from imminent LNG exports, it seems appropriate that the Queensland Branch of the Economic Society of Australia, of which I’m Deputy Secretary, would schedule a presentation next month from a leading energy economist, Dr Liam Wagner, on the East Coast gas market:

Australia is in a key geographic and strategic position to supply a sizable proportion of the region’s LNG demand, and potentially be the world’s largest supplier. The impending entry of the Eastern States of Australia as exporters of LNG will also bring previously quite cheap domestic gas up to parity with international prices. Current trends in the development of the natural gas industry, particularly in Western Australia, have shown that the internationalisation of prices can have a significant impact on electricity prices and the availability of gas for industrial users. This seminar will outline the model ATESHGAH, purpose built for Australia’s natural gas markets to examine the effects that agent-based behaviour may have on Australia’s Energy Markets.

I hope you will be able to attend this lunchtime event, to be held at Morgans at the Riverside Centre, Brisbane on Wednesday 15 October 2014. Having worked with Liam in the past, I’m sure it will be very informative and insightful.

LiamInformation on the event including how to register is available on the ESA Qld website.

Posted in Energy, Gladstone, Mining | Tagged , , , , , , , , | 2 Comments

ABC radio interview on unemployment, the 4% target and the four pillars plan

I was interviewed this morning by Steve Austin on 612 ABC Brisbane regarding yesterday’s unemployment figures, particularly what they mean for the Government’s four pillars plan and its 4% unemployment rate target:

Jump in employment questioned

I reiterated the point I made in my blog post yesterday (4% unemployment rate target looking much less achievable now) about the difficulty of achieving and sustaining the Government’s 4% unemployment rate target. I also tried to make the points, not as lucidly as I would have wished, that:

  • the unemployment rate is determined by a lot of factors outside of the State Government’s control (e.g. monetary policy set by the RBA is obviously important, as is the growth of our major trading partners), and
  • the four pillars plan isn’t really a detailed economic strategy but more of a rhetorical device to show the Government’s commitment to what it sees as important sectors – the sectors that it expected (incorrectly, it now appears) to generate a large number of jobs. Hence, I don’t think it makes much sense to evaluate whether the four pillars plan is successful. It makes more sense instead to evaluate the Government’s budget strategy and red tape and green tape reduction strategies, for example, which are more specific than the high-level four pillars plan.
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4% unemployment rate target looking much less achievable now

With Queensland’s unemployment rate at 6.7%, compared with 5.8% one year ago, debate has resumed over the Government’s pledge to reduce unemployment to 4% within two terms (see the Courier-Mail’s coverage). I’ve previously commented that, when the promise was made, it was technically achievable, but probably not sustainable for very long (see The 4% unemployment rate target – achievability vs sustainability). Now with the unemployment rate more than one percentage point higher than when the Government took office in March 2012, there are doubts about whether 4% would be achievable by the end of the Government’s next term (assuming it’s re-elected). As you can see from the historical data in the chart below, the unemployment rate can take a long time to fall from a peak.

unemployment_since_78The unemployment rate can take a long time to fall because there is a hard core of unemployed people who find it hard to get jobs even when conditions are good, and because, as the labour market improves, people marginally attached to the labour force (e.g. some stay-at-home mums) come back in looking for work. Unemployment goes up in an elevator, but comes down on an escalator – as I recall PM John Howard saying in an interview once.

The chart also shows just how far below the historical average of the unemployment rate the 4% target is. Even allowing for economic reforms that have improved the functioning of the labour market – by calculating the average over the last twenty years instead of since 1978 – a 4% unemployment rate looks very difficult to reach and sustain.

Commentary on today’s labour force data by other Queensland bloggers includes:

Aussie jobs surprise

The trend is your friend

 

Posted in Labour market | Tagged , , , , | 2 Comments

Qld tourism continues to under-perform

Evidence continues to mount on the failure of Queensland’ tourism promotion policies, which I’ve commented on before (TEQ deserved funding cut – no turnaround in share of international visitors). New Tourism Research Australia data shows that, while domestic tourism (Australians traveling in Australia) is growing nicely at a national level, it experienced negligible growth in Queensland in 2013-14 (see the chart I’ve taken from TEQ’s Domestic Tourism Snapshot below). The data also suggest a decline in total tourism expenditure in Queensland (p. 1 of the Snapshot).

Tourism_June_14 Pete Faulkner commented on the new data upon their release yesterday:

More bad tourism news for Queensland

The under-performance of tourism is a concern given it is one of the so-called four pillars of the Queensland economy, and is especially important in some regions, such as the Gold Coast and Far North. The under-performance also raises questions about whether the $100 million spent on Tourism and Events Queensland might be better spent. I’m therefore glad that the Productivity Commission’s new research project on tourism will consider “the role of government, including the rationale for government involvement in the tourism industry.” I expect the Commission will find very little rationale exists.

 

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