Malaga - Thanks. In response to your comments around Barnetts expansion plans, I'm not sure if you are leaning towards the argument that these large public works will absorb some of the construction labour coming off these major resource projects. In my opinion there are a few projects which will absorb some labour, for example the upcoming Gateway WA project, however not enough to make a dent in the numbers.
As with any public works you will see surrounding commercial/residential land values appreciate however with rising unemployment and a contracting gross state product I think these hypothetical gains will be offset with losses as you see across the board decline in property values across the Perth Metro due to a tanking of the state's economy.
You also mention You may be right, but I do not agree with 1000s going, there are still jobs here in other sectors. now, this chart below really shows you the undiversified foundations of Western Australia's economy.
Now, as you know, it doesn't take 10-20% rise in unemployment or a 20% contraction in GSP to cause mass chaos in a states economy. A 3-5% uptick in unemployment complimented with a 2-3 quarters of GSP contraction greater than -2% is enough to see an property tank, foreclosures skyrocket and doom and gloom to slip into the minds of the masses.
Doing simple napkin math you can see, from the chart above 10% of people employed in WA's economy are directly employed in Construction. 8.2% are directly employed in mining, now these numbers don't speak to the indirectly employed of these two industries, which for both these industries is around another 10-12%.
So rounding my napkin math up to say 30% of WA's employment is driven by the extraction of natural resources, or building things which are ultimately to be paid for by the extraction of natural resources. Now, referring back to my original post which shows the predicted hard landing for construction in WA it really is a red flag that some turbulence is about to hit the WA economy.
I know a great number of mainstream commentators love to use business confidence and the RBA cash rate as the indicators of the economic pulse of the nation but to me this is a far to simplistic view but I understand these things are the easiest economic concepts to understand by the masses as to how our economy is faring.
In my view, steer clear of these indicators as by the time any blip shows up in these forecasts the canary is already dead. For WA, given its economic profile my favourite three leading indicators are Capital Expenditure/Major Project forecasts (this city is built on men in hard hats), Job ads and passenger movements through our Airport (the key indicator showing if any layoffs are filtering through in the FIFO flights).
Now, further to my comments above regarding Iron Ore, Copper and Gold. As you can see below, Iron Ore is at the core of our economy, and if you refer back to the 12 month spot rate table I posted above, and my comments about $110/tonne in costs for some iron ore miners, we really should be worried.
As for some clarity on the numbers Exports of goods and services accounted for 53% of Western Australia’s GSP in 2011-12. Mining industry exports totalled $110 billion in 2011-12; 91% of the State’s merchandise exports. This reinforces my argument that WA isn't a diversified economy, we are all built on 3 main exports and building things.
Finally, on the Iron Ore issue, you can see below a graphical representation of my comments around Brazil bringing online new Iron Ore mines, and Australia's going in quite hard in ramping up production capacity. It ponders the question, will there be demand for this stuff? The forward swap rates suggest soft demand..
So, I've shown the Westpac and ANZ view of the world, one of the remaining pillars, NAB chimes in with its opinion and chart:
As you can see, you have a slight percentage growth in non-mining investment across the nation, however Glen Stevens has the property punters and average Joe on the street believing that its the non-mining sector that's going to save us all from the oncoming mining/energy industry collapse.
We simply aren't going to replace building mine sites and public infrastructure with houses, and anyone who still believes Stevens is a fool. Even if Stevens introduced ZIRP tomorrow, Australians have too much private debt, and bubble priced land values impeding the idea that we will have another property boom. That property horse was flogged to death last decade.
