Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz.
I am Leon Gettler. My job is to review and monitor the week’s news in business, finance, and economics. I bring it all to you, every week.
This is episode number thirty-two in our series for 2019 and today’s date is Friday September 6.
First I’ll be talking to Peter Nguyen-Brown, co-founder and executive director of independent software vendor LiveTiles, looking at their special innovation to create a healthier workplace. And I’ll be talking to CommSec chief economist Craig James looking at what’s ahead in the week for markets.
But first, let’s talk to Peter Nguyen-Brown.
China and the United States have begun imposing additional tariffs on each other’s goods, the latest escalation in a bruising trade war despite signs talks will resume sometime this month. China has begun to impose additional tariffs on some of the US goods on a $US75-billion ($A111 billion) target list. The extra 5% and 10% tariffs were levied on 1,717 items of a total of 5,078 products originating from the US. Meanwhile, the US imposed 15 percent tariffs on a portion of the $300 billion ($A445 billion) in goods from the Asian giant that so far has been spared.
US President Donald Trump on Friday ruled out any further postponement. “They’re on,” he told reporters. The new tariffs will target a range of products, from foodstuffs (ketchup, butchered meat, pork sausage, fruits, vegetables, milk, cheese) to sports equipment (golf clubs, surfboards, bicycles), to musical instruments, sportswear, and furniture, according to an official list. Economists at the Washington-based Peterson Institute for International Economics estimate $112 billion in goods will be affected. The trade war touched off by Trump more than a year ago received its latest jolt last week with the US announcement that all Chinese goods would be subjected to tariffs by the end of this year.
The outlook for China’s manufacturing sector deteriorated further in August, underlining the weakness in the domestic economy just as a new round of tariffs kicks in. The manufacturing purchasing managers’ index dropped to 49.5, according to data released by the National Bureau of Statistics on Saturday, with sub-gauges showing that domestic and new overseas orders contracted.
Treasurer Josh Frydenberg concedes the nation’s economic growth for last financial year will be poor but believes activity will pick up in the September quarter because of cuts to income taxes and interest rates. The Treasurer blamed several factors for what will be a sluggish quarter, including the election campaign. Mr. Frydenberg said seven of the 12 weeks of the June quarter were occupied by the election, including the five-week campaign and period afterward until the writs were issued. He urged people to “look through” the June numbers to the September quarter which will incorporate the effects of the income tax cuts which came into effect on July 1, as well as the June and July interest rate cuts by the Reserve Bank of Australia.
And sure enough, economic growth sank to 0.5% during the final three months of the 2019 financial year, leaving annual growth at 1.4% – the slowest rate since 2009, in the wake of the GFC. The gross domestic product data follows a spate of disappointing economic figures in recent months, including a slump in-home approvals, falling business investment, and weak retail sales
This was signaled by worrying figures about the Australian economy from business indicator data. ABS data revealed the operating profits of Australian companies surged 4.5% between the March and June quarters — more than doubling what the market had expected. This equates to a 12.5% boost in annual profit since June 2018. However, a deep dive into those figures show that it was the mining industry that, by far, did the heavy lifting. Companies in the mining sector saw their quarterly profits lift 10.9%, and yearly profits surge by 31.9%. In contrast, profits for non-mining companies rose very slightly (+0.3%) during the June quarter, but it was a relatively small annual gain since June last year (+1.5%). Business inventories fell 0.9%.
Retail sales fell 0.1% in July, disappointing consensus forecasts and defying stimulatory measures like record low-interest rates and income tax cuts. Turnover fell in everywhere except for increased sales in the Northern Territory and Western Australia, according to the Australian Bureau of Statistics.
The Reserve Bank of Australia has held the official cash rate at 1% but has warned that softer economic conditions and heightened global economic uncertainty could bring forward further rate cuts. Financial markets did not expect a further 0.25 percentage point interest rate until November and had priced in a 75% probability of a cut in October.
Australia has recorded its first current account surplus since 1975, posting a $5.8 billion surplus. But this was on the back of booming exports of iron ore and coal. Another record trade surplus of $19.8 billion turned the current account from a deficit of $2.9 billion in the March quarter to a surplus of $5.8 billion, a turnaround of $6.9 billion. The result far exceeded the consensus of economists for a $1.5 billion surplus.
After rising for two consecutive months, ANZ Job Ads fell 2.8% in August. This pushed the annual decline down to -11.4%. In trend terms, job ads fell -0.5% m/m and -11.2% y/y.
The Australian Industry Group Australian Performance of Manufacturing Industry (PMI) rose by 1.8 points to 53 points, indicating a more convincing expansion. Results above 50 points indicate expansion with higher results indicating stronger growth in the month. Manufacturing improved in August with higher levels of production and rising exports. Demand from defence and mining lifted the machinery and equipment sector into expansion but the metals sector and other heavy industrial manufacturers are still reporting tough conditions.
The food and beverages sector is still growing but recorded its lowest monthly result since November 2016, with some respondents noting higher prices and lower availability and quality of raw agricultural inputs because of the drought. Overseas demand for Australian manufactured products remains strong, particularly for consumable manufactured products. The main weights on the index this month were employment, which dropped 1.8 points to 51.4, and capacity utilisation, which fell 2.4 percentage points to 78.9.
On the plus side, the Reserve Bank’s back-to-back interest rate cuts have super-charged the Sydney and Melbourne property markets with house values in the nation’s two largest cities surging in August. The monthly CoreLogic report on the national property market showed house values in Sydney lifted by 1.5% last month. Over the past three months, values have climbed by 1.6%. There is a similar situation in Melbourne where house values increased by 1.3% in August to be 1.6% higher over the past three months. Unit values in the two cities also jumped.
In Sydney they increased by 1.8% to be 2.5% higher over the quarter while in Melbourne they improved by 1.5% in August to be 2.4% better over the quarter. No other capitals came close, with Canberra (+0.8%), Hobart (+0.5%) and Brisbane (+0.2%) the other cities posting gains, while Darwin (-1.2% ), Perth ((-0.5%) and Adelaide (-0.2%) continued their declines. Regional markets outside the capitals also lagged, with prices falling an average of 0.1%. CoreLogic’s research director Tim Lawless said buyer demand and confidence was responsible for the lift in values as people took advantage of the RBA’s recent interest rate cuts and the Morrison government’s personal income tax reductions.
Health giant Bupa is the latest insurer to take a scalpel to its operations, implementing a round of job cuts intended to offset some of the rising health care costs which are squeezing funds across the industry. The UK-headquartered group commenced a round of redundancies in Australia two weeks ago in which about 100 jobs will go, mostly in head office, support and middle management roles.
German supermarket powerhouse Kaufland has finally revealed details of its aggressive expansion plans for Australia. Coles and Woolworths are worried. But so is Aldi which, like Kaufland, is a German global grocery goliath. The international retailer’s move into the local market has been quietly ticking away for months but this week it confirmed it had lodged paperwork for nine sites in Victoria and had been given the approval to go ahead with stores in Oakleigh South, in the city’s southeast, and Coolaroo, in Melbourne’s north. Three stores located in Dandenong, Epping and Chirnside Park were announced in March. It already has six locations on the drawing board in South Australia and Victoria, meaning the national network will be bumped up to 20 even before its expansion into Sydney is announced.
Telstra says it will take a smaller than expected hit to earnings from the NBN in 2020, following revelations NBN Co was expecting a slower migration of customers to its broadband network. But it has warned losses from the so-called “NBN headwind” will now be heaviest in 2021, not 2020, as customers continue to migrate from Telstra’s copper network to the NBN. NBN Co last week announced it was expecting 500,000 fewer customers to switch over to the NBN than previously flagged, bringing the total expected migration down from 2 million to 1.5 million for the year.
Telstra said the result of this change was material but mixed. It means Telstra will earn more from its underlying business, as more wholesale customers remain on Telstra’s copper network. That will boost underlying earnings by $100 million. But it also means Telstra will receive around $300 million less in one-off compensation payments from the NBN as customers are moved onto the new fibre network. Telstra said the net NBN headwind in 2020 will be $200 million lower than previously flagged in Telstra’s full year results last month. It now expects the NBN to erode $600 million to $800 million in earnings, not $800 million to $1 billion as previously flagged.
It takes blood, sweat and tears to run a successful small business, but it doesn’t mean you’ll be laughing all the way to the bank. But a new report shows half of the small business owners earn less than the minimum wage. The statistics have worried Australian Small Business and Family Enterprise Ombudsman Kate Carnell, but Tax Commissioner Chris Jordan believes many of these business owners could be people doing part-time work on the side which requires an ABN, such as driving for Uber or “selling Tupperware”
Australian tech company Atlassian is encouraging its workforce to take part in global climate strikes this month that will be held to coincide with the United Nations climate summit. The software company is among an alliance of Australian and global companies urging businesses to support employees who want to strike in solidarity with students on 20 September. Twenty companies, including Future Super, KeepCup and clean energy retailer Amber, are part of the alliance, which has called itself Not Business as Usual. Atlassian’s co-founder and chief executive, Mike Cannon-Brookes, said business leaders had to “step up and try to solve this problem” in the absence of effective policy at a federal level.
The competition watchdog has begun legal proceedings against Medibank over allegations the health insurer made false representations to its customers. The Australian Competition and Consumer Commission will allege customers of Medibank budget brand AHM had claims rejected that should have been paid. The case refers to over 800 AHM customers who were told their “lite” or “boost” policies did not cover certain procedures including joint investigations and reconstruction procedures. The ACCC said Medibank self-reported the issue and has already begun remediating affected customers.
And that’s it for this week. And next week, I’ll be talking to Tamara Loehr who has delved into the world of investment with a current focus on her online beauty-disrupter ‘Dollar Beauty Tribe,’ designed to promote cruelty-free, vegan indie brands. Loehr has become globally known as a leading wellness entrepreneur.
And I’ll be talking to IFM chief economist Alex Joiner looking at the state of the economy.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Have a great week, take care, be good and looking forward to bringing you Talking Business next week.