This is episode number twenty-six in our series for 2020 and today’s date is Friday, July 31.
First I talk to Accommodation Association CEO Dean Long. The Accommodation Association is the peak industry body and represents close to 3,500 hotels and nearly 58,000 employees across Australia. They’ve been doing it hard during COVID-19.
And then I’ll be talking to RMIT Professor Sinclair Davidson about Treasurer Josh Frydenberg’s latest budget outlook.
But now, let’s talk to Dean Long.
Fear, US-China tensions and cheap money have lifted the gold price to an all-time high. Gold has raced to a record high as the US’s deepening Covid-19 crisis sent the US dollar tumbling further and encouraged nervy investors to choose the precious metal as the place to park their cash. The price of the metal, used by investors as a store of value in times of stress, climbed as much as 2.4% to a record $US1944.73 a troy ounce, blasting past its previous nominal high of $US1921 set in September 2011.
Gold has rallied by more than a quarter this year, making it one of the best-performing mainstream assets, as investors brace for the economic fallout of Covid-19 and seek to minimise the effects of sweeping central bank interventions on their portfolios. Investors think the fundamentals are in place for gold to challenge $US2000 an ounce later this year.
Throw in mounting geopolitical tensions between the US and China, the vox populi risk of mounting social disorder playing out in the US and Europe, and the nosedive in the value of the world’s reserve currency and gold looks like a no-brainer. ASX-listed gold miners have been among the biggest beneficiaries of the rally, which translates the gold price to $2707 an ounce in Australian dollar terms
Second-quarter CPI fell 1.9% quarter-on-quarter. Economists had been expecting a 2% quarter-on-quarter fall. Year on year, CPI fell 0.3%. Economists had been expecting a 0.5% drop.
Melbourne businesses are bracing for an extension to the city’s six-week lockdown and a deeper economic slump as COVID-19 cases across the state continue to spike to record levels. Prominent Melbourne businessman Graeme Samuel, who gave a series of speeches two months ago in which he said the authorities had handled the pandemic reasonably well and predictions of an 8% unemployment rate had merit, said on Monday he had now revised his view.
Bad news for landlords. The latest CoreLogic data shows rent values declined nationally 0.3% in the month of June, and 0.5% over the quarter. This was the largest quarterly fall in rents since September 2018, and further falls are expected in the coming months. Capital city rents have been more immediately impacted by the negative economic shock resulting from COVID-19. Capital city rents fell 0.7% in the June quarter, compared with a 0.2% rise in rents across regional Australia.
The 2020 COVID Depression continues. ANZ-Roy Morgan Australian Consumer Confidence fell for the 5th week straight. The sentiment is down 10% from its end-of-May high. Case numbers in Vic and NSW seem to be sapping confidence as is September’s reductions in JobKeeper and JobSeeker.
Australia is in danger of marking its first three-quarters of economic contraction since the 1982 recession as Victoria’s virus lockdown threatens to last beyond its six-week schedule, stalling the national jobs and spending recovery despite a surge in government stimulus payments.
In the week to July 11, 1.4% of Victorian jobs were cut, according to tax office payroll figures released on Tuesday, driving a 0.6% national fall and reversing some of the gains from May to the end of June as the economy started to reopen.
If translated into the separate Australian Bureau of Statistics labour force survey, the payroll numbers indicate that 60,000 or so of the national 210,000 jobs recovered in June are now being lost again. On the same basis, Victoria has now lost about 252,000 jobs since March. With another 380 virus COVID-19 cases in Victoria on Tuesday, economists expect the chances of an easing in restrictions after the original six-week time frame have been blown and that could send the September quarter economic growth number into negative territory.
Victoria’s and New South Wales’ poor responses to the coronavirus health crisis have paved the way for smaller states to turbocharge their economic growth. Commonwealth Bank’s latest quarterly State of the States report reveals Victoria has lost the title of best-performing state economy for the first time in two years. That honour has instead been claimed by Tasmania, which tied for first place with Victoria in the last report. It’s the first time since October 2009 that the island state has taken the top spot on its own. Tasmania ranked first in four of the eight economic measures used by the bank on a relative basis. Those measures were unemployment, population growth, retail trade, and business investment, relative to the state’s decade average.
The cost of paid pandemic leave for the aged care sector could escalate quickly due to the low bar for workers to self-isolate, centres have warned. Residential aged care centres and nursing agencies demanded the Morrison government increase funding for the sector to pay for the two-week entitlement approved by the workplace tribunal this week and expected to come into effect on Wednesday. The employers argued the paid leave, accessible anytime a worker has to self-isolate, is “unviable” and risks the supply of critical staff.
Scott Morrison has broadened the membership of the business advisory body assisting the government with Covid-19 recovery but has made it clear the group will be advising the cabinet which means much of their input will remain confidential. The prime minister said the Covid-19 commission, which he established at the beginning of the pandemic to help keep things moving in the economy when supply chains were severely disrupted, was set to morph into an advisory board that would work inside the government.
It will be reconfigured to advise the government on its “JobMaker” agenda for the post-pandemic recovery, with former top unionist Paul Howes to join the team of commissioners. The COVID-19 Commission was set up early in the outbreak – led by former Fortescue Metals chief executive Nev Power – to co-ordinate with business to deal with logistic issues. It will now advise the Prime Minister on a range of reforms including on industrial relations, federation reform and infrastructure.
The Productivity Commission warned younger people that they face the fight of their lives to find their dream job and pay because of the long-term consequences of the virus-induced recession. The commission’s paper titled Climbing the jobs ladder slower: young people in a weak labour market investigated the scarring in the job market in the 10 years after the global financial crisis.
It showed that from 2008 to 2018, young people had more difficulty getting jobs in the occupations they aspired to and, if they started in a less attractive occupation, it was harder for them than before 2008 to climb the occupation ladder.
The Productivity Commission spells out how young people who take on an occupation “lower on the jobs ladder” due to the economic downturn will likely earn lower salaries for an extended period. The report showed the 2008 Global Financial Crisis caused a weak labour market for a decade, and warns we may be in for a similar or worse timeframe.
In June, the jobless rate for 20- to 24-year-olds was 13.9%. The Productivity Commission report found that by mid-April, job losses for people under 20 were around 23%, but by the end of June, this had reduced to around 5%. The study used the Household Income and Labour Dynamics in Australia (HILDA) dataset to show that young people found work in “lower-scored” occupations as based on the alignment between a person’s education with their earning potential.
The likelihood of transitioning to better outcomes was also low, and worsened slightly over time, suggesting that poor initial outcomes can have long-term effects on one’s occupation. Those aged 20-34 experienced nearly zero growth in real wage rates from 2008 to 2018, and workers aged 15-24 experienced a large decline in full-time work and an increase in part-time work. In his speech at the National Press Club last Friday, Treasurer Josh Frydenberg warned that there could be complications for young people trying to get jobs and or pay rises.
Policies to create jobs will take priority over calls for faster tax cuts in the next phase of the Morrison government’s economic stimulus amid a political fight over the cost of bringing forward $48 billion in personal tax relief. Prime Minister Scott Morrison declared “nothing else” mattered to his policy plan as much as measures to create new jobs or keep people in work, sending a warning signal to Liberals who want faster tax cuts.
The government has legislated personal tax cuts in three stages, with the second stage starting in 2022 and the third in 2024, leading some government MPs to call for a change to the timetable to give the economy a boost. A worker with a taxable income of $80,000 would receive a $1080 tax cut in the second stage while a worker on $200,000 would receive a $2565 tax cut. The Greens and social services groups have attacked the idea of bringing forward the personal income tax cuts on the grounds this would help those lucky enough to have jobs and would not create new jobs.
If you’re a bank shareholder don’t expect a dividend. The prudential regulator has instructed banks to reduce payout ratios to below 50% for the rest of the calendar year. In a letter to banks, Australian Prudential Regulation Authority chairman Wayne Byres tells the banks to moderate payments to shareholders in light of the many demands the virus crisis is placing on bank capital. The edict will have an immediate impact on the hip pockets of millions of shareholders who buy the banks for dividends, with most Australian banks regularly paying out between 80% and 95% of their annual profits annually.
Australia ranks last in manufacturing self-sufficiency among the world’s developed economies, with a new report showing the nation uses $565 billion worth of manufacturing output annually but produces only $380 billion. As the COVID-19 pandemic highlights problems with global supply chains and gaps in Australia’s manufacturing capability, the report released by the Australia Institute’s Centre for Future Work shows the renewal of the sector could generate as much as $180 billion in new sales, $50 billion in additional GDP and more than 400,000 jobs. It blames failures of trade and industrial policy for undermining domestic manufacturers’ success in doing business with key global markets, producing “dangerously lopsided patterns” in overseas trade.
Manufacturing jobs make up about 6.9% of Australia’s workforce, but more than 26.4% of all research and development spending. Total employment in the sector has dropped by 9.6% since 2010, the report shows.
Australia’s horror summer bushfires have put climate change at the forefront of risk factors for Australian mining companies, according to accounting and consulting major KPMG. In the firm’s 2021 Australian mining risk outlook, KPMG mining risk partner Caron Sugars said the bushfires, which swept across both sides of the country over summer, pushed business risks associated with climate change to the top of the thinking of Australian mining executives taking part in its annual survey.
The primary research for the KPMG study was conducted in January, as the impacts of the coronavirus pandemic were just beginning to emerge. But Ms Sugars said that, while subsequent contact with senior mining executives had highlighted the impacts of the pandemic, the Australian sector had been well prepared to cope with its threat from a health and safety perspective — but was now looking more closely at the wider ramifications of similar threats.
Saputo will drop the “Coon” name from its popular cheese products in Australia, the latest company to change branding amid a corporate reckoning on systemic racism. The Canadian food giant is working to develop a new brand name “that will honour the brand affinity felt by our valued consumers while aligning with current attitudes and perspectives”, it said in a statement posted online.
The company says its cheese brand was named after founder Edward William Coon. But the word “coon” is more popularly recognised as a racist term with its roots in American slavery, an abbreviation of the word “raccoon” used to caricature some black people, according to the Jim Crow Museum of Racist Memorabilia at Ferris State University in Michigan.
Saputo’s move follows mounting pressure on corporations to remove racist branding as protests flared in the US and elsewhere against George Floyd’s death at the hands of police. A slew of companies and groups have changed their problematic brand names, including the Washington NFL team, which dropped “Redskins”, and country music group Lady Antebellum, which changed its name to Lady A. This month, Unilever removed the word “fair” from the name of a skin-whitening cream it has sold in India for decades. PepsiCo ‘s Aunt Jemima pancake mix, Colgate-Palmolive’s Darlie toothpaste and Mars’ Uncle Ben’s rice brand have all pledged to ditch the racist tropes in their branding
Metcash has accelerated the consolidation of the Australian tool and hardware industry with the acquisition of a 70% stake in Total Tools for $57 million. Total Tools is the franchisor to the largest tool retail network in Australia with 81 bannered stores which generated sales of $555 million in the 12 months to December 2019.
Metcash’s strategy is to have a mix of independently owned and joint venture retail stores. It can move to 100% ownership within the next four years. Metcash will provide a $35 million debt facility to Total Tools to support its growth plans. Metcash owns the Mitre 10 and Home Timber & Hardware brands. The deal is subject to approval by the Australian Competition and Consumer Commission. The deal comes after Bunnings received approval from the competition watchdog for its acquisition of Adelaide Tools, a specialist tool and power equipment provider.
More than 800 passengers have joined a class action against the operators of the Ruby Princess over its handling of the coronavirus outbreak. The cruise ship docked in Sydney in March, allowing 2647 passengers to disembark, despite some showing flu-like symptoms. The ship came to be linked to hundreds of COVID-19 cases, and more than 20 deaths. Shine Lawyers announced the class action on Friday alleging the company “failed in their duty of care”, while an NSW Special Commission of Inquiry is also underway.
Infant formula group Bubs Australia is expanding into the vitamins sector with a new range of children’s products called Vita Bubs and has signed up international model Jennifer Hawkins as the front person for the brand which will be sold in pharmacy giant Chemist Warehouse from October.
But the core Bubs range of goat’s milk infant formula products has experienced a slowdown in Australia in the June quarter, with revenues falling by 15% as the daigou trade into China was disrupted by heavy cutbacks in flights to China and logistics problems.
Bubs chief executive Kristy Carr said Bubs had been working on its expansion into the vitamins sector for 12 months and was eyeing the rising numbers of children taking vitamins. She said Jennifer Hawkins, a former Miss Universe and television personality who had an eight-month-old baby herself, was the ideal person to be the ambassador for the Vita Bubs brand. Ms Carr said Ms Hawkins had 1.8 million followers on social media and would be paid an undisclosed fee, which she could choose to take in cash or shares under the three-year deal.
The managing director of Australia’s oldest and largest investment company has described the impact of the coronavirus as worse than the global financial crisis, after reporting a 41% decline in profit and being forced to draw on reserves to make up the final dividend. Australian Foundation Investment Company’s managing director, Mark Freeman, said the impact of the virus crisis on everything from everyday routines to global economies felt more challenging than the GFC, where the financial system was just a few wrong moves from a catastrophe. “This feels more broad-based. It’s global and affecting the economy in a broader way, there are not too many industries that have been spared,” Mr Freeman said.
And that’s it for this week. And next week, I’ll be talking to Lyndall Spooner, the founder and director of consultancy and advisory firm Fifth Dimension. She’ll be talking about how business leaders now need to adopt a wartime mindset. And I’ll be talking to IFM Investors chief economist Alex Joiner about the government’s response to the pandemic-induced recession.
In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Wishing you all a safe and healthy week and looking forward to bringing you Talking Business next week.