RBA Dec 2023 | Market Wrap and Property Trends in 2024

And finally , in my big property update , I'm going to recap on 2023 property market and provide my first thoughts on the 10 macro forces in play and how they'll impact the performance of property as we look at the different markets . So okay , let's jump straight into this month's update , starting with the US of A First up .

Let's look at the US inflation data Now . According to their Bureau of Labor Statistics , consumer prices in the US were unchanged in October , after rising 0.4 of 1% in September and compared with market expectations ofa 0.1 increase . Breaking down this monthly data , what did we learn ?

The index for shelter continued to rise , with a reading of 0.3 versus 0.6 in September . The energy index fell 2.5% over the month , as a 5% decline in gasoline index more than offset increases in other energy components within the energy index .

The food index increased 0.3 of 1% after rising 0.2 in the month of September and , looking at their annual inflation data , what has changed ? Well , we saw the annual inflation data in the US slow to a reading of 3.2% in October , and that's down from our 3.7% reading in both September and August and below market forecasts of a 3.3% result .

For the energy costs have dropped by 4.5% , food prices have increased at a softer pace of 3.3% versus 3.7 , shelter 6.7 , down from 7.2, . New vehicle prices are rising more slowly , at a reading of 1.9% versus 2.5% , and continued disinflation is occurring in the used car and trucks market , with a reading of negative 7.1% over the year .

On the other hand , prices rose faster for apparel 2.6% versus 2.3% , medical care commodities 4.7% versus 4.2% , and transportation services are 9.2% versus 9.1% . Now , the 3.2% result was very good news for the US , as it was their best read in the last 15 months , when , given economists were forecasting a 0.1% increase .

This downward result was even better news , leading to a lot of talk whether the US rate cycle has peaked . But before the US starts celebrating , there still remains some challenges for the Fed . Given the C , the core CPI unexpectedly rose to 4% on the year and also had a 0.2% increase on the month .

Well , compared to a consensus forecast of 4.1% and 0.3% increase respectively . It was an okay result , but it's still a reminder that , outside of the volatile areas of energy and food , inflation is still widespread in the US , which is a similar case for most other developed nations .

Right now , on the back of the inflation data in the US , what did the Fed do in regards to interest rates ? Well , the Fed reserve kept the target rate for the Fed funds rate at a 22-year high of 5.25% to 5.5% for a second consecutive month in November .

So , just like the needle the RBA in Australia is trying to thread , the Fed are focused on returning inflation back to their 2% target , whilst avoiding excessive monetary tightening , which has a more lasting effect on slowing the economy and the jobs market .

In its announcement , the Fed highlighted any additional policy tightening would consider the accumulative impact of previous interest rate hikes . Number two , the time lags associated with how monetary policy influences economic activity in inflation and , finally , the developments in both the economy and financial markets .

When giving the market a clue about whether the US will increase interest rates once more , jerome Powell said in his post-decision press conference the majority of participants forecasting one more rate hike this year may not be accurate anymore .

However , in keeping everyone guessing , he also said that they had not discussed any rate catch yet , with the primary focus right now still remaining on whether the central bank will need to implement additional rate hikes .

So the risk is still to the upside , but for now , the Fed is happy with rates where they are right now , so I expect they will not have any further rate rises in the upcoming December meeting . Let's move on to the labor market now . And what did we learn ? We saw the US Bureau of Labor Statistics report .

The unemployment rate in the US increased to 3.9% in October , slightly exceeding market expectations and the previous month's figure of 3.8% .

This marks the highest jobless rate since January of 2022 , with the number of unemployed individuals rising by 146,000 to a reading of 6.51 million , while the count of employed individuals decreased by 348,000 to a reading of 161.2 million .

The employment rate was down to 60.2% from September's 60.4% , and the participation rate edged down to a reading of 62.7% from a reading of 62.8% .

Since their recent lows in April , both the unemployment rate and the unemployment levels were up by 0.5% of 1% and 849,000 respectively , meaning the jobs market in the US is cooling , in line with what the Fed is doing with slowing the economy and you guessed it getting inflation under control .

Moving to the US consumer data now , and we're starting with retail sales . What did we learn ? That the US Census Bureau reported that retail sales decreased by 0.1% of 1% month over month in October , putting an end to a six-month streak of increases and compared with the market consensus of a 0.3% decline .

Looking at the data on a year-by-year basis , retail trade growth slowed to 2.5% in October sorry from an upwardly revised 4.1% in September . The US consumer is still spending and , remembering , employment is still relatively strong , which is adding to aggregate demand and spending .

But , that said , this October result will also be good news in terms of inflation impacts , as general spending slows off the back of higher interest rates . In consumer confidence . What did we learn ?

That the University of Michigan's consumer sentiment for the US was revised sharply higher to a reading of 61.3 in November from a preliminary reading of 60.4 , but it still remains at its lowest levels since May and is deep in pessimistic territory .

It was the fourth consecutive decline in consumer sentiment , as more favorable current assessments and expectations of personal finances were offset by a notable deterioration in expected business conditions . The gauge measuring current economic conditions was revised higher to a reading of 68.3 from a preliminary reading of 65.7 , but below the 70.6 recorded in October .

The gauge of consumer expectations went down to 56.8 compared to 59.3 in September . Meanwhile , inflation expectations for the year ahead increased more than expected to 4.5% , while initial estimates of a 4.4% at reading and at reached the highest level since April .

This inflation expectation read would be concerning for the Fed because big business looks at this data and says great consumers are expecting our prices to go higher , so let's put them up higher , causing further and stickier inflation challenges . Let's pivot now to look at the business side of the equation , and what did we see ?

Well , in terms of business confidence . First , we saw the ISM manufacturing PMI slipped to a reading of 46.7 in October from a 10-month high of 49 in the previous month . That's well below expectations of a reading of 49% , pointing to the 11th consecutive contraction in the US manufacturing sector . Let's go a little bit deeper .

The contractions in new orders accelerated to 45.5 versus 49.2 in September . So that's a downward acceleration , pointing to the 14th straight decline , whilst the panelists noted lowering demand from other domestic and foreign markets is also contributing to that .

So , as a result , production has slowed at a reading of 50.4 versus 52.5 , with growth nearly easing to a stalling position as sharp declines in backlog of orders a reading of 42.2 versus 42.4 offset the decline in demand for new products .

So , in some good news , on the back of this slowing demand in terms of US goods , input prices also fell for the six straight months . Now . This is a textbook example of what should happen . Let me explain .

So what we're talking about here is , as demand starts to fall , all of those input costs and those orders that make up those goods also start to slow down .

So they have to obviously reduce their prices to provide the supplier of the end-finished product with a cheaper product , and that ultimately means that that is a flow-on effect in terms of lowering those input costs and that's going to show up hopefully later on in terms of final goods products being cheaper .

So that is classic economic theory in terms of how those things should happen from a demand and supply point of view . In terms of the services PMI , now the S&P Global US services PMI increased slightly to a reading of 50.8 in November from 50.6 in October . Now this is the highest point in four months and above market expectations of a reading of 50.4 .

New business expanded for the first time in four months . However , in line with the broader employment data I mentioned earlier , employment moved into contractory territory , indicating that first declines in headcount since June of 2020 .

In terms of prices , there was a fast rise in overall selling prices , with the pace of charge inflation picking up from October is three year low . However , expectations regarding the outlook for output over the coming 12 months becomes less robust . Now that's quite complicated .

What it simply means is services inflation , which is the stickiest one that's starting to slow and that's starting to show up in terms of the number of people we need employed , because services inflation is usually heavy when it comes to the number of people employed .

So , in summary , the services business sector expectations dipped to their lowest levels since July as firms expressed concern about tightening consumer spending and lingering economic uncertainty .

Now , again , as I said before , remembering services inflation , is the challenge that we also have here in Australia and that's also showing up as well , and the US has to grapple with that as well .

So , in rounding out the US data , we haven't talked about property story for a little while , so I thought I'd bring a property update in regards to prices over there and so the US . Sorry , the S&P CoreLogic CaseStaller National Home Price Index . That's a mouthful in the US .

It's increased by 0.7 month over month to reach a record high , a reading of 311.18 points in September . Now this was the eighth straight month of gains , as it was reported by S&P that the relative shortage of injury for sale has been supporting prices despite higher mortgage rates , and that sounds very familiar to our own story here , doesn't it ?

In terms of prices have picked up here in Australia , based on very limited supply . In terms of year over year , prices have climbed by 3.9% in September , the most since December , and compared to a 2.5% increase in August .

Detroit coming off a cheap base plus San Diego , and then , at the top price end , new York , experienced significant price increases , whilst the data indicates that the Western regions of the US continue to slow and show low growth in prices .

So let's sum up the US story for the year , and it was a US economy that has performed better than most have expected , and over the past couple of weeks , based on the easing inflation story , sentiment has moved to a more cautious but more optimistic outlook , especially when you look at the business and equity market stories that are happening over the past four

weeks . This has been driven by predictions that the further interest rate increases in the US might not be needed for the Fed to bring inflation back to their 2% target range .

For a growing number of economists , the idea that the US will avoid a recession in this downturn cycle is becoming more likely and given current conditions over there , it's more a probable base case scenario now , unless the easing in inflation story stalls .

Now , compared to Australia , they have one competitive advantage over us which we are struggling with to help bring down inflation here , and that's the cost of energy . It's Australia's Achilles' heel .

The bottom line is significantly cheaper cost of energy in the US means their inflation challenges are easier to solve than ours are , because energy costs form a lot of the input costs in terms of goods and services that are delivered . So that's why they have an advantage .

In terms of my observations about , the only real major downside risk in the US economy is their banks and the risk of bad debts posed by on the back of their commercial property markets as valuations tank and tenants vacate because of many businesses are happy to work in a hybrid setup , so the demand for that commercial office real estate is a challenge , and that

poses a little bit of a risk to some of those US banks . In closing out these final observations and thoughts on the US , to date they have avoided a recession that many economists predicted would occur at the start of the year , and without any material shocks to their economy .

From here , they will most likely continue to avoid the outcome over the next six to 12 months , but the economic slowdown over there hasn't come without some pain and certainly plenty of value destruction along the way . Turning our attention to China now , and what did we learn ? Well , the inflation data first up .

China's consumer prices dropped to a reading of negative point two year on year in October , compared with a flat reading in the prior month and a forecast of a point 1% fall .

The Chinese statistical office said that the drop in CPI was due to an amplified supply of agricultural products because of good weather and a falling in consumption after the golden week holiday . At the start of October , core consumed prices , which exclude food and energy , increased by point six year on year in October , the least in four months .

As I've been saying all year , china does not have any worries about higher inflation , so there's nothing to see here and with no upward inflationary issues to report . What happened with Chinese interest rates ? Well , nothing . The People's Bank of China , the PBOC , maintained lending rates at their November settings , as widely expected .

China remains an outlier among central banks , having loosened monetary policy to revive a faltering economy , and which is also impacting the value of the Yuan market of the Yuan , making the PBOC's next move a little bit more interesting .

Any further rate cuts would widen the yield gap compared to the US dollar , risking further Yuan depreciation and therefore risking capital outflows as money markets look to get a better upside value in those money markets .

That said , there are reports circling that some economists do expect that the PBOC board to cut the lending benchmark by 20 basis points at the end of Q1 of 2024 to try and re-stimulate the property market over there . So no monetary policy changes are forecast until around March of next year . So let's see if that plays out correctly .

Employment story now , and we saw Chinese surveyed urban unemployment rate was 5% in October . This is the same as in previous months . So again , nothing of note to report on this front for this month . So we'll just move on to retail sales .

Looking at retail sales in some good news for China's local economy , the National Bureau of Statistics of China reported , china's retail sales surged by 7.6% year on year in October , picking up from a 5.5% increase in September and surpassing market expectations of a 7% increase .

This marks the 10th consecutive month of growth in retail turnover and the fastest expansion since May . As sales showed , significant increase is across various sectors , including communications equipment , autos , gold , silver and jewelry , home appliances , office supplies , household non-durables and furniture .

It wasn't all good news , though , as trade growth slowed for grain and food , oil , clothing , cosmetics and oil products , but it's still worth noting it was a slowing in growth as opposed to negative growth for these items . For the January to October period , retail sales increased by 6.9% compared to the same period in 2022 .

So some of that domestic stimulus is actually working in terms of getting the local economy moving forward . In terms of the business data , now what do we see in terms of confidence and growth ? Well , no , there wasn't any there . Not if we're talking about the manufacturing data .

The official NBS manufacturing PMI unexpectedly fell to a reading of 49.5 in October from a reading of 50.2 in September , missing market forecast of a 50.2 , which highlighted that economic recovery in the nation remains fragile , with most economists still arguing more government support and measures are needed . Let's unpack this business story a little bit more .

We saw new orders returned to contractory territory , with foreign sales falling at their fastest pace .

Amid softer rises in in outputs , employment continued to drop , buying level shrank for the first time in three months and , on the cost side , input price inflation eased for the third month to a three-month low , whilst output prices fell for the first time in three months .

Yet , with all this negative data , business confidence improved slightly to a reading of 55.6 versus 55.5 as reported by the National Bureau of Statistics of China . So maybe they know something coming down the pipeline that we don't , and maybe that is that sort of consumer spending story and their domestic economy .

So let's sum up the China story for 2023 , and we look back on a year . It's very clear that it was a very challenging year for the Chinese economy , given their recent strong performance in terms of their historical performance of growth prior to COVID .

Furthermore , china has an aging demographic crisis on its hand , which is going to see them experience more downward pressure on growth as their working population shrinks , making it hard for them to hold onto the golden economic era of the past couple of decades .

That said , it doesn't mean that China or things can't improve and they can't keep growing their economy , but the tide is turning and it's going to make it difficult and a little bit harder for them in terms of that economic shift .

And , furthermore , depending on how they conduct themselves in the international arena , their actions will also play a role in how other countries want to trade and interact with them and , given China relies so much on their exports of goods , that they make does pose an ongoing challenge for the Chinese government and their economy as a whole .

All right , let's move now to the Eurozone . And what did we learn ? Well , last month we missed out on the Eurozone GDP data . I didn't have that on hand , so let's start there . So we saw the Eurozones GDP contracted by 0.1 of 1% in the September quarter , making it the first contraction since 2020 . Looking at the biggest economies , what did we learn ?

Germany this economy went backwards . Italy stalled and France rose modestly , and Spain was a little better . Year on year , eurozone economy advanced by a meager 0.1 of 1% .

Also , in line with the initial estimates , the ECB expects the Euro area economy to grow by 0.7 of 1% only in 2023 , when it gets through the December quarter and publishes its results , so it's looking for a strong final quarter in that particular market . Let's now look at their inflation data , and what do we see in month-on-month inflation returns ?

According to the Euro stats , the consumer price index in the Euro area decreased by 0.5 of 1% in November compared to October's reading . In a year-on-year terms , the Euro area declined to 2.4% in November , reaching its lowest level since July of 2021 and falling below market consensus of 2.7 . That was what the preliminary estimate showed .

In terms of the core inflation rate , it came in at a reading of 3.6% , marking its lowest point since April of 2022 , and coming in below forecasts of 3.9% . The energy cost tumbled by 11.5% , versus a negative 11.2% in October , and the rate of inflation eased for services , food , alcohol and tobacco , and non-energy industrial goods .

On the back of this improving inflation data , what did the ECB do with interest rates ? Well , nothing , because they don't meet in November . Their next decision is scheduled for the 14th of December , at which the current forecast is that rates will be kept on hold at 4.5% .

Now it makes a lot of sense to me , because that inflation data is actually pretty good news in terms of the Euro area . Let's take a look now at their employment story and what do we see ? We saw the Euro area seasonally adjusted . Unemployment rates stood at 6.5% in October , unchanged from the prior months and matching market forecasts .

The number of unemployed people rose by 48,000 from a month earlier to an eight-month high of 11.13 million . Meanwhile , the youth unemployment rate , measuring job seekers under 25 years old , increased to a one-year high of 14.9% in October , up from 14.6 in September .

Amongst the largest Euro area countries , the highest jobless rates were recorded in Spain 12% , italy 7.8% and France at 7.3% , whilst the lowest rate was registered in Germany at 3.1% . A year earlier , the jobless rate was higher than 6.6% . So there's been small improvement in terms of the working population in the Euro zone .

However , the high youth unemployment rate has to be a concern for the policy makers over there In terms of consumer confidence and sentiment .

Now , european Commission consumer confidence indicator in the Euro area rose by 0.9% from the previous months to a reading of negative 16.9 in November , the highest in three months and above market expectations of negative 17.6 , the preliminary estimate showed Consumers while still very pessimistic overall .

This improved result was on the back of the initial thinking that interest rates might have reached the top of their cycle in the Euro zone as well , based on those pretty healthy inflation data reads .

So time will tell on that front , in terms of retail sales , there was no update to the September data that I reported in last month's update , so we'll move along to look at the business data now .

Looking at the business confidence data , we learned that the business confidence in the Euro area decreased to a reading of negative 0.39 points in November , from negative 0.33 points in October .

For better context of this result , business confidence in the Euro area averaged what we call zero , so 0.00 points from 1985 until 2023 , reaching an all-time high of 1.83 points in November of 2021 and a record low of negative 3.3 points in March of 2009 on the back of the global financial crisis .

So it's currently sits at an underwhelming level as businesses in the Euro area grapple with the current economic challenges of high costs of debt and lower aggregate demand . So let's sum up the Euro zones observations for 2023 .

It's been a second challenging year , obviously on the back of Russia invading Ukraine , which sent their energy costs through the roof back in February of 2022 . Now the hope is that inflation will fall back into the range and that interest rates will also start falling in 2024 , providing some improvement in economic sentiment and activity .

The only real question is when is that going to come and what sort of level of sentiment improvement will take place to start driving that investment and that growth that's needed to get the Euro zone back up on its feet ?

All right time to talk about the Australian economy now and , of course , the cash rate decision from the RBA today , but before I announce their rate call , I do want to quickly talk about the recent speech delivered by Michelle Bullock , where she highlighted the recent economic crisis and she highlighted that any of the here and now talk of high inflation is still

being imported via wars or supply chain challenges is no longer the case and , as such , not factually correct . Yes , it was a problem and yes , it did start the current inflation wave . That took our inflation rate to a peak of 7.8% over the past let's call it sort of two years .

But what is keeping our inflation higher today and , as a direct consequence , our interest rates higher , is now domestic demand driven inflation , ie the level of aggregate demand , meaning our domestic spending by households , businesses and government is greater than aggregate supply , which is pushing prices and inflation higher .

So in her speech from a couple of weeks ago , the governor had a couple of slides in her slide deck that I thought were well worth sharing to really highlight this point .

So I'm going to spend a few minutes talking to these slides Now , because it's important that the insights reach more Australians and for more of us to have a clearer understanding of what's going on , as opposed to the misinformation , rubbish reporting and press coverage from some sections of the media , which misquoting the governor and also popularizing this idea that

we need to blame someone and that means obviously the governor of the reserve bank for their misfortune when we find ourselves in this situation .

The bottom line is and I've effectively been saying this all year on on aggregate if we can't control our spending , businesses will keep putting up their costs , inflation will still be a problem and interest rates will go higher and stay higher for longer .

Okay , so let's take a look at some of the charts and the signals in terms of what was the problem which led to the first or the latest rate rise last month . First signal was inflation is broad based because aggregate demand was broad based .

So if we take a look at this chart and sorry if you're in audio format , but what this chart is showing is inflation by CPI expenditure class items , and we can see that two thirds of those items so the hundreds and hundreds of items that they're measuring , that makes up the consumer price index and the basket of goods two thirds of those are sitting above that

top end of the target range for the RBA , sitting above that 3% range . So it's very , very clear that it is quite broad based and that's well highlighted on the graph Now . So then we break that down into the deviations from average . So what we're looking at here is a slide that's showing volatiles and administered selected goods and selected services .

So we really know that we can see definitely fuel , electricity , so those high energy components . We also have rents obviously doing a sizeable or having a sizeable impact on the inflation damage that's occurring .

But what we can also see through what they refer to as AVC , which stands for Audio Visuals , computing Equipment , plus Insurance and Financials they are and dining and takeaway also having a negative impact in when we look at those numbers . So you can see what Michelle Bullock and the Governor is arguing around that particular story .

So let's move on and then we can now start to see , you know , the goods side of the inflation story versus the services side . So in this particular chart we are definitely seeing that this .

You know , when we had those supply change challenges and when we had that supply shocks and international prices being impact from that , those goods prices really or goods inflation I should say really spiked and that was clearly evident in , you can see , in the blue section of the graph . When we then start to look at services inflation .

That took a little bit longer to come about but it's now starting to be , you know that the primary reason while we still have a sticky inflation story .

And you can also see in there that the rents you know , in terms of context rents are a concern , no doubt about it , but in terms of the overall size of the impact that they're having on broader inflation isn't as well exposed as what it could be compared to when you compare it to , say , services inflation , all the goods inflation story there as well .

So it really is quite an interesting way to be looking at that and that's that service inflation that remains sticky . Now the second signal was around the sort of domestic input costs adding to higher prices . So we can see here we've talked about you know , when the Aussie dollar goes really low and we import inflation .

How is that impacting versus what the domestic costs story is ? And we can see from this chart that domestic costs you know , pressures on energy , transport , rents , insurance premiums , all the stuff we were just looking at has played a significant role in increasing that domestic cost inflation that we're seeing here .

As opposed to those imported costs and , as you know , those supply change challenges and all of those things freight costs , global freight shipping costs and all that start to come right down , they're not having as much of an impact when we're looking at that particular chart . So it really is , you know , quite highlighting that particular story .

We also need to not forget about the labor costs . Labor costs also play a significant role . So even this is no non-labor cost . We know that , through lack of productivity but higher wages , that we're also seeing challenges when it comes to what consumers are paying .

But , failing all that , we still also know that consumers are still willing to pay those higher prices . So that's what we've got to basically stamp out if we want to get inflation finally back to the two to 3% target range . And finally , the third signal that pushed rates higher in November was the continued strong labor market story .

So this chart here is the market services , inflation and labor underutilization .

So what we're definitely seeing is continued strong aggregate demand , which the RBA noted they didn't expect to be the case has meant that higher utilization of labor a fancy way of saying more people employed , which in turn puts more monetary money in people's pockets and obviously means that they can spend more , is what's happening .

So at the start of the year they forecast that unemployment would grow and that would mean that there's less supply of money in the economy and that would ultimately mean less spending on goods and services , which would obviously bring prices down . So that hasn't been the case .

And so those , those graphs and those three sort of signal points is what Michelle Bullock was clearly trying to articulate in terms of the overall story In summing up her message .

Whilst aggregate domestic demand was , and still remains too high compared to aggregate supply , this means pressure on interest rate remains to the upside , and that's why we've got the interest rate increase that we got last month , and although it does affect those with less incomes more than others , unfortunately she also reminded us it is a blunt instrument , but it

is the only one that they have got to tackle inflation . Furthermore , we must also remember that it's not the RBA that's spending money now which is creating that demand its households , its businesses , its government , its domestic aggregate demand . So if we slow that spending down , then inflation gets tamed and interest rates also come down .

Anyway , enough about what occurred last month to cause interest rates to go higher . The question on everyone's mind now is what did the governor and the RBA board decide to do today ? Well , following the improved inflation data result from last week , the RBA kept the cash rate on hold as a welcome Christmas present for those of us with mortgages .

And the news gets even better compared to a rate rise , of course , because the board's next rate decision isn't until the 6th of February , as they take January off . Furthermore , starting in 2024 , they will only be meeting eight times instead of the current 11 times .

So for everyone looking for when the next RBA rate decisions will be announced , here is the dates for the diary 6th of February , 19th of March , 7th of May , 18th of June , 6th of August , 24th of September , 5th of November and 10th of December . Well , that's a wrap for the RBA sections for this month and , of course , the final RBA wrap for the year .

So let's move our attention now to the latest inflation data and see what we learn . Well , maybe , just maybe , the message of slowing down spending to reduce aggregate demand is getting through . When looking at the October inflation results Now , remember the data that arrived in the September quarter .

Inflation was the trigger that set the RBA to lift the cash rate in November , because it was just running a bit hot . So this is good news . This good news was that , especially considering the result was below market expectations . So what was the good news ? The ABS reported last week that the monthly CPI rose by 4.9% in the 12 months to October .

To October , this was down from 5.6% when compared to the September 22 to September 23 change , and the disinflation process continues on the back of the slowing economy . This read was the lowest headline inflation results since January of 2022 . Goods inflation continue to ease , with the positive news .

But because we don't get any services inflation read in the first month after the quarterly inflation data , we're still going to have to wait a little longer to see if services inflation is going to remain sticky or not . Given inflation is really the only thing that we care about right now .

Let me share with you the ABA tables and let's run through some of those important monthly numbers . So we can see here in terms of food and non-alcoholic beverages , we saw a change of 5.3% . Alcohol and tobacco we saw 6.6% . Clothing and footwear negative 1.5% . That's disinflation showing through . Housing 6.1% .

Now , remembering that we want those numbers to be below 3% , you know , if we're getting those higher numbers that's making the job harder to actually bring inflation down . So let's look now at furnishing household equipment and services 0.4 of 1% , so that's a big tick . Health was 6.3% , so that's going in the wrong direction .

Transport is 5.9% , coming down , but still above where we need it to be . Communications 1.8% . It's in the healthy zone . Recreation and culture that's also in the healthy zone 2.7% . Education 4.8% , so still too high .

Insurance and financial services this is another one of those big sticky ones at 8.6% , so they're not looking that good , but it gives you some indication in terms of and if you're looking at the chart that I've got on the screen , you can see that they are coming down in most cases , so they're in the right trajectory , but they're still sitting too high .

So let's now look at the labour force data . And what did we learn ? Employment rose by a very solid 55,000 jobs in October . Strong labour demand is continuing to soak up the growth in the working age population as more immigrants arrive . Looking at the data , there has been a significant shift in the composition of employment growth .

Part-time employment is up 161.6,000 , but since the middle of the year , full-time employment has fallen by almost 30,000 , with a reading of 29.8,000 people . The participation rate equated to its previous record of a reading of 67% , helping the labour supply grow more quickly than employment .

In October , the net result was that the unemployed increased by 27.9% , as it was this that drove the marginal lift in the unemployment rate to 3.7% from the 3.6% previously recorded in the middle of the last month , and in the media , the participation rate equalled its previous record high of 67% , helping the labour supply grow more quickly than employment .

In October , the net result was that the unemployed increased by 27,900 , and it was this that drove a marginal lift in the unemployment rate to a reading of 3.7% from its 3.6% reading in September . Growth in hours worked continued to slow and it's not keeping pace with growth in employment .

In fact , since June , the number of hours worked has fallen by 0.3% of 1% , while employment has grown by 0.9% of 1% . So what does this mean ? Well , it means that the labour market is beginning to soften via hours worked rather than headcount at this stage in the slowing cycle . Now the next stage is going to increase headcount of unemployed .

So you can see that also showing up in terms of full-time labour versus part-time labour . So 160,000 , 61,000 new part-time jobs but a fall in full-time jobs for almost 30,000 . So again , it's a good sign . But obviously we all want to be employed .

But that is the way in which we need to be moving the unemployment story to obviously take pressure off inflation and , ultimately , interest rates . Let's look at the consumer story now and we saw the Westpac consumer sentiment result for November .

The highlights were that the consumer sentiment index was down 2.6% but at 79.9% the index has returned to deeply pessimistic levels On the back of that November rate hike . Rba rate hike knocked 6% off confidence during the Survey Week , mortgage belts bracing for another difficult year ahead .

Consumers set for a repeat of last year's penny pinching Christmas and the labour market confidence . Housing related sentiment was largely unchanged . So you can see in the graph there and study some of those changes . In terms of retail and consumer spending , we saw retail sales declined 0.2% of 1% in October , the first monthly decline since June of last year .

Of this year , I should say . Spending was down across all categories except for food . The good news from an inflation point of view is that underlying trend remains subdued . Retail trade is 1.2% higher than a year ago and that's the weakest annual growth rate since COVID lockdowns . This is despite record population growth .

In a per capita terms , st George Bank's data is estimating that retail trade is 1.6% lower than a year ago , which is the largest fall on record outside of the pandemic . Now , compared to the peak record in November of 2022 , per capita retail spending is now 2.9% lower in their models .

Spending is being squeezed on cafes , restaurants and takeaways , which fell by 0.1% of 1% over the past three months , the first quarterly fall since we came out of lockdown . So , finally , people are spending less on dining out and takeaway .

At the same time , spending on food has increased by 1.3% over the same period , outpacing growth in spending on dining out for the first time post COVID . So the times they are changing . That said , early indications are .

Black Friday sales results were the highest yet , so it remains to be seen if this is a pulling forward of Christmas spending or just folks still spending too much . I hope it's the former and this won't be , as this won't be good news for inflation and keeping interest rates where they currently are .

So let's hope that we see poor consumer spending results over Christmas , putting pressure on businesses to put their prices down and , unfortunately , reduce their headcount of labor force . In terms of other business news , now we are leading into the business story .

I should say business confidence fell back into negative territory in October after being positive for the past four months , falling three points to a negative two index points . It's been playing a bit of a balancing act over the entire 2023 year , as each rate call plays on the minds of business owners throughout the year .

With regards to the business conditions , which was a very different story as it rose by one point to a plus 13 index points that has remained above the long-term average . So conditions are falling . Sorry , confidence is falling , but conditions still remain quite positive . Let's look at those sub-indices now to see where that confidence lives .

Profitability and trading conditions rose . Employment conditions fell for the second consecutive month , but remain above average , consistent with still tight but gradually easing labour markets .

Capacity utilisation was broadly unchanged and remains well above average , reflecting resilience , demand and conditions which we've been talking about , forward orders fell to be just in negative territory and have been negative for four out of the past six months , so hopefully it's slowing . More is the direction that we want to go in .

On the cost pressure side of things , quarterly growth in labour and purchasing costs both slowed to 1.8% in October , from 2.1% and 2% respectively in September and August , so that's a good sign . In growth in final prices also slowed to 1% , the slowest pace since February of this year . So sorry , february of 2021 . That is good news .

That's that pace of growth in terms of input costs and final output prices they're starting to slow down , so that is a good sign . Now it would certainly be nice to see some more disinflation in the early numbers as we move into 2024 . So how do I sum up the Australian economy for 2023 ? Well , it's definitely been a lot more resilient as an economy .

It's definitely surprised on the upside in terms of a combination of those really strong household savings . So that's why we've kept spending Obviously positive positive business conditions , strong employment has led to more disposable income in the household and , of course , the increase in population through migration .

So it has really maintained that overall high deliverable of aggregate demand , which has resulted in , obviously , interest rates and the cash rate going higher . Now , as a result , most economists , including the RBA and you can also put me into that category at the start of 2023 . We didn't expect this to be the case .

We thought that the aggregate demand would crash on the back of the really aggressive tightening cycle that took place , but obviously that hasn't played out , as consumers , businesses and governments continue to spend . In terms of the economic outlook for 2024 , the economy will turn into the new year with one challenge , and one challenge only .

We know what it is it's inflation , which will be dependent on the independent governor and the board and how they determine that and how they tame that inflation genie and get it back into the bottle .

How aggressive they need to be and how much impact the economic fly will have in terms of it slowing down and how much the breaks need to be pumped by interest rates is really the story here .

So we are heading into the right slow down direction and it's clear that most of the heavy lifting has been done , but it's just still the case that there may need to be more tapping of those breaks to continue to slow down that domestic demand and hopefully slow down our spending behaviours both in the household , in business and also in government as we move

into 2024 . I promised a big property update , so here we go . It's obviously been a big update overall , but let's get into some of that housing data now , starting with the housing credit that we saw from the ABS reported yesterday , so in October , seasonally adjusted terms the value of new loan commitments .

So we saw total loan commitments rise 5.4% to 26.7 billion , after a rise of 1.5% in September . Now this was 4.9% higher compared to a year ago . For owner occupied housing rose 5.6% to 17.2 billion and was 1.4% higher compared toa year ago . For investor housing , that rose by 5% to 9.5 billion and was 11.1% higher compared to a year ago .

One needs to remember that all these growth numbers are on the back of two things Firstly , higher property prices and , due to falling volumes that we experienced throughout 2022 , it makes these numbers look better than they are , so it's a recovery , more so on the back of that than actually being in growth territory .

So it's really worth pointing out that the numbers are good , but they're only recovering from falling cycle of lending that we saw occur on the back of the slowing property market and falling property prices back in 2022 .

Alright , speaking of property prices , now let's turn to the core logic numbers that we saw in November and we'll do a wrap in terms of each of the states and then I'm going to sort of do a really more detailed analysis in terms of what's happened over the course of 2023 .

So , starting with Sydney , they sketched out a 0.3% growth rate , but that is definitely on the decline . Melbourne actually went backwards at a negative 0.1% of 1% . Brisbane 1.3% growth , so really solid demand growth story in Brisbane . Adelaide continues on its run 1.2% . Perth had a blinder at 1.9% . Very , very strong market , as we predicted it would be .

In terms of Hobart negative 0.1% fall in values . Darwin had a negative 0.3% fall in values and Canberra also had growth of 0.5% of 1% . So combined capitals they grew by 0.6% of 1% . Also , combined regions had an increase of 0.6% of 1% , and so nationally , we saw house prices grow by 0.6% of 1% .

Now , again , I've been talking about markets within markets , and that's definitely going to be an emerging story as we look into 2024 .

So let me paint this picture by looking at what happened at the start of the year , and I always like to look really at the end of the February data as opposed to the January data , because I'm getting a better sense in terms of how the markets reopening in most of the capital cities , as most obviously capital cities have a hiatus over that Christmas New Year

period . So we can see here this is data week , the 26th of February , and we can see what's been happening here in terms of we can get a sense of the total listings . So at the start of the year you saw me talk about how I was worried about Hobart . You could see there that in terms of total listings and new listings , so total listings were up almost .

You're sort of looking at that number , there's almost 77% and you can see other than also Canberra we didn't really have a problem with in terms of oversupply . We had under supply issues ranging in all of those particular markets . Now , as we see here , we can start to see the change that's occurred in those markets that are now starting to pitter out .

So what we're assessing here is is the absorption rate of the demand , so as more supplies coming on , and we know the reason for some of that supply coming on , especially in Victoria around you know a lot of people selling their investment properties because of the government interventions in those particular markets and general affordability and , you know , changing of

the cycle , people potentially also tapping out of the capital gains and realising those gains as well . We can see here that there's been a significant change , so being 22% down on stock and 18% down on stock to now being 18% up in terms of stock and 16% up , and you can see some of these new listings also coming on .

That that's meaning that the absorption rate of demand isn't necessarily being met and that's why we saw a negative result for November in regards to house prices in Melbourne . We can also see here that Perth is continuing on its trajectory of strong growth .

Brisbane also strong growth because we've got these markets here that are showing again a lower supply of new listings compared to other markets . We see here that Hobart has had an absorption of a lot of that sort of 77% increase in listings . So it still has , you know , a challenge in terms of , you know , having too much stock .

So price pressure will continue in those markets . But the new markets where price pressure will continue in the first half of next year will obviously be in that Sydney and Melbourne market and then the other market that's also now challenged from a price point of view will ultimately be the Canberra market . Darwin's the most interesting one in terms of .

There really is a shortage of supply in Darwin , we can see here , you know , there's only 1100 properties for sale in Darwin . So you know that could be a market to watch in the second half of next year because you can start to see the yields and the value story in terms of median house prices for that particular market .

I'm not saying rushed there , I'll talk to you about what macroeconomic variables I'm looking at and forces that I'm looking at . But that tells you a pretty good story in terms of where the market's at . And if we go and have a look at the , you know , let's zoom in on the median house price story .

Here we can see , you know quite clearly that the median in Sydney is still very strong . We're seeing that's what I mean about Darwin's affordability .

People will start sniffing Darwin out soon , as they do , especially investors , I suspect and then you can start to see , you know , hobart falling back down to where it probably it should be in terms of its economic and domestic profile around incomes and age profile and demographics . Perth still has more room to run .

I mean when you think about second highest disposal income in the country . So that's still got a long way to go . You're probably looking at Brisbane being a bit toppy and Adelaide also , you know , starting to get to its affordability price point in terms of what that looks like . So that's the story .

When it comes to , obviously , the value story , I'm now moving the slide deck down to actually start to have a look . Let's zoom in firstly on the story around listings . I want to sort of bring that up cleanly and we can see here so here's the challenge around rents and what's going to happen with rental prices over the course of the year .

So we can see here again , listings . We had a situation here where Canberra and Hobart had really strong availability so they weren't challenged when it came to , you know , sort of vacancy rates and that'll show up shortly in the data that I'll show you in terms of what happened to their rental yields and also rents in those particular markets .

But you can really clearly see that . You know Melbourne had a really tight rental market .

That's eased off a little bit , I suspect , as some of those international students who are finishing their courses will start to head back home , but it really does remain to be seen , all these new arrivals in the new year , just how chronic that supply will start to become in that Melbourne market . As we start to look at that .

Sydney's also still very challenged . Again , as I was saying before , these markets have got ample supply . Hobart still has a healthy supply , come off the higher rates and Canberra has also come off its higher range as well . But you can see across most parts of the country .

You'll start to see that that's playing on in terms of the overall price points and the rental yields coming in . So let's see if we can bring them all into play and we can start to have a look so we can see well what's happened to Canberra rents . Well , canberra rents back in the start of the year , up until January , data was negative three .

It's now started to also go a little bit positive . But remember they have a throttle on how much that they can increase rents in that particular state . They have a rental cap operating in that market . So it's a market I would avoid in terms of . You can see the fastest growing rental markets from a yield point of view in terms of 12 month change .

That's clearly been Melbourne , perth and you can see that in the data . So you saw Perth was already in a challenging state . A lot of investors are coming into that market to hopefully increase supply there . But you can see it's had a really strong result .

So you can see the median rents in Perth now $612 , and you can see again Melbourne and Sydney median rents . Melbourne's got a fair way to go in terms of its median rent increases .

So you would expect that that renters sorry , landlords and accommodation providers in Melbourne will continue to keep ratcheting up their rents to recover the increased tax slugs and also holding costs and sort of minimum standard costs that have been introduced by the current Labor government in Victoria is having a meaningful impact on that and that won't slow down .

So I see Melbourne getting into a really chronic situation when it comes to rental affordability and rental supply . But it's really clear in terms of how you see those trends . So see the 12 month trend for Canberra . So that's the lag effect .

So you can see Canberra had plenty of rental accommodation and the lag effect for the 12 months has been a 3% decline in terms of rent .

Melbourne , perth had really tight rental markets , sydney had really tight rental markets and so you can see a real strong gain in terms of the increase in rental prices in those particular markets , because the market does allow for those accommodation providers to recover some of those higher costs .

So you can see , you know , in terms of the Perth market , it's been super strong and it's still quite tight and so that's obviously resulting in very , very strong rental growth .

And then if you look at the Melbourne market , you can also see strong , tight rental markets and you can then , you know , see that playing out here and that's showing up inside that 12 month lag data that you're seeing there .

But we also saw Hobart having challenges in terms of has plenty of rental supply and that's also resulted in negative growth in terms of rental yields in that particular market . So it's a clear indication that when accommodation provider can provide rental that can increase its rents , it's on the back of the supply and demand equation .

So , and that's going to only get worse in markets like Melbourne where you've got all this additional costs . So at the moment , accommodation providers can put rents up because ultimately , you know , we've got higher interest rates , we've got higher holding costs on those particular properties and , in Melbourne's case , higher taxes .

So there is definitely a flight towards these better markets of Adelaide , perth and Brisbane when it comes to the investor side of the equation as well . So then we have a look at you know what's sort of been changing in that rents over a medium to longer term . So you see that it's always does adjust and it does move through different cycles .

We can see what's happening in terms of rents for houses versus the rents from units there . I'm not going to go through all of the data , but you can start to see basically how those changes occur .

So that gives you a bit of an insight , a deeper dive into the supply side story around listings and rents and in terms of how that impacts the short term demand and supply story . Now you saw those last charts also show it over a long period of time . So all markets will go through those particular cycles .

So before I now talk about the 10 big macro factors and forces that I'm that I'm really seriously considering , I want to also remind everyone that if you are thinking of selling don't I've mentioned this a couple of times in other property updates at the back of my economic and RBA updates , and it really is do whatever you can to hold on to those properties ,

and so I just want to also highlight to you that recently , bryce and I sat down on the couch and we did a couple of videos on that particular story about why you shouldn't sell . So , yeah , why don't you check those out ? If you're watching on the video , you'll see the information below .

If you're listening to the audio , it'll be in the show description and you'll be able to get that information . So check out those , because it really is . You know , try to hold on to those properties because over the longer term we know that the property market is set for significant future growth .

So please be mindful of that , because you'll regret it if you have to sell early .

All right , let's round out this epic large update with with the final messages around the 10 macro forces that I'm looking at when I'm thinking about what's going to influence supply and demand in the short term and how that's then going to ultimately impact the performance of the property market across 2024 . So number one is obviously interest rates .

Number two is inflation on the back of those interest rates .

So ultimately , if we see in the second half of next year we've seen the first half of next year that inflation is under control , we can expect some potential interest rate movement , potentially in the second half of the year , maybe as early as the middle of next year , because we know the lag effects of what happens when interest rates are tightened too far and

the RBA wants to retain as much of that employment story as they possibly can . So that's the juggling act that they'll have to play . Number three is government policies , and so when I'm looking at policy , I'm looking at definitely policies around the rental market . How hard are they making it for accommodation providers to to actually run their businesses ?

How much extra costs are they putting in ? How much extra conditions and caveats and compliance are they putting in as part of that which detracts from the , the investment attraction into residential property ? In terms of planning legislation , so I'm looking at , you know , fast-tracking of , you know planning legislation in New South Wales and Victoria around .

You know getting around local government restrictions and red tape to try and increase that supply story . Then I'm thinking about housing incentives . So we're seeing federal governments introducing a deposit saving schemes and those types of things . And finally , obviously the big ones are negative gearing taxes and also anything to do with the capital gains tax .

It's also available , so that they are big ones .

Apparition number four for me , that 3% buffer rate is having a significant impact on borrowing power and that is , you know , causing the inability for people to actually borrow the money that they need to buy housing , so that one will continually to be a problem child for those people who want to access money and get into the property market , whether it's unoccupied

or investor . People movement that's a big one . That population shift that will go around as economic conditions change between different states and territories , and then that immigration effects . So how many of them are renting versus how many are jumping straight into the property market and where is that happening ?

So I'm interested in terms of how that will play out in 2024 . Building approvals I mentioned it before about that legislation change around planning to allow for those approvals and then how quickly we can build that and introduce that additional supply that the marketplace needs was number six .

Number seven I'm now getting down into the granular states and territory stories . So these are the big things that I'm looking at for each of the different states and territories . First one is their economic management and their short term growth plans and growth forecasts .

There are some states that have been poorly managed from an economic and growth perspective , so those , those markets will be challenged and those economies will be challenged . That's on the back of , obviously you know , mismanagement of debt .

So I'm very interested in terms of how that debt management plays out , especially with higher interest rates , because that ultimately leads to higher taxes , more public servants being sacked , more disruptions , more political uncertainty . So you know , that is potentially going to also play out .

So I'm looking at those poor again , on the back of that poor economic management in the states and territories . And then I'm looking at the advantages and some , like I do , look at Western Australia and I say cheapest form of energy , Got some awesome , you know , sort of cheap gas that they can produce over there .

So manufacturing I'm thinking about how manufacturing might drive over into that particular market in terms of what that story looks like as well . So you know , there's some real positives in some economic markets . Then I look at number nine is unemployment .

So on the back of , you know , jobs , opportunities and a slowing economy , what's going to happen to unemployment ? What's that going to mean for the momentum of the state ? And obviously , the you know the short term values of properties in those particular markets .

And finally , I look at affordability and I , you know , deeply look at incomes and look at demographic profiles in terms of if it's a really large aging population . All those incomes and the economic investment back into the land and the productive use of that land is always going to be compromised over the medium to longer term .

So whilst I look at demand and supply in the short term , my view is always 10 , 15 , 20 years ahead in terms of where that's going to come . So let's recover , let's recap those interest rates , inflation , government policies , apra , people movement and the immigration impact in terms of building approvals , then states and territories .

I'm looking at government management and growth plans in terms of government debt . I'm then looking at the unemployment story and then , ultimately , affordability as part of that story as well . So so that was a huge update . I appreciate you sticking around till the end .

Yes , we're moving into summer , yes , we're moving into the festive season , so I want to wish you and your families the very , very best for this time of the year . It's an amazing time a year to be out and about , but I also want to give a little mention to be some careful out there in terms of .

I first experienced my first melanoma On the side of my face here , so I'm putting out the message around sun care and make sure you've got plenty of protection , because that sun can be very damaged , damaging and potentially deadly , so be careful . So I do plan to be back in February of 2024 .

So until then , a very , very merry Christmas , a happy new year , and I hope your plans for 2024 are realized , because knowledge is empowering , but only if you act on it .

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