INTEREST RATE OUTLOOK

RBA EXTENDS CHRISTMAS CHEER
The board of the Reserve Bank of Australia has held the basic cash interest rate remaining at 5.5 percent for what is now 9 months. They made no comment on the state of the economy in today’s statement.

NATIONAL ECONOMIC SUMMARY

CORRECTION CORRECTED
In a little more than two months of the stock market downturn correction, stock prices have bounced back to exceed September levels and sustain those gains. This means the national economy is on its way to 15 years of sustained growth with corporate profits also at record levels. There are now many predictions of a slowdown - mainly on the basis that such growth has to taper off sooner or later. They point to inevitable flow-throughs of oil price rises, wage rises and weakening consumer demand but concede many indicators look good for a reasonable 2006.

WAGES & PRODUCTIVITY
Job advertising is enjoying a record high currently with the latest official figures on wages growth from the Bureau of Statistics showing a jump to an annual rate of 4.1 percent so far this year. That is the fastest pace for 8 years.

Additionally, productivity increases have slowed with various industry groups saying times are tough. Manufacturing in most sectors is in a decline with only those serving the mining sector enjoying growth. And the strength of the minerals sector is the main reason for the narrowing of the external trading deficit. Additionally, the services sector is very strong with the Australian Performance of Services Index climbing nearly 9 percent on the back of good industrial sales across the board in November and company profits continue to be strong with the last quarter showing an increase of over 3 percent.

ECONOMIC INDICATORS
Following a long period of unprecedented increases, new vehicle sales figures show a levelling off with the last month’s figures revealing a 7 percent downturn from the same period last year. But the industry has not lost confidence pointing to a recent downturn in the price of petrol which should put total sales back on track to exceed one million for this year. And one of those all-time favourite barometers, the gold price, at over $US500 an ounce is at a 24 year high.

BUSINESS CONFIDENCE SLUMPS
Despite company profits having increased by an average of nearly 4 percent this year, the latest Dunn & Bradstreet Business Expectations Survey into business confidence puts it at the lowest since the recession of 1991 for the period beginning after Christmas. This is being fuelled by the oil price moving back up again driven by the annual demand from the northern hemisphere winter.

HOUSING UP & DOWN
Housing loans have bounced back with an increase of over one percent for the last month on record. Leading players LJ Hooker and BIS Shrapnel have joined forces to claim the spring selling season has shown the Melbourne, Adelaide and Brisbane housing markets are on the way back up but Sydney continues to drop, the latter suffering badly with a near 10 percent drop in prices over the same period last year.

Against that, Access Economics latest research says the situation is less rosy with 5 of the 8 main cities being down. The Bureau of Statistics say their own research reveals a drop of around one percent nationally. And a European-based global study into housing costs went as far as saying Australian prices are among the highest in the world when measured against rents.

WHO GETS MOST CHEER
To summarise Australian Christmas spending, it is being forecast at $23 billion which will go in the main to only 14 percent of businesses. These are in retail, recreation and hospitality. The remainder will have to cope as always with the lack of cash flow and high expenses of the holiday season.

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