Today marks International Women’s Day, with this year’s theme being #BalanceForBetter. Stanford Brown celebrated IWD by attending a breakfast held by Hands Across The Water, a charity dedicated to improving the lives of underprivileged children in Thailand.
Stanford Brown believes that a balanced business is a better business. Last year, we made our diversity data public for the first time. This year’s diversity data can be found here. While we celebrate the balance of ages, gender and culture that we currently enjoy at Stanford Brown, we continue to strive to make our workplace as open and equitable as possible!
Global shares traded lower this week, as a slew of mildly negative developments weighed down on investor sentiment. Upbeat economic data in the US was contrasted by lowered growth expectations in China. Many investors were hoping that Chinese stimulus would be announced National People’s Congress in Beijing, rather, Premier Li Keqiang remarked that the Chinese people “must be fully prepared for a tough struggle”. Some fear that the diverging trends in the Chinese and American economies may result in America having greater leverage, potentially preventing a trade deal from being brokered.
Markets sold off overnight after the European Central Bank cut its growth forecast for the Eurozone to 1.1%, after forecasting growth of 1.7% only three months ago. The ECB announced a fresh round of monetary stimulus in response to the weaker growth projections. The current outlook for the European economy is in stark contrast to late 2017, with markets rallying as investors expected robust growth in Europe to offset the slowdown in the Chinese economy.
In local news, the Reserve Bank of Australia kept interest rates unchanged at the record low level of 1.5%. The RBA hasn’t changed rates since August 2016, and it has been more than eight years since it raised rates.
Finance 101 – Economic Fairy Tales
This week Bill Shorten declared that the upcoming federal election was “a referendum on wages”, promising to raise the minimum wage to a “living wage”. Shorten claims that by raising the minimum wage, we will be preparing the workforce for artificial intelligence, automation, the ageing population and even climate change. We can all agree that it’s not desirable for full time workers to be living in poverty, but what’s the best way to solve this issue?
The price of labour (i.e. wages) is a result of supply and demand. Wages have been stagnant in Australia for several reasons, but a major factor is that Australian workers have seen minimal increases in their productivity (lower demand), whilst globalisation has resulted in higher competition from foreign workers (higher supply). Artificially making the cost of Australian labour more expensive through a higher minimum wage will only accelerate the transfer of low skill jobs out of Australia to countries with lower wages.
So how do we make wages higher in Australia? By producing workers with skills that are in demand. The companies in Silicon Valley don’t pay freshly graduated software engineers $200k out of the kindness of their hearts, but because software engineering is a skill in high demand but low supply. The best way to raise wages would be to reform the education system. More funding isn’t required – $47b was spent by the Commonwealth and state governments on primary and secondary education in 2017, amounting to $12,300 per student. What’s required is a reform in curriculum, with a focus on providing students with employable skills and preparing them for ongoing education and training.
Australia Hits Per Capita Recession
So if Australian productivity has been sputtering in recent years, why has our economy not had a recession in almost 30 years? A booming population, fuelled by high immigration levels, has driven most of Australia’s economic growth since the recession, growing more than 40% since 1991. The tailwind of population growth wasn’t enough to buoy the economy over the previous two quarters, with Australia entering a per capita recession in 2018. This is defined as two consecutive quarters of negative GDP per head.
Many outlets have blamed the weakening property market for the per capita recession, with Sydney sliding a further 1% in February. Sydney property prices have fallen 10.4% over the last 12 months, the first double digit decline since the early 1980’s.
Perhaps surprisingly, units have outperformed houses in Sydney during the downturn. Units are only down 7.8% over the past 12 months, with houses falling 11.5%.
Lowe Gives the Down-Low
But is the sliding property market to blame for the weak economy? RBA Governor Phillip Lowe spoke to business leaders this week at the AFR’s Business Summit, claiming that low wage growth expectations were taking a larger toll on the economy than the downturn in property values.
Most Australian households haven’t used the increased value of their home to finance day-to-day spending, meaning that most homeowners will be able to withstand a prolonged decline in property prices. According to Lowe, Australians are spending less not because their homes are falling in value, but because they are a forecasting lower future salaries.
Running of the Bulls Hits 10 Years!
Wednesday marked 10 years since global markets bottomed out in the wake of the GFC. Since then, the ASX 300 has almost doubled, whilst the S&P 500 has more than quadrupled, and that’s before taking dividends into account! Who said property beats shares?
The chart below provides some insight to the wealth effect, whereby changes in perceived wealth influence the decision making of consumers. 10 years ago, the world’s cheapest car was being produced. This week, Bugatti released the most expensive new car of all time, initially being marketed for $12.5m USD before being bought by a mystery buyer for $27m AUD. Perhaps a sell signal?