House prices in December rose by 0.8%
The average price of all residential property transactions completed in England & Wales in December 2009 was 0.8% higher than in November. This is the eighth month in succession in which FTHPI has increased, although the rate is slowing.
Prices end the year 4.2% higher
On an annual basis, in December, the average price of all residential property transactions in England & Wales was 4.2% higher than a year ago - a significant market recovery. It was the second consecutive month in which the annual rate of change in house prices was positive.
November housing transactions lower than previous month
In November 2009, the number of houses sold in England and Wales will total approximately 58,000. This is a reduction of almost 40% on the 10 year average for the month of c.95,000.
Dr Peter Williams, Chairman of Acadametrics, said
“The average price of a home has continued to rise and, at £214,283, is back to where it was in December 2006, three years ago. The current monthly house price increase of 0.8% is the eighth in succession, suggesting a recovery that is now well entrenched. However, as we go on to show, the rate of increase has been slowing since September and there are strong regional variations in the recovery story. This does underline the considerable uncertainty which exists as to the likely trend of house prices in 2010.”
“The average price of a home in England & Wales is now £214,283. At this level, it is still down £17,540 from its peak in February 2008 of £231,823, but clearly, on average, prices have stabilised and the index is showing a 4.2% increase over the last twelve months. All major indices are trending in the same direction, whilst recognising that FTHPI covers all transactions, both mortgaged and cash sales, but only for England and Wales. The fact that there remain strong regional variations in this reported trend does mean that household experience will vary considerably, although prices in all regions are also currently moving in the same direction - upwards.
“It is clear that, at 0.8% compared to 0.9% in the previous month (and to 1% in October and 1.2% in September), price increases have been moderating over the last three months, but it is too early to say with any confidence as to whether this trend will continue. The latest Bank of England statistics indicate that mortgage lending to households increased by £1.5 billion in November, and its most recent Credit Conditions Survey reported „a further slight increase in the availability of secured credit was expected‟ over the first three months of 2010. This continues to suggest a slow recovery in the mortgage market which will, in turn, constrain transactions and prices.”
HOUSING TRANSACTIONS
“Overall, the number of housing transactions in England and Wales has increased by 32% over the last three months (September–November 2009) compared with the same three months in 2008. However, this single statistic hides two distinct underlying trends. The first trend is of a North/Midlands/South divide in the increase in the number of homes sold. In the Northern regions and Wales, the average increase in housing transactions has been 19% or less; in the Midlands the increase has been between 23% and 27% whilst, in the Southern regions including London, there has been an annual increase of 38% to 49% in the number of properties sold.
“The second trend is that of different activity levels by property type. Over the three months September–November 2009, compared with the same three months in 2008, increases in the numbers of properties sold have been as follows: detached 53%, semi-detached 40%, terraces 26% and flats 10%. Flats continue to represent the current “weak” sector in the market. These are traditionally associated with the „First Time Buyer‟ and „Buy to Let‟ markets - both impacted by the continuing limited supply of mortgages and tighter loan terms. Although there is some suggestion that the flow of mortgage finance is beginning to ease, it is likely that any recovery will be slow.”
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Wednesday, January 27, 2010
Great Depression Vs Now - Something to consider
On my recent trip to USA I learnt some incredible things on the business courses I was on. One thing which was amazing was the comparison between what happenend in 1929 in the Great Depression and where we are now.
At the end of the day you need to be very vigilant to turn this market into opportunity!
Here are some great articles to understand what I am talking about.
http://finance.yahoo.com/news/1929-And-Today-Sobering-etfguide-2101131945.html?x=0
http://www.voxeu.org/index.php?q=node/3421
http://www.bestcashcow.com/the_economy/article/sol_nasisi/dow-jones-industrials-crash-analysis-great-depression-versus-today
http://peterjcooper.files.wordpress.com/2009/10/dow-jones-bear-market-comparison-great-depression-current-2008-20091.jpg
http://www.boom2bust.com/wp-content/uploads/2009/03/recession-vs-great-depression.jpg
http://www.noradarealestate.com/blog/the-housing-bust-the-final-chapter/#more-366
At the end of the day you need to be very vigilant to turn this market into opportunity!
Here are some great articles to understand what I am talking about.
http://finance.yahoo.com/news/1929-And-Today-Sobering-etfguide-2101131945.html?x=0
http://www.voxeu.org/index.php?q=node/3421
http://www.bestcashcow.com/the_economy/article/sol_nasisi/dow-jones-industrials-crash-analysis-great-depression-versus-today
http://peterjcooper.files.wordpress.com/2009/10/dow-jones-bear-market-comparison-great-depression-current-2008-20091.jpg
http://www.boom2bust.com/wp-content/uploads/2009/03/recession-vs-great-depression.jpg
http://www.noradarealestate.com/blog/the-housing-bust-the-final-chapter/#more-366
South African growth prospects
By Cees Bruggemans, Chief Economist FNB
25 January 2010
We have completed an economic downswing and are now embarked on a new economic upswing of rising economic activity and incomes.
But it could well be an upturn that disappoints a bit, at least for some while, not unlike 1999-2003 (average GDP growth of 3.2%) or 1994-1998 (2.7%) or 1986-1989 (2.2%).
Perhaps first a quick survey of the recently completed downturn, followed by some tentative speculation about what may follow in 2010 (and beyond).
According to SARB data, the level of household consumption peaked in 2Q2008, total fixed investment peaked in 1Q2009, total domestic demand peaked in 1Q2009 and imports peaked in 3Q2008, thereafter declining, with none of these spending items yet having bottomed (but expected to do so in 4Q2009 except for fixed investment).
Only government consumption spending has never stopped rising (surprise, surprise). Exports and GDP both peaked in 3Q2008, thereafter declining, with both rising marginally from 3Q2009 with steadfast promise for 4Q2009.
So far, nothing especially disturbing.
When we turn to growth numbers, and we examine the first three quarters of 2009, comparing it with the first three quarters of 2008, we are getting a close approximation of what 2009 overall will probably look like, give or take a decimal point twitching here or there.
There are some surprises in the make-up, mostly pleasant ones.
Household consumption fell by 3.4% in 2009, but government consumption and total fixed investment rose by 4.7% each, causing final demand (some R100bn bigger than total GDP) to fall by a very miniscule 0.3%.
Not much of a recession, compared to the much worse experiences in some other parts in the world? Then again, could some of these numbers still be overstated?
As the SARB’s spending estimates get reconciled with the StatsSA GDP output estimate (and not the other way round), the reconciling items are net foreign trade (which is mostly the real thing, not an estimate), change in inventories (already more a thumb suck) and the residual (the reconciling item proper).
Inventories and the residual item taken together turned out to have declined by 1.6% of GDP in 2009.
When we take final demand and inventory/residual together (-0.3% and -1.6%) we get the 1.9% decline in total domestic demand in 2009. With net trade still improving by 0.1%, overall GDP declined by 1.8%. The final GDP number for 2009 may be slightly better, -1.5% to -1.7%. After future revisions it may prove to be even better.
Interestingly, the inventory/residual/trade components explain 85% of the decline in GDP in 2009. Final demand only does 15%.
It may well be that the level of final demand is still overstated and that consequently the inventory decline has been overstated, with corrections to be made to both in coming years.
But the good news by far is that the largest hit to GDP came from once-off inventory shedding. With its pace slowing down dramatically in 4Q2009, going by the Kagiso Purchasing Managers Index survey, the quarterly bounce is upon us and GDP can presumably only improve further from 4Q2009 onward.
But there is still the composition of the other spending items to be taken into account. Inventories may involve mindless reactionary response, with stabilization following panic cuts and thereafter slow upturns matching final sales performance and responding to any product shortages. But what really rules the roost among the other spending components?
Exports are a function of overseas demand conditions (and our trade competitiveness), household consumption is mostly a matter of habit and government consumption is mostly a matter of political addiction. You will probably agree that this is more mindless stuff.
But fixed investment (especially its private component, along with consumer durable goods replacement) is a function of expectations and uncertainty in which emotion plays a strongly central and independent role. Remember Keynes over a lifetime ago? Nothing has yet changed in our Stone Age make-up.
Imports are a simple function of all these spending items combined, and our relative trade competitiveness.
What can we say about the internal machinations of some of these larger components of spending in the economy during the recent downswing?
The level of total household consumption may have peaked in 2Q2008 and so far has not stopped declining, but it is made up of components with widely varying experiences and these create ultimately funny averages.
Durable consumption (weight of 9% in total household spending) peaked as long ago as 1Q2007, fell over 20% and rose for the first time (minimally) in 3Q2009. The rebound had finally begun!
Semi-durable consumption spending (weight of 11%) peaked in 1Q2009 and had declined by only 3% by 3Q2009 (but with no bottom as yet confirmed). This spending item proved impressively recession-proof so far, but not entirely.
Non-durable consumption spending (weight of 37%) peaked long ago in 2Q2008, since then declining by 5% with as yet no bottom confirmed, matching a weighted employment loss for this period in the economy (full pay-packets being most relevant to this spending item, though important support has been forthcoming from increased transfer payments – government allowances).
Service spending (weight of 43%) peaked late in 4Q2008, fell minimally by 2.5% and was rebounding by 3Q2009, driven by the real modern necessities in our lives.
What’s the good news, and what’s the bad?
Habit supposedly is hardcore here, but there is more.
Durable spending has been lowered so deeply and so long by simply postponing replacement, but these goods wear out and ultimately conditions improve sufficiently for the consumer to be tempted into replacement.
But there is an expectation component here, and many consumers are clearly still bomb-shocked, going by the FNB/BER consumer confidence survey, despite the enticement of low, low interest rates (the same not always being true of all sticker prices, new cars for example, although second-hand was for a while very attractive, good bargains could be had in the furniture and appliances trades and the housing market went rock bottom for a while).
The non-durable component is awaiting the end of job shedding overall (probably imminent) while benefiting from the steadily increasing transfer payment flow. Non-durable spending should therefore bottom soon. Its upturn, though, could be anemic, along with employment, depending to what happens to overall incomes.
The semi-durables do suffer from being non-necessity but they are fun and pick-me-ups, last to economise on and rather quick to give a new lease on the happy life. Semis may bounce shortly, not least because imported prices will remain advantageous (relative value, though having to compete with durable replacement ere long as the credit decision starts to be resurrected – probably an important headwind for semis for the early part of the upswing).
For a while semis may take a back seat to durables, but not in every income category.
That leaves our dire modern necessities (services) likely to lead the recovery parade, at least initially (until finally overtaken by the durable recovery on credit steroids and need to replace aging stuff, but we may have aged a bit ourselves before we get there – this doesn’t yet feel like a cyclical upswing on automatic).
So services in the lead, hesitantly followed by durables finally off the lowered floor (just), with semis and non-durables still to confirm bottoms and thereafter probably hesitant recovery affairs guided by a myriad of uncertain influences.
Optimism sounds differently, right? This sounds more like describing Banafa Banafa’s chances in the upcoming World Cup, statistically not entirely impossible but not quite promising either.
Household consumption really depends on what happens to income, which is really decided elsewhere.
Which brings into focus two bruisers, government and the private business sector, the one gung ho, the other rather subdued, and no prizes for guessing who’s who in this zoo at present.
Government clearly knows where its priorities lie. Its consumption spending growth remains impressive (forward momentum of over 4% annually), while its infrastructure commitment is by now legendary (mostly in a negative sense – Eskom et al – but really very positive – not only World Cup but also the impressive broader infrastructure fixed investment data).
Private business, on the other hand, impressively turned tail during 2009. Long last seen such a pell-mell retreat. Smells of panic. But then electricity and export collapses were no joke, with the world on the brink of financial collapse in late 2008 and even still in early 2009. Even the strongest minds don’t fight those unequal odds for long, except if your name is Canute (and the tide finally did take him).
The total fixed investment story has two layers of two dimensions each (private versus public and sector versus type of assets). All these have individual stories to tell, about the downswing (heroics as well as deplorable collapses cheek-by-jowl), with probable pointers as to what comes next.
First, let us hail the heroes.
By sector, fixed investment in electricity capacity leads the parade (you would never have guessed, would you?), with a 75% gain in 2009. This is followed by transport and communication (really the public component of the former and the private component of the later) gaining 15% in fixed investment spending in 2009. Both these sectors have shown no interruption to their steady cyclical advance during the 2000s decade.
Surprisingly, perhaps, mining was also 9% up in 2009 (but then 2008 was an atrocious base, lest we forget). But mining fixed investment was already faltering again in 2H2009, suggesting the year overall may not be so good, and the speed of recovery in 2010 will depend on many, many things (commodity prices, the Rand, cost escalation, wages, electricity, bureaucracy, taxes).
Closing the Parade of Heroes is general government fixed investment (no surprise) and personal services, steadily increasing fixed investment by 2.5% through weather foul and fair, mostly isolated from the worst cyclical excesses.
If only this public and private partnership (thinking cricket) could have been the entire story, we would have had an indomitable fixed investment story (save for the mining qualification, and not forgetting the deep hardship in private transportation services).
But these qualifications were after all only the minor exceptions. We still need to visit manufacturing. Its fixed investment was down 18% in 2009 as the panic was very real, not only in exports but also in inventory shedding domestically hitting output. Manufacturing fixed investment peaked in 3Q2008, sliding since then by 27% overall and it has yet to bottom.
Financial services saw its fixed investment down by 9% in 2009, mainly due to fewer completed houses added to bank lending portfolios. Its peak was as long ago as 3Q2007 after which the building cycle turned down viciously, with such investment also yet to bottom (but probably being very close now).
This sector split is also reflected in the public versus private split. Fixed investment in the parastatals (Eskom, Transnet mainly) up by 42% in 2009, general government up by 4.3%, with the private sector down by a limited 3.9% (the latter reflecting a welter of different experiences, as discussed, and still weighing a heavy 70% in total investment spending).
So the general 4.7% lift in total fixed investment during 2009 was nearly entirely a public (infrastructure) story, as will again be seen just now in the type of asset analysis. But what are the ramifications for 2010? Can this locomotive keep carrying all?
When analyzing fixed investment by type of asset, a somewhat more demoralizing picture presents itself though there are redeeming features (stabilizers).
The hero is construction works (up 40% in 2009, with no peak in sight, by now with a weight of a third in overall fixed investment, unprecedented for us in recent decades).
Interestingly, transport equipment was also up by 20% in 2009, but this was clearly not the automotive component or any other private component. It was all public.
Non-residential (office, retail, industrial) building fixed investment was also still up, a modest 4.5% in 2009 though receding fast, mostly because large projects take time winding down after the onset of a downswing proper.
But the main drag anchors were the important ones.
Residential building investment peaked as long ago as 1Q2007, since then falling by 20%, with 10% down in 2009 alone, with no bottom in sight yet (though close, for you can only fall so far twelve months into an aggressive interest rate cutting cycle, and mindsets slowly resetting to zero from total panic after the financial crisis scare).
The most shocking performance, again throwing light on mainly the private sector (if only being the dark matter hidden in this number) was fixed investment in machinery and equipment, by now with a weight of only 27% overall (which for us in recent decades is unprecedented low).
This item peaked in 4Q2008 (late), but then fell by 27% in less than a year with no bottom yet, largely explaining (along with the business inventory gutting) why imports collapsed so impressively in 2009.
The good news here must be that the panic of 2008 must have been mostly absorbed by now, that boardrooms must have retreated a safe distance after discounting their worst fears, and that a new base line for future operations has probably been established.
But digging in at a safe distance to cautiously watch uncertain proceedings is not quite the heroics of WW1 trench warfare, out of your foxholes, over the parapet and into a hail of bullets seeking glory. They don’t make them like that anymore, at least not in Western societies.
Still, relative calm seems to be returning to the investment frontline (except for electricity, though here there may also be some movement as light is seen at the end of a very dark tunnel and it may after all not be an onrushing train). The worst cases of shellshock have probably exited, nerves have been calming down, the damage to balance sheets largely contained, there is a new day dawning and the early bird catches the worm (also the first bullet, so be careful).
So a bottom is probably not far away.
Like with residential investment, these huge drag anchors are probably close to stabilizing. Taking off anew into the blue yonder is another matter, but at least that’s where attention can shift next. For the SARB leading indicator is certainly rising smartly now.
Before doing so, a last thought about inventories. The shedding during 2009 was impressive, conserving cash flows, eliminating dead capital, reducing dependence on bank lines that got more expensive.
But that gutting is mostly complete, holes have probably fallen into many shelved products (shortages of stock are encountered everywhere) and with final demand lifting new ordering should improve. The inventory rebound effect on final GDP during 2010 should ultimately be as good as the shedding was in the downswing of 2009.
So with inventories on mindless automatic, public sector investment and government consumption heroically charging ahead, and household consumption mostly a function of income and habit (with export income directly correlated with improving global fortunes, nicely impressive so far), the real domestic swing factor determining ultimate speed of recovery are expectations, durable consumer replacement and business fixed investment commitment.
Okay, we are back to shell-shocked mindsets. How are our patients today? Ready to be manly and at them or rather not yet? Will a few more vitamins do the job (which is what interest rate cuts ultimately really are for the economy)? Or can we get the job done under own power? Do speak up if you could do with another shot for how are we going to know otherwise your state of mind and being?
We realize consumers and boardrooms have been through a torrid time. How torrid has actually never been properly analysed, for that one needs to turn to Freud (and there are very few such aspirants among economists), while psychiatrists generally prove uninterested.
This latest down cycle wasn’t quite your average fare, and we have been through a few bad ones in recent decades. But instead of the action being all domestic (and the political antics certainly didn’t help on any given day these past two years), it was the contemplation of Armageddon globally that had everybody running for their grottos.
Undoing that may take time. Still, equipment will wear out, requiring replacement eventually, but it is remarkable how a recalcitrant manager can push that out in time. Never mind having courage to embark on great new things, committing the balance sheet more aggressively. That will take time.
With the global recovery and renewal story also likely to be a rather drawn-out affair, with still many spills along the way upsetting new apple carts episodically, it will take time for real confidence to return. And this into the gale offered by local ideological policy conflict, further colouring risk unacceptably at times.
Overall, yes, we are set on recovery.
And, yes, the export rebound on the back of global revival and the mindless inventory dynamic will provide lift to GDP in 2010, with good support from ongoing government heroics and households acting mostly out of habit to whatever is being offered to them.
But the real swing factor for the economy, from heavy drag to exuberant change agent, will be consumer durable longings and business fixed investment commitments.
These last two components, with a combined weight of over 20% in GDP, is where our combined cyclical weakness is currently most pronounced still.
They will be back, both of them. But it will take time. Much patience, love, understanding, a shot in the arm once in a while, and much rest.
While we wait for them, our growth will probably be pedestrian and mostly jobless, certainly in most of the private sector. A bleak prospect for a while. But this will also pass, as so much else.
The real debate should be about whether this recuperation process should now be left entirely on autopilot, or whether there should be yet more policy support. Both views have their champions, and their detractors.
But that outperformance will probably have to wait awhile is a general expectation encountered everywhere, also in government, and therefore an extra spur to good governance, an unexpected bonus.
The GDP growth outlook for 2010 therefore still looks modest, probably some 1.5%-2.5% and that off a low base.
Formal employment is 5% off its cyclical peak (while the labour pool has kept growing for two years).
Industrial capacity utilization is well below 80%, more so in the residential building industry which is closer to 50%. There is no safety margin in electricity supply.
The Rand is overvalued on most clear days and the global outlook complex, if sunny.
The new upswing will for quite some while feel like a tiresome uphill struggle. Nothing new in that either, going by the last forty years.
This is probably one more very important reason why business is currently still so very modest in its initial investment response.
A very long learning curve establishes its own expectations base once hubris has been pricked anew. It takes time to overcome this. Sometimes it takes a lifetime. That’s the real business cost of rudely pricking periodic bubbles.
Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics
25 January 2010
We have completed an economic downswing and are now embarked on a new economic upswing of rising economic activity and incomes.
But it could well be an upturn that disappoints a bit, at least for some while, not unlike 1999-2003 (average GDP growth of 3.2%) or 1994-1998 (2.7%) or 1986-1989 (2.2%).
Perhaps first a quick survey of the recently completed downturn, followed by some tentative speculation about what may follow in 2010 (and beyond).
According to SARB data, the level of household consumption peaked in 2Q2008, total fixed investment peaked in 1Q2009, total domestic demand peaked in 1Q2009 and imports peaked in 3Q2008, thereafter declining, with none of these spending items yet having bottomed (but expected to do so in 4Q2009 except for fixed investment).
Only government consumption spending has never stopped rising (surprise, surprise). Exports and GDP both peaked in 3Q2008, thereafter declining, with both rising marginally from 3Q2009 with steadfast promise for 4Q2009.
So far, nothing especially disturbing.
When we turn to growth numbers, and we examine the first three quarters of 2009, comparing it with the first three quarters of 2008, we are getting a close approximation of what 2009 overall will probably look like, give or take a decimal point twitching here or there.
There are some surprises in the make-up, mostly pleasant ones.
Household consumption fell by 3.4% in 2009, but government consumption and total fixed investment rose by 4.7% each, causing final demand (some R100bn bigger than total GDP) to fall by a very miniscule 0.3%.
Not much of a recession, compared to the much worse experiences in some other parts in the world? Then again, could some of these numbers still be overstated?
As the SARB’s spending estimates get reconciled with the StatsSA GDP output estimate (and not the other way round), the reconciling items are net foreign trade (which is mostly the real thing, not an estimate), change in inventories (already more a thumb suck) and the residual (the reconciling item proper).
Inventories and the residual item taken together turned out to have declined by 1.6% of GDP in 2009.
When we take final demand and inventory/residual together (-0.3% and -1.6%) we get the 1.9% decline in total domestic demand in 2009. With net trade still improving by 0.1%, overall GDP declined by 1.8%. The final GDP number for 2009 may be slightly better, -1.5% to -1.7%. After future revisions it may prove to be even better.
Interestingly, the inventory/residual/trade components explain 85% of the decline in GDP in 2009. Final demand only does 15%.
It may well be that the level of final demand is still overstated and that consequently the inventory decline has been overstated, with corrections to be made to both in coming years.
But the good news by far is that the largest hit to GDP came from once-off inventory shedding. With its pace slowing down dramatically in 4Q2009, going by the Kagiso Purchasing Managers Index survey, the quarterly bounce is upon us and GDP can presumably only improve further from 4Q2009 onward.
But there is still the composition of the other spending items to be taken into account. Inventories may involve mindless reactionary response, with stabilization following panic cuts and thereafter slow upturns matching final sales performance and responding to any product shortages. But what really rules the roost among the other spending components?
Exports are a function of overseas demand conditions (and our trade competitiveness), household consumption is mostly a matter of habit and government consumption is mostly a matter of political addiction. You will probably agree that this is more mindless stuff.
But fixed investment (especially its private component, along with consumer durable goods replacement) is a function of expectations and uncertainty in which emotion plays a strongly central and independent role. Remember Keynes over a lifetime ago? Nothing has yet changed in our Stone Age make-up.
Imports are a simple function of all these spending items combined, and our relative trade competitiveness.
What can we say about the internal machinations of some of these larger components of spending in the economy during the recent downswing?
The level of total household consumption may have peaked in 2Q2008 and so far has not stopped declining, but it is made up of components with widely varying experiences and these create ultimately funny averages.
Durable consumption (weight of 9% in total household spending) peaked as long ago as 1Q2007, fell over 20% and rose for the first time (minimally) in 3Q2009. The rebound had finally begun!
Semi-durable consumption spending (weight of 11%) peaked in 1Q2009 and had declined by only 3% by 3Q2009 (but with no bottom as yet confirmed). This spending item proved impressively recession-proof so far, but not entirely.
Non-durable consumption spending (weight of 37%) peaked long ago in 2Q2008, since then declining by 5% with as yet no bottom confirmed, matching a weighted employment loss for this period in the economy (full pay-packets being most relevant to this spending item, though important support has been forthcoming from increased transfer payments – government allowances).
Service spending (weight of 43%) peaked late in 4Q2008, fell minimally by 2.5% and was rebounding by 3Q2009, driven by the real modern necessities in our lives.
What’s the good news, and what’s the bad?
Habit supposedly is hardcore here, but there is more.
Durable spending has been lowered so deeply and so long by simply postponing replacement, but these goods wear out and ultimately conditions improve sufficiently for the consumer to be tempted into replacement.
But there is an expectation component here, and many consumers are clearly still bomb-shocked, going by the FNB/BER consumer confidence survey, despite the enticement of low, low interest rates (the same not always being true of all sticker prices, new cars for example, although second-hand was for a while very attractive, good bargains could be had in the furniture and appliances trades and the housing market went rock bottom for a while).
The non-durable component is awaiting the end of job shedding overall (probably imminent) while benefiting from the steadily increasing transfer payment flow. Non-durable spending should therefore bottom soon. Its upturn, though, could be anemic, along with employment, depending to what happens to overall incomes.
The semi-durables do suffer from being non-necessity but they are fun and pick-me-ups, last to economise on and rather quick to give a new lease on the happy life. Semis may bounce shortly, not least because imported prices will remain advantageous (relative value, though having to compete with durable replacement ere long as the credit decision starts to be resurrected – probably an important headwind for semis for the early part of the upswing).
For a while semis may take a back seat to durables, but not in every income category.
That leaves our dire modern necessities (services) likely to lead the recovery parade, at least initially (until finally overtaken by the durable recovery on credit steroids and need to replace aging stuff, but we may have aged a bit ourselves before we get there – this doesn’t yet feel like a cyclical upswing on automatic).
So services in the lead, hesitantly followed by durables finally off the lowered floor (just), with semis and non-durables still to confirm bottoms and thereafter probably hesitant recovery affairs guided by a myriad of uncertain influences.
Optimism sounds differently, right? This sounds more like describing Banafa Banafa’s chances in the upcoming World Cup, statistically not entirely impossible but not quite promising either.
Household consumption really depends on what happens to income, which is really decided elsewhere.
Which brings into focus two bruisers, government and the private business sector, the one gung ho, the other rather subdued, and no prizes for guessing who’s who in this zoo at present.
Government clearly knows where its priorities lie. Its consumption spending growth remains impressive (forward momentum of over 4% annually), while its infrastructure commitment is by now legendary (mostly in a negative sense – Eskom et al – but really very positive – not only World Cup but also the impressive broader infrastructure fixed investment data).
Private business, on the other hand, impressively turned tail during 2009. Long last seen such a pell-mell retreat. Smells of panic. But then electricity and export collapses were no joke, with the world on the brink of financial collapse in late 2008 and even still in early 2009. Even the strongest minds don’t fight those unequal odds for long, except if your name is Canute (and the tide finally did take him).
The total fixed investment story has two layers of two dimensions each (private versus public and sector versus type of assets). All these have individual stories to tell, about the downswing (heroics as well as deplorable collapses cheek-by-jowl), with probable pointers as to what comes next.
First, let us hail the heroes.
By sector, fixed investment in electricity capacity leads the parade (you would never have guessed, would you?), with a 75% gain in 2009. This is followed by transport and communication (really the public component of the former and the private component of the later) gaining 15% in fixed investment spending in 2009. Both these sectors have shown no interruption to their steady cyclical advance during the 2000s decade.
Surprisingly, perhaps, mining was also 9% up in 2009 (but then 2008 was an atrocious base, lest we forget). But mining fixed investment was already faltering again in 2H2009, suggesting the year overall may not be so good, and the speed of recovery in 2010 will depend on many, many things (commodity prices, the Rand, cost escalation, wages, electricity, bureaucracy, taxes).
Closing the Parade of Heroes is general government fixed investment (no surprise) and personal services, steadily increasing fixed investment by 2.5% through weather foul and fair, mostly isolated from the worst cyclical excesses.
If only this public and private partnership (thinking cricket) could have been the entire story, we would have had an indomitable fixed investment story (save for the mining qualification, and not forgetting the deep hardship in private transportation services).
But these qualifications were after all only the minor exceptions. We still need to visit manufacturing. Its fixed investment was down 18% in 2009 as the panic was very real, not only in exports but also in inventory shedding domestically hitting output. Manufacturing fixed investment peaked in 3Q2008, sliding since then by 27% overall and it has yet to bottom.
Financial services saw its fixed investment down by 9% in 2009, mainly due to fewer completed houses added to bank lending portfolios. Its peak was as long ago as 3Q2007 after which the building cycle turned down viciously, with such investment also yet to bottom (but probably being very close now).
This sector split is also reflected in the public versus private split. Fixed investment in the parastatals (Eskom, Transnet mainly) up by 42% in 2009, general government up by 4.3%, with the private sector down by a limited 3.9% (the latter reflecting a welter of different experiences, as discussed, and still weighing a heavy 70% in total investment spending).
So the general 4.7% lift in total fixed investment during 2009 was nearly entirely a public (infrastructure) story, as will again be seen just now in the type of asset analysis. But what are the ramifications for 2010? Can this locomotive keep carrying all?
When analyzing fixed investment by type of asset, a somewhat more demoralizing picture presents itself though there are redeeming features (stabilizers).
The hero is construction works (up 40% in 2009, with no peak in sight, by now with a weight of a third in overall fixed investment, unprecedented for us in recent decades).
Interestingly, transport equipment was also up by 20% in 2009, but this was clearly not the automotive component or any other private component. It was all public.
Non-residential (office, retail, industrial) building fixed investment was also still up, a modest 4.5% in 2009 though receding fast, mostly because large projects take time winding down after the onset of a downswing proper.
But the main drag anchors were the important ones.
Residential building investment peaked as long ago as 1Q2007, since then falling by 20%, with 10% down in 2009 alone, with no bottom in sight yet (though close, for you can only fall so far twelve months into an aggressive interest rate cutting cycle, and mindsets slowly resetting to zero from total panic after the financial crisis scare).
The most shocking performance, again throwing light on mainly the private sector (if only being the dark matter hidden in this number) was fixed investment in machinery and equipment, by now with a weight of only 27% overall (which for us in recent decades is unprecedented low).
This item peaked in 4Q2008 (late), but then fell by 27% in less than a year with no bottom yet, largely explaining (along with the business inventory gutting) why imports collapsed so impressively in 2009.
The good news here must be that the panic of 2008 must have been mostly absorbed by now, that boardrooms must have retreated a safe distance after discounting their worst fears, and that a new base line for future operations has probably been established.
But digging in at a safe distance to cautiously watch uncertain proceedings is not quite the heroics of WW1 trench warfare, out of your foxholes, over the parapet and into a hail of bullets seeking glory. They don’t make them like that anymore, at least not in Western societies.
Still, relative calm seems to be returning to the investment frontline (except for electricity, though here there may also be some movement as light is seen at the end of a very dark tunnel and it may after all not be an onrushing train). The worst cases of shellshock have probably exited, nerves have been calming down, the damage to balance sheets largely contained, there is a new day dawning and the early bird catches the worm (also the first bullet, so be careful).
So a bottom is probably not far away.
Like with residential investment, these huge drag anchors are probably close to stabilizing. Taking off anew into the blue yonder is another matter, but at least that’s where attention can shift next. For the SARB leading indicator is certainly rising smartly now.
Before doing so, a last thought about inventories. The shedding during 2009 was impressive, conserving cash flows, eliminating dead capital, reducing dependence on bank lines that got more expensive.
But that gutting is mostly complete, holes have probably fallen into many shelved products (shortages of stock are encountered everywhere) and with final demand lifting new ordering should improve. The inventory rebound effect on final GDP during 2010 should ultimately be as good as the shedding was in the downswing of 2009.
So with inventories on mindless automatic, public sector investment and government consumption heroically charging ahead, and household consumption mostly a function of income and habit (with export income directly correlated with improving global fortunes, nicely impressive so far), the real domestic swing factor determining ultimate speed of recovery are expectations, durable consumer replacement and business fixed investment commitment.
Okay, we are back to shell-shocked mindsets. How are our patients today? Ready to be manly and at them or rather not yet? Will a few more vitamins do the job (which is what interest rate cuts ultimately really are for the economy)? Or can we get the job done under own power? Do speak up if you could do with another shot for how are we going to know otherwise your state of mind and being?
We realize consumers and boardrooms have been through a torrid time. How torrid has actually never been properly analysed, for that one needs to turn to Freud (and there are very few such aspirants among economists), while psychiatrists generally prove uninterested.
This latest down cycle wasn’t quite your average fare, and we have been through a few bad ones in recent decades. But instead of the action being all domestic (and the political antics certainly didn’t help on any given day these past two years), it was the contemplation of Armageddon globally that had everybody running for their grottos.
Undoing that may take time. Still, equipment will wear out, requiring replacement eventually, but it is remarkable how a recalcitrant manager can push that out in time. Never mind having courage to embark on great new things, committing the balance sheet more aggressively. That will take time.
With the global recovery and renewal story also likely to be a rather drawn-out affair, with still many spills along the way upsetting new apple carts episodically, it will take time for real confidence to return. And this into the gale offered by local ideological policy conflict, further colouring risk unacceptably at times.
Overall, yes, we are set on recovery.
And, yes, the export rebound on the back of global revival and the mindless inventory dynamic will provide lift to GDP in 2010, with good support from ongoing government heroics and households acting mostly out of habit to whatever is being offered to them.
But the real swing factor for the economy, from heavy drag to exuberant change agent, will be consumer durable longings and business fixed investment commitments.
These last two components, with a combined weight of over 20% in GDP, is where our combined cyclical weakness is currently most pronounced still.
They will be back, both of them. But it will take time. Much patience, love, understanding, a shot in the arm once in a while, and much rest.
While we wait for them, our growth will probably be pedestrian and mostly jobless, certainly in most of the private sector. A bleak prospect for a while. But this will also pass, as so much else.
The real debate should be about whether this recuperation process should now be left entirely on autopilot, or whether there should be yet more policy support. Both views have their champions, and their detractors.
But that outperformance will probably have to wait awhile is a general expectation encountered everywhere, also in government, and therefore an extra spur to good governance, an unexpected bonus.
The GDP growth outlook for 2010 therefore still looks modest, probably some 1.5%-2.5% and that off a low base.
Formal employment is 5% off its cyclical peak (while the labour pool has kept growing for two years).
Industrial capacity utilization is well below 80%, more so in the residential building industry which is closer to 50%. There is no safety margin in electricity supply.
The Rand is overvalued on most clear days and the global outlook complex, if sunny.
The new upswing will for quite some while feel like a tiresome uphill struggle. Nothing new in that either, going by the last forty years.
This is probably one more very important reason why business is currently still so very modest in its initial investment response.
A very long learning curve establishes its own expectations base once hubris has been pricked anew. It takes time to overcome this. Sometimes it takes a lifetime. That’s the real business cost of rudely pricking periodic bubbles.
Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics
Tuesday, January 26, 2010
Interest Rates remain stable and future of them depends on Eskom.
Eskom trades off against a weak economy
By Cees Bruggemans, Chief Economist FNB
26 January 2010
With the CPI inflation rate close to the upper part of the 3%-6% target range, the SARB interest rate decision today boiled down to a trade off between the coming Eskom electricity tariff increase (and its uncertain second-round effects which could be higher than generally assumed) as compared to the weak economy.
With these two main risks to the inflation outlook mainly balancing each other out, the SARB kept interest rates unchanged, prime remaining at 10.5%.
Presumably it is now over to the government.
Be nice to Eskom (large electricity tariff increase granted) and the weak domestic economy will have to recover under its own steam as the SARB remains very much inflation focused, thank you.
See sense on Eskom, come up with a different funding model, impose a lower than expected electricity tariff increase, be pleasantly surprised by lesser second round inflation effects, and the risks to the inflation outlook might start (emphasize ‘might start’) to become less balanced and more favourable, assuming everything else remaining the same by the March Monetary Policy Meeting (which of course it hardly ever does, but still, it’s possible given the trends out there).
It therefore looks like government will make the really important decision, about electricity tariffs and by implication about the level of interest rates it should consequently get.
Don’t blame the SARB.
Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics
By Cees Bruggemans, Chief Economist FNB
26 January 2010
With the CPI inflation rate close to the upper part of the 3%-6% target range, the SARB interest rate decision today boiled down to a trade off between the coming Eskom electricity tariff increase (and its uncertain second-round effects which could be higher than generally assumed) as compared to the weak economy.
With these two main risks to the inflation outlook mainly balancing each other out, the SARB kept interest rates unchanged, prime remaining at 10.5%.
Presumably it is now over to the government.
Be nice to Eskom (large electricity tariff increase granted) and the weak domestic economy will have to recover under its own steam as the SARB remains very much inflation focused, thank you.
See sense on Eskom, come up with a different funding model, impose a lower than expected electricity tariff increase, be pleasantly surprised by lesser second round inflation effects, and the risks to the inflation outlook might start (emphasize ‘might start’) to become less balanced and more favourable, assuming everything else remaining the same by the March Monetary Policy Meeting (which of course it hardly ever does, but still, it’s possible given the trends out there).
It therefore looks like government will make the really important decision, about electricity tariffs and by implication about the level of interest rates it should consequently get.
Don’t blame the SARB.
Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics
Saturday, January 23, 2010
World Cup 2010 and Rental Demands
Property owners hoping to make a fortune letting their homes during the World Cup should be aware of the pitfalls, warn letting agents.
And the South African Revenue Service says owners could face a hefty tax bill in the new tax year from rents.
These could even push taxpayers into higher income brackets, resulting in more income being taxed at the highest marginal rate of 42 percent.
A financial magazine reported that Cape Town had a shortage of rental properties available on six-to-12-month leases, as owners were taking their properties off the market, hoping to let them to tourists in June and July.
These were not just owners of seaside properties, but residents of areas a good way from Green Point, such as Durbanville and Parow, who assumed they would be able to let their homes for R3 000 a day and more.
Emarie Campbell, 2010 co-ordinator for Seeff estate agents, warned that this was simply not the case. "People think that this is the big pot of gold, but it's not going to happen. There are no guarantees."
The agency had received many inquiries after the final draw, especially for Gauteng where most of the matches were being played.
She attended a tourism exhibition in the UK recently, where tour operators spelt out what they were looking for.
Capetonians with property in places like the Blouberg beachfront were ideally placed.
"Tour operators putting packages together are looking at realistic prices and value for money. If greed takes over the business transaction won't happen."
Andrew Collins, the owner of Just Letting in central Cape Town, said owners should also consider what would happen after the World Cup.
"This is a very real worry. If thousands of visitors do indeed rent properties for June and July, there will be a huge influx of stock for August. Any landlord planning to rent out his property needs to take this into account and factor in a couple of months where no rent is earned."
But there were properties that were worth letting. "Remember, people are looking for properties similar to hotel accommodation. They don't want to sit and look at photographs of someone's grandmother, for instance."
The majority of visitors would prefer to find accommodation around Johannesburg because six of the 10 stadiums were relatively nearby.
Visitors to Cape Town would select high-standard properties close to the stadium, fan parks and nightlife and have good views. The preferred areas will be the Atlantic seaboard, City Bowl and Blouberg. The southern suburbs offer upmarket homes that would appeal to the top-end visitors.
Adrian Goslett, assistant regional director of RE/MAX Southern Africa, said owners needed to ensure that they had covered themselves against liability and not just damages to property. They needed indemnity against accidental injury or worse to guests.
"Owners must ask themselves what size deposit will they take for potential damages? What payment facilities do you have? Many guests will want to pay by Visa or Mastercard. How will you transport your guest if you are not near a taxi service?"
He warned owners not to get swept up by the euphoria of the World Cup and spend unnecessary money on upgrading or changing their property without doing their homework. "Certainly places like Green Point, Sea Point and surrounds will attract interest because of their prime proximity to the stadium and the city. I would take a solid long-term rental client over a holiday let any time."
o This article was originally published on page 6 of Cape Argus on January 09, 2010
And the South African Revenue Service says owners could face a hefty tax bill in the new tax year from rents.
These could even push taxpayers into higher income brackets, resulting in more income being taxed at the highest marginal rate of 42 percent.
A financial magazine reported that Cape Town had a shortage of rental properties available on six-to-12-month leases, as owners were taking their properties off the market, hoping to let them to tourists in June and July.
These were not just owners of seaside properties, but residents of areas a good way from Green Point, such as Durbanville and Parow, who assumed they would be able to let their homes for R3 000 a day and more.
Emarie Campbell, 2010 co-ordinator for Seeff estate agents, warned that this was simply not the case. "People think that this is the big pot of gold, but it's not going to happen. There are no guarantees."
The agency had received many inquiries after the final draw, especially for Gauteng where most of the matches were being played.
She attended a tourism exhibition in the UK recently, where tour operators spelt out what they were looking for.
Capetonians with property in places like the Blouberg beachfront were ideally placed.
"Tour operators putting packages together are looking at realistic prices and value for money. If greed takes over the business transaction won't happen."
Andrew Collins, the owner of Just Letting in central Cape Town, said owners should also consider what would happen after the World Cup.
"This is a very real worry. If thousands of visitors do indeed rent properties for June and July, there will be a huge influx of stock for August. Any landlord planning to rent out his property needs to take this into account and factor in a couple of months where no rent is earned."
But there were properties that were worth letting. "Remember, people are looking for properties similar to hotel accommodation. They don't want to sit and look at photographs of someone's grandmother, for instance."
The majority of visitors would prefer to find accommodation around Johannesburg because six of the 10 stadiums were relatively nearby.
Visitors to Cape Town would select high-standard properties close to the stadium, fan parks and nightlife and have good views. The preferred areas will be the Atlantic seaboard, City Bowl and Blouberg. The southern suburbs offer upmarket homes that would appeal to the top-end visitors.
Adrian Goslett, assistant regional director of RE/MAX Southern Africa, said owners needed to ensure that they had covered themselves against liability and not just damages to property. They needed indemnity against accidental injury or worse to guests.
"Owners must ask themselves what size deposit will they take for potential damages? What payment facilities do you have? Many guests will want to pay by Visa or Mastercard. How will you transport your guest if you are not near a taxi service?"
He warned owners not to get swept up by the euphoria of the World Cup and spend unnecessary money on upgrading or changing their property without doing their homework. "Certainly places like Green Point, Sea Point and surrounds will attract interest because of their prime proximity to the stadium and the city. I would take a solid long-term rental client over a holiday let any time."
o This article was originally published on page 6 of Cape Argus on January 09, 2010
Monday, January 11, 2010
20 Tips for an Awesome 2010!
January 10th, 2010 by Scott Picken
Amidst all the difficulties we hear each day in the media about the economy, we must remember that there still are opportunities out there.
Here are 20 tips for a positive new year:
1. Stay Positive. You can listen to the cynics and doubters and believe that success is impossible or you can know that with faith and an optimistic attitude all things are possible.
2. When you wake up in the morning complete the following statement: My purpose is _______________________.
3. Instead of being disappointed about where you are, think optimistically about where you are going.
4. Take a morning walk of gratitude. It will create a fertile mind ready for success.
5. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card.
6. Transform adversity into success by deciding that change is not your enemy but your friend. In the challenge discover the opportunity.
7. Make a difference in the lives of others.
8. Believe that everything happens for a reason and expect good things to come out of challenging experiences.
9. Don’t waste your precious energy on gossip, energy vampires, issues of the past, negative thoughts or things you cannot control. Instead invest your energy in the positive present moment.
10. Mentor someone and be mentored by someone.
11. Live with the 3 E’s. Energy, Enthusiasm, Empathy.
12. Remember there’s no substitute for hard work.
13. Zoom Focus. Each day when you wake up in the morning ask: "What are the three most important things I need to do today that will help me create the success I desire?" Then tune out all the distractions and focus on these actions.
14. Instead of complaining focus on solutions. It’s the key to innovation.
15. Read more books than you did in 2009. I happen to know of a few good ones.
16. Learn from mistakes and let them teach you to make positive changes.
17. Focus on "Get to" vs "Have to." Each day focus on what you get to do, not what you have to do. Life is a gift not an obligation.
18. Each night before you go to bed complete the following statements:
* I am thankful for ____________.
* Today I accomplished____________.
19. Smile and laugh more. They are natural anti-depressants.
20. Enjoy the ride. You only have one ride through life so make the most of it and enjoy it.
South Africa has been waiting for 2010 for a long time and I believe it is going to be a fantastic year! Enjoy!
(Source: www.jongordon.com)
Amidst all the difficulties we hear each day in the media about the economy, we must remember that there still are opportunities out there.
Here are 20 tips for a positive new year:
1. Stay Positive. You can listen to the cynics and doubters and believe that success is impossible or you can know that with faith and an optimistic attitude all things are possible.
2. When you wake up in the morning complete the following statement: My purpose is _______________________.
3. Instead of being disappointed about where you are, think optimistically about where you are going.
4. Take a morning walk of gratitude. It will create a fertile mind ready for success.
5. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card.
6. Transform adversity into success by deciding that change is not your enemy but your friend. In the challenge discover the opportunity.
7. Make a difference in the lives of others.
8. Believe that everything happens for a reason and expect good things to come out of challenging experiences.
9. Don’t waste your precious energy on gossip, energy vampires, issues of the past, negative thoughts or things you cannot control. Instead invest your energy in the positive present moment.
10. Mentor someone and be mentored by someone.
11. Live with the 3 E’s. Energy, Enthusiasm, Empathy.
12. Remember there’s no substitute for hard work.
13. Zoom Focus. Each day when you wake up in the morning ask: "What are the three most important things I need to do today that will help me create the success I desire?" Then tune out all the distractions and focus on these actions.
14. Instead of complaining focus on solutions. It’s the key to innovation.
15. Read more books than you did in 2009. I happen to know of a few good ones.
16. Learn from mistakes and let them teach you to make positive changes.
17. Focus on "Get to" vs "Have to." Each day focus on what you get to do, not what you have to do. Life is a gift not an obligation.
18. Each night before you go to bed complete the following statements:
* I am thankful for ____________.
* Today I accomplished____________.
19. Smile and laugh more. They are natural anti-depressants.
20. Enjoy the ride. You only have one ride through life so make the most of it and enjoy it.
South Africa has been waiting for 2010 for a long time and I believe it is going to be a fantastic year! Enjoy!
(Source: www.jongordon.com)
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