ANZ plans to slash 1000 jobs. Qantas announces 500 jobs to go. Billibong will shed 80 local jobs. Air Australia enters administration with 300 staff stood down.

Jobs are going left, right and center. Above is a subset of higher profile jobs losses announced just this week.

Yet, despite all the doom and gloom on the jobs front, the ABS announced yesterday the unemployment rate has actually decreased 0.1 points to 5.1 percent in January.

This comes as a bit of a surprise as Roy Morgan has earlier announced unemployment had spiked 1.7 percent in January to 10.3 percent – (2.21 million Australians unemployed or underemployed – Highest ever recorded. Unemployment at 10.3% – A record 1.28 million Australian’s looking for work.)

Historically, the Roy Morgan and ABS unemployment figures have tracked each other. That is until recently.

Roy Morgan has just filed a press release comparing, from its point of view, the two sets of figures – Roy Morgan Unemployment Figures (10.3% in January) show situation ‘on the ground’ while ABS unemployment figures (5.1%) defy belief as job losses mount around Australia.

It states the methodology between the two surveys differ as the the ABS data may lag what is actually happening “on the ground.” To jump through the hoop and be classed as unemployed by the ABS, you must have been looking for work in the four weeks prior to the survey and be available for work when the survey takes place. Roy Morgan on the other hand simply classifies a person as unemployed if they are not employed and is looking for work. This would suggest the ABS figures will lag Roy Morgan’s by a month or two.

If this is the case, we can expect the ABS unemployment will start trending upwards. It should also be noted many of the job losses haven’t yet occurred, but have been announced. In the example of ANZ, it plans the cull 1000 workers from its workforce before September.

» 2.21 million Australians unemployed or underemployed – Highest ever recorded. Unemployment at 10.3% – A record 1.28 million Australian’s looking for work. – Roy Morgan, Friday 3rd February 2012.
» Roy Morgan Unemployment Figures (10.3% in January) show situation ‘on the ground’ while ABS unemployment figures (5.1%) defy belief as job losses mount around Australia. – Roy Morgan, Friday 17th February 2012.
» 6202.0 – Labour Force, Australia, Jan 2012 – The Australian Bureau of Statistics, Thursday 16th February 2012.

Last month we reported on the ANZ’s decision to break away from the RBA and start setting lending rates independently.

Today ANZ has decided to put interest rates up, raising the standard variable rate from 7.3 to 7.36 percent. While the 6bps move is a drop it the ocean, it could be a sign the ANZ is testing the waters to see what backlash raising rates will bring. Should we be expecting larger moves next month?

And when will the other banks follow suit?

The move follows UBS research released earlier this week suggesting banks could be losing money on new mortgages due to rising funding costs. This “dangerous situation” provides banks little incentive to offer mortgages and could cause them to simply stop lending.

[ Westpac has followed suit, raising its standard variable rate 10bps to 7.36 percent. ]

» First time buyers could be hit by lending drought – Mozo, 7th February 2012.

In a surprise move today, the Reserve Bank of Australia has decided to keep interest rates on hold for February. The ASX Target Rate Tracker had the chance of the official cash rate being decreased to 4.00 percent, at 100% yesterday. Even I was 100% certain rates would be cut today.

Yesterday, the Australian Bureau of Statistics (ABS) released data showing retail turnover in Australia continues to decline, even in December during the lead up to Christmas. Seasonally adjusted, retail turnover fell 0.1% in December with growth levels now at levels not seen since 1984. This isn’t a surprise to us, considering household net savings ratios are at levels not seen in 25 years as households continue to control the purse strings and concentrate on paying down household debt.

On Friday, Roy Morgan Research released data showing unemployment was up 1.7 percent in January to 10.3 percent. According to the research, it is the highest unemployment rate in a decade – since January 2002 when the unemployment rate sat at 10.9 percent. Roy Morgan’s unemployment data normally tracks the ABS data, just a little higher, but in recent months has started to deviate away from official ABS data.

Even if rates were cut today, it is unclear if the banks would have passed any of the cut on to mortgage holders. However, rest assured, deposit rates would have been cut. The big winners from today hold in rates is self funded retirees and other individuals with exposure to cash products. They can continue to spend as normal, without having to make any cutbacks, something often missed by the cries of the media.

On the flip side, the Aussie has surged today reaching $1.08 and a six month high against the greenback. This is likely to put further pressure on manufacturers, retailers and the tourism industry already suffering from the effects of dutch disease.

In the statement from the RBA on the monetary policy decision, it indicated the “acute financial pressures on banks in Europe were alleviated considerably late in 2011″ and while much still remains to be done, some progress has been made forward.

The central bank notes while unemployment has started to trend up in 2011, it has been “steady over recent months.”

Also steady or “stabilising” is the central bank’s view of residential housing after house prices had declined for “most” (not all) of the year. There has been a lot of debate in recent years about the central banks roles in asset bubbles, suggesting central banks should in fact be addressing the problem of bubbles and not sweeping them under the carpet. As residential property is a confidence game and with comments from the industry that we have hit bottom, maybe, just maybe, the RBA has err’ed on the side of caution and decided not to re-inflate the bubble by dropping interest rate at a time when everyone is still so confident Australia doesn’t have a debt fueled housing bubble. We can only dream!

» Statement by Glenn Stevens, Governor: Monetary Policy Decision – The Reserve Bank of Australia, Tuesday 7th of February 2012.
» Retail turnover falls 0.1% in December 2011 – The Australian Bureau of Statistics, 6th February 2012.
» 2.21 million Australians unemployed or underemployed – Highest ever record. Unemployment at 10.3% – Roy Morgan Research, Friday 3rd February 2012

The latest installment of the official House Price Index from the Australian Bureau of Statistics (ABS) was released today showing Australian house prices continued to fall in the December 2011 quarter. The weighted average of the eight capital cities fell 1.0 percent in December, ending a year where house prices fell in every quarter. For the year, 4.8 percent was wiped of the value of Australian homes.

Brisbane led the falls, slashing 6.7 percent from values. Adelaide, considered one of the more affordable capital cities racked up second place at 6.4 percent.

Assuming there is no further government interference in Australia’s housing market, this years falls is considered to be the start of many in a long period of painful deleveraging. The Economist Magazine reports Australia has one of the largest property bubbles in the world and is overvalued by 53 percent on a rent to price metric. It also believes Australia, Belgium, Canada and France have property markets that are more overvalued today than at the peak of the American housing bubble.

While housing lobby groups in the USA cried a chronic shortage of houses, and central bankers said not to worry – there is no bubble, thus there can’t be a crash, Yale Professor Robert Shiller was raising concern about America’s housing bubble. His real house price index is shown above in blue.

After 5 years and 5 months, the S&P/Case-Shiller Home Price Index for 10 composite cities show house prices have fallen 32.8%.

In Australia (red/orange line), some analysts believe house prices may have bottomed out. On a more serious note, Henry Blodget asked the same question to Robert Shiller about the United States property market while in Davos on the weekend.

Shiller answered, “When people phrase it that way, they say ‘we’ve reached the bottom.’ That suggests that we have the expectation of a major turning point right now. But I don’t see that. I don’t see any reason to think that prices are going to start heading up dramatically now. We do have some good news. Permits are up. Notably, the National Association of Homebuilders Housing Market Index is up and that’s a forward-looking index. But it’s not up very much. If you look at the rate of change it looks dramatic but it’s still at a low level. ”

Blodget suggested property prices in the United States was starting to look like ‘fair’ value relative to long term historic trends (i.e. graph above of real house prices), but Shiller argues what does ‘fair’ value actually mean in an economy like this. Shiller is questioning if America will overshoot. “Now the question is whether we’ll overshoot, which is a common thing that happens after bubble burst.”

As Shiller has looked at bubbles going back hundreds of years, Blodget naturally asked if Shiller has ever seen a bubble where there wasn’t a major overshoot. His reply “Well, the problem is we’ve never had, in the United States, a bubble like this, of this magnitude before. That’s the problem. That’s the fundamental problem of economics.”

But this isn’t a problem limited to America. In Australia, Dr Nigel Stapledon from the University of NSW and former Westpac Bank Chief Economist has compiled real home prices for Australia. In a Morgan Stanley research paper written by Gerald Minack titled “Australian Strategy and Economics : Living in a bubble”, Minack provides the following graph of real median Melbourne house prices dating back further than our graph above.

As you can see, today’s prices are unprecedented in Australia, eclipsing the speculative land boom in Melbourne after the gold rush era (we were digging up stuff then, too) and leading to the Australian Banking Crisis in 1893.

» 6416.0 – House Price Indexes: Eight Capital Cities, Dec 2011 – Australian Bureau of Statistics, 1st February 2012.
» Can’t happen! – cause it’s never happened before! – Who Crashed The Economy, 14th July 2010.
» Housing Bottom? What Are They Thinking? – Business Insider, 29th January 2012.