Have you noticed that there is not a lot of good news around lately?
Unemployment is up. Bankruptcy is up. Wages are growing at a pace less than inflation. Budgets are being cut and most people are under some stress.
This is the fallout from the GFC. No big surprise but it is happening 5 years after the GFC bottomed and 7 years from the start of the GFC. As such most people cannot blame the state of our economy to the GFC.
When we review the recent survey of business in Queensland it is clear that the situation is getting worse. And it is not expect to improve in the short-term.
We are hearing the line, “All we need is confidence” a lot these days. If you fall for this line god help you because no one else will.
Update on the Queensland Economy (based on the Westpac group Pulse Survey)
Business confidence for both Queensland and Nationally are at their lowest point in the past two years. The index has fallen 4.4 percent in the last quarter.
Business conditions are trading below the 10-year average and look to be getting worse. Businesses are continuing to expect tough trading conditions in the medium-term.
Sales and revenue index indicates some improvement however, the levels are still below the 5 and 10-year averages. Sales are being discounts to ensure cash flow to keep people in the business.
Profitability although it increased in the last quarter it remains below the 10-year average and continues to be weaker across the majority of business. One of the major causes of less profitability is the increase in the compliance cost being placed on small business at present.
Employment levels remained level for the last quarter however only 14% of businesses expect to hire more people in the next quarter. Employment levels remain below the 5 and 10-year average.
Wages on average fell 0.8% in the last quarter with 72% of businesses forecasting similar wages next quarter. This is a clear sign that the unemployment level is not going to fall in the short-term.
Capital expenditure rose in the quarter but continues to be in negative territory. Business remains cautious about the economy. Expectation is that capital expenditure will continue to fall over the near-term.
North Queensland is the worst performer in general business, employment and capital expenditure. We rank second last in performance.
This sort of economic information is key when investing as it provides you with a broad framework about the sectors in which you should invest.
High Unemployment – regardless of interest rates will hold down the residential property sector. People will delay buying or put it off altogether and rental rates will come under pressure as people look for savings.
Capital Expenditure – this will affect commercial property sector.
Interest rates - are so low you only hold cash that you need.
Shares - have been particularly volatile since the start of the 2015 financial year as they are currently trading lower. But they still look like the best option in the median-term. Just expect lots more volatility.