Another week, another round of not-so-terrible indicators about the state of the economy. It's getting easier to believe and harder to doubt this recession will be a lot milder than we're used to. If the recession does prove to be less severe than advertised, both sides of politics will need to review their plans.
Last week brought the remarkable news that the Westpac-Melbourne Institute index of consumer sentiment rose by 23 per cent over the past two months to its highest level since December 2007, with optimists now well outnumbering pessimists. The number of new housing loans in May was at a 16-month high. And the labour force figures for June showed unemployment continuing to rise quite slowly.
Put that together with recent increases in retail sales, car sales and home prices and you've got a picture of an economy travelling quite a bit more strongly than envisaged as recently as the budget in May. The global recession is every bit as severe as we were led to expect, but it seems it hasn't dragged our economy down nearly as much we feared.
Whereas in early May the Reserve Bank was forecasting that real gross domestic product would contract by 1 per cent over calendar 2009, when we see its revised forecast next month it's likely to be for growth of about 0.5 per cent, maybe more.
If our prospects really are that much brighter, two main factors account for it. First, continued demand from China has limited the expected decline in our export income. The volume of exports actually rose over the six months to March and seems to have held up since then. Much rides on the success with which the Chinese authorities can switch from export-led to domestic-led growth, whether from consumption or infrastructure investment. The beauty from our perspective is that wherever they get their growth from, they'll need lots of steel and energy - the very commodities we supply.
The second factor is the continued strength of consumption spending, explained not just by the cash splash and the huge cut in mortgage interest rates, but by the way this has affected people's sentiment about the state of their own finances and the outlook for the economy.
It's always possible, of course, that all we're experiencing is an Indian summer. The global financial crisis may have more shocks to deliver, or it could be that consumer and business confidence will wilt under the inexorable rise in unemployment yet to come. But that fear is starting to wear thin. Whereas the budget forecast was for the unemployment rate to reach a peak of 8.5 per cent sometime in 2010-11, the new expectation is that it may not quite reach 7.5 per cent, and will reach its peak a fair bit earlier.
If that expectation comes to pass then, with the rate now at 5.8 per cent, we've already come a little more than half the distance from the trough of 3.9 per cent in February last year.
Posted by John Ray. For a daily critique of Leftist activities, see DISSECTING LEFTISM. To keep up with attacks on free speech see TONGUE-TIED. Also, don't forget your daily roundup of pro-environment but anti-Greenie news and commentary at GREENIE WATCH . Email me (John Ray) here