Is the Economy Unhinged?

• Sometimes, when my colleagues see I have been emailing them at 4am, they think I am unhinged
• Sometimes, when their rooms are a pigsty, my kids see me becoming unhinged
•  Sometimes, the property market becomes unhinged from the economy.

In some places, such as Perth and Darwin, the past couple of years have seen property and the economy moving in lockstep.  But, in Melbourne and Sydney, the property market has been moving against the economy; property has been booming while the economy has been flat-lining.

Today, the Reserve Bank issued its Board minutes which showed increased confidence in the economy while the property market is losing confidence.

In its minutes the RBA noted that employment growth, concentrated in the household and business services sectors, had been stronger than expected this year.

And, because the RBA has let the dollar depreciate, it said “Support provided to the economy following the depreciation of the exchange rate was particularly apparent in the sizeable contribution to growth from net service exports over the year to date.” This is Central Bank speak for “Good news guys. The rest of the economy is picking up.”

Because the economy is doing okay, this will put a floor under the property market – no matter how pessimistic we become.
On the same day the ABS produced data showing that wages were growing at 2.1 per cent per annum – the lowest rate since 1998.

Ironically, modest wages growth is good for the economy as it means more employers can afford to take people on – one of the reasons why last week’s employment figures were so strong.

Property may be becoming unhinged from the economy, but with sound fundamentals they will soon get back in sync.

As my kids know, it does not take me long to find my equilibrium.