New Economy?

The ABS's Report on business entries and exits provides some insights as to the evolving nature of the Australian economy and how changing technology practices are driving business sustainability. 

Old economy activities such as manufacturing, information services such as libraries and broadcasting, delivery services eg. couriers, exhibited the lowest survival rates for new businesses and are indicative of the increasing capacity for consumers and businesses to access and source these activities on-line, through social media, cloud computing etc.  Between 2003 and 2007, the lowest survival rates for businesses were in the education and communication services sectors.  Don't do it for me, do it with me - businesses servicing the information and knowledge sectors will need to be increasingly savvy around how they deliver these services. 

Here in Queensland, survival rates were highest for new gambling businesses and lowest for beverage and tobacco manufacturing businesses; moving from one fix to another? 

With the reduction in government investment and expenditure it is perhaps not surprising that for Australia overall, the lowest survival rates between 2008 and 2012 were in public administration and safety, administration and support services, and with ongoing government expenditure restraint and cost-cutting, this pattern is likely to continue to be active on the Australian business landscape, for the short term before not-for-profit organisations and private sector businesses explore new funding mechanisms and expansion of their services. 

So where are the opportunities? Business survival rates by industry sector for new business entries to the Australian market between 2007 and 2011 were highest for activities in health care, insurance, superannuation and gambling, perhaps tied to an aging demographic and the retiring of the baby boomer market.  Will our aging economy be the maintstay as investment in the resources sector slows? Changing attitudes and business practices will be key. 

Economic Impacts of Iconic Pop Culture Tourism

LIGHTS, CAMERA, WHERE IS THAT?

This month Anthony takes us on a whirlwind tour of settings and backdrops of some of our iconic movies, television and popular culture. But be warned, he gets a wee bit existential by the end.

Our tour starts in Salzburg, the setting, of course, of The Sound of Music. I was originally going to write this newsletter entirely on Salzburg, but the way we visited the city (i.e. grabbing a Sound of Music sights guidebook and running around the City trying to picture Maria and the children in those locations) got me thinking about the approaches of different locations to their iconic popular culture moment.

Salzburg is a reluctant Sound of Music celebrity. It would like to be more known for its Mozart history and its stunning architecture. It does indeed extensively promote its connection to Mozart and has a range of cultural festivals promoting classical music and the arts. The Salzburger Dom (the city’s cathedral) and Salzburg Castle are magnificent structures and worth a visit to this city on their own. The hilly topography of Salzburg (it is in Austria after all) means there are some wonderful vantage points from which to view the city. Indeed one of these vantage points was a location for Maria and the kids as they were Do-Re-Mi-ing all over the town.

Teenage crush on Liesl notwithstanding, personally I wouldn’t have detoured from my journey to see the setting of The Sound of Music, if it wasn’t for my wife being keen to do so. Salzburg is a very picturesque city and I enjoyed my time there, but I wouldn’t visit to revel in The Sound of Music experience. However, I have been known to detour hundreds of kilometres to visit Elvis’s home Graceland in Memphis and delight in the gaudy memorabilia, shag carpet ceiling and rhinestone costumes.

Memphis is a city that lives and breathes music. Its location on the Mississippi and in the heartland of the Deep South mean that its musical roots extend further back than Elvis and the advent of rock ‘n’ roll, and include blues, jazz and country. Obviously unlike with a film production, the music scene has never left Memphis (even if Elvis himself has left the building) and continues to be a hub of musical creativity and performance.

Unlike Salzburg, New Zealand enthusiastically embraces its movie notoriety. It seems the whole country has some connection to The Lord of the Rings or The Hobbit trilogies. And why wouldn’t they get behind the venture? The production alone of The Hobbit: An Unexpected Journey injected some $200 million into New Zealand’s economy, with last year’s Wellington world premiere providing a $12 million boost. And surveys after The Lord of the Rings trilogy revealed that some 7% of international visitors cited the movies as the main reason or one of the main reasons for visiting New Zealand. Air New Zealand certainly used The Hobbit’s fame cleverly, with their Middle-Earth themed in-flight safety video going viral.

Some cities feature in so much of our popular culture, particularly movies and television, that we feel we know much of the city without actually going there. Indeed, apart from flying into the airport and immediately getting a bus out, I have never been to New York, but through the myriad of television and movies set in the Big Apple, I think I have a reasonable understanding of its geography, vibe and people; from the wondrous Central Park and iconic skyline to its sharp-tongued inhabitants, sassy gal pals and dictatorial soup vendors (and its unfortunate role as a principal target for alien invasions). I have some connection and affinity with the city despite not having any personal experiences in New York.

So posing some philosophical questions now, given that so many of our heroes, leaders and dare I say it, loved ones, are completely fictional, do we travel to these settings to try and make them that much more real to us? When we arrive and see the disconnect between the fictionalised world and the actual place, is it a bit of a let-down? It would be sad if Salzburg couldn’t be enjoyed without Maria, or New Zealand without Frodo.

These places are settings for the very reason that they are beautiful or vibrant or memorable. It is not the fictional world which makes them so; indeed, it is the wonderful and diverse places in our world which enriches our fantasy.

Housing Affordability - the Mean Median Multiple Tricks

The 9^th annual Demographia International Housing Affordability Survey Report has been released and no surprises, all of the 39 markets investigated in Australia were classified as “Seriously Unaffordable” or “Severely Unaffordable”.  It is perhaps more interesting when investigating the data in more depth, that Karratha and Gladstone are both ranked within the top 10 more affordable of Australia’s 39 markets; seemingly in stark contrast to markets that have experienced strong price growth, strong growth in rental rates, low vacancy rates etc.  

And this is where simply reporting this data is somewhat misleading and could give a misguided sense of comfort to communities much in need of the release of affordable housing and housing that is affordable.  The rating of these towns has been based on median house prices relative to median household incomes, and Karratha’s median household income at $156,700 was the highest of all 39 markets and Gladstone’s came in at 5^th highest.  

Herein lies the difficulty – key workers in emergency services, community services, those in the retail sector, food services typically earn wages well below these medians.  The latest average weekly earnings publication (ABS) estimates that those in the health care and social assistance sector were earning a wage equivalent to $46,300 and those in the education sector just under $53,000.  Housing in these communities for such workers would be considered severely unaffordable.  

At the other end of the spectrum – Fraser Coast is ranked as one of the least affordable markets, ranking 31^st out of the 39 major markets, but median house prices at $280,000 were amongst the lowest of the markets investigated.  Again the application of the relationship between median house prices to median household incomes somewhat masks the real picture, in this case a market dominated by high incidences of retirees.  It is acknowledged that the Fraser Coast area is also an area experiencing higher levels of social disadvantage with higher unemployment rates and an economic base dominated by service sector jobs rather than resource sector opportunities.  

Whilst the mean median multiple is a recognised rule of thumb for investigating relative housing affordability, and a tool we too utilise, its application must be considered in light of actual local conditions and characteristics.  

There were some good news stories in Queensland - Townsville and Rockhampton both rated in the top 10 affordable locations; both we believe, offering opportunities in 2013 and beyond. 

Working Harder, Longer or Smarter?

With the Working Population Data from the 2011 Census released on November 20^th, Urban Economics has delved into the working hours of Australian’s with comparison to other OECD nations. Surprisingly (or maybe not), Australians aren’t the hardest sloggers out there….

We begin our whirlwind working tour in Mexico which most of us might associate with the ‘siesta’ under a sombrero and not a whole bunch of productivity. On the contrary, Mexico tops the list of annual hours worked at 2,250 per annum. Even as I write this article I can’t help but think that maybe the Mexicans are on to something until I recall that they also have the world’s highest homicide rate at 19 per 100,000 persons.

From the longest working year to the shortest working year in the OECD more surprises ensue. Germany despite often being recalled as a manufacturing powerhouse has an average working year of just 1,406 hours. Perhaps the machines have taken over or perhaps the German theory of ‘Kurzabeit’ (‘short-work’) is at play. Kurzabeit refers to the culture within Germany to reduce the hours of an employee worked as opposed to sending them to the unemployment line in slower economic conditions.

If machines taking over car manufacturing is put forward as the reason for a relaxed working year, Japan and Korea throw water on the welder. The Koreans also undertake a long working year; 2,090 hours as reported by the OECD through 2011. Again however, the working hours appear to be a cultural phenomenon as they have adopted an ‘industrious’ philosophy. In Japan working longer is thought to be the best way to get en-route to becoming the head ‘shacho’. Interestingly, this mindset starts from schooling age whereby Japanese students attend classes on Saturdays and often follow this up with private classes. Japan however has had a steady decline in working hours, much of which has been attributed to organised labour unions and the Ministry of Trade and has had a drop in average annual hours from 2,031 in 1990 to 1,728 in 2011. Another country whereby government policy has impacted the working profile of the population is Chile, which has a compulsory 45-hour working week for full time employees. Chileans work on average 2,047 hours per year.

With all of the fiscal troubles in the Eurozone, it may be surprising to learn that Greece currently ranks 4^th amongst OECD nations for the average number of hours worked at 2,032 per annum. Surely such an industrious population should not be so overwhelmed in debt? Comparisons however must be drawn to Greece’s labour market which includes higher proportions of self-employed persons and agricultural workers and has not as readily adopted the technological changes that countries such as Germany and the Netherlands have used to increase productivity. The saying ‘work smarter, not harder’ likely applies here.

How then does Australia compare and what has the Census Working Profile Data revealed about our productivity, industriousness and employment? As reported by the OECD, Australia’s workers undertake 1,687 hours of work per year on average. Our analysis of the Working profile data reflects a similar 1,713 hours which equates to around 33 hours per week. A further breakdown notes that Queenslanders are working slightly longer at 34.24 hours per week on average. 

Consistently, Australians are working less and less per year on average which coincides with increases in casual employment, job sharing and workers seeking flexibility. Proportionately, those working 40+ hours decreased between 2011 and 2006 from 47.9% to 45.3% and those working less than 40 hours increased.  Under Fairwork Australia, employers must not request or require employees to work more than 38 hours per week unless ‘reasonable’.

Other shifts in our working profile between the intercensal periods of 2006 and 2011 include:

·        A slight increase in the proportion of women in managerial positions from 34% to 35%

·     Reductions in the proportions of persons working in the manufacturing, agricultural and retail industries

·        Increases in the levels of persons employed in healthcare, social assistance and mining.

·        The private motor vehicle remained the primary method of travel to work but there was a modest increase in the number of those utilising public transport

·       Despite advances in technology, the proportion of those working from home dropped from 4.8% to 4.4%

With Gina Rinehart’s recent comments on Australia’s productivity and ‘African labourers willing to work for $2 per day’, some may wonder in that case how we remain competitive at all. Parallel Greece and Germany and one can see the impact that technology and innovation can make. In mining terms, the pick and shovel wielded by an African labourer is no more a substitute for a Caterpillar D-9 bulldozer, than the hundreds of thousands of Brazilian workers that enter the cane fields of Brazil are for a Case cane harvester. 

As Australia continues to innovate and adopt technology as well as embrace our enviable laid back lifestyle, we can expect that working hours will continue to decrease as we work smarter, not harder or longer.

Oktoberfest-onomics

In our never ending pursuit to make relevant use of economic principles, Urban Economics has overlayed our very own Pint of Lager Index (POLI) with The Economist’s Big Mac Index (BMI) with some interesting results.

The real standout in terms of overvalued currencies (and thereby expensive beers and burgers in relative terms), are the well to do Scandinavian nations including Denmark, Sweden and Norway as well as currency safe-haven Switzerland. History and previous releases of the Big Mac Index also reveal that this has been the case for some time due to a series of factors including government regulation, policy and stability.

The most extreme anomaly within the indices is Norway which as we dig deeper provides some insight as to why the Krone, is adjudicated to be comparatively overvalued when things are held equal in beer and burger terms and it’s not because their Big Macs are made with Jarlsberg cheese.

Norway Fast Facts

·         Largest sovereign wealth fund in the world valued at 3,561 billion Krone ($610b AUD) as at June 31 2012 and growing.

·         High level of state owned petroleum and gas operations (resource profits are the primary input to the sovereign wealth fund)

·        Europe’s lowest unemployment rate at 3.2% through 2011 according to the European Union Labour Force Survey Annual (the next closest was Switzerland at 4.2%)

·         Healthcare is provided free to all citizens of Norway

·         There are no fees payable by students attending public universities and colleges in Norway which make up over 90% of higher education providers.

·         Despite having significant gas and oil reserves, Norway consistently has higher petrol prices compared to other developed nations which includes tax of around 65% currently around (AUD) $2.60 per litre. (Similarly resourced Venezuela costs around 13c for a litre).

Lessons for Australia?

Australia like Norway is resource rich and has relatively low unemployment. For the most part, this is where the similarities with Norway’s economy end.

Australia does not have a sovereign wealth fund although Western Australia on the back of their resources are starting one, Malcolm Turnbull would like to initiate a national future fund and Wayne Swan would like to spread the wealth around as regard resources. The concept is not entirely lost in Australia however, with a federal future fund set up in 2006 to cover the liability of government superannuation on the back of the sale of Telstra shares and budget surpluses. This was expanded in 2008 to include nation building initiative funds for infrastructure, education and health.

The majority of Australia’s resources are not controlled by the government but by large multinationals such as Rio Tinto (the only Australian company ethically banned from association with the Norwegian wealth fund for a poor environmental record in Norway’s view)

Healthcare in Australia is steadily transitioning to require more citizens to have private health cover. The Private Health Insurance Administration Council estimates that there are around 10.5 million people with health insurance policies or close to 46% of the population.

Higher education costs in Australia are constantly under debate however, no comparison can be drawn to Norway’s free and accessible system.

So while our overlay of beer and burgers points to Norway as being a tough place to have a cheap night out, further investigation reveals that Norway’s citizens are well placed to enjoy a future free from the financial difficulties encountered throughout much of Europe. Australia also has the potential to make better use of our rich resources, but in the meantime, we’ll enjoy our reasonably priced Big Macs and beer.

Dining Out On the Rise - Do We Need Our Kitchens?

Eating out has become a way of life for Aussie families, with many people preferring to dine out rather than cook at home, but have tighter economic conditions had an effect on our spending habits for dining out? We have examined trends in the dining out, fast food  markets and considered the change in habits over evolving economic conditions and how we compare to the rest of the world.

The dining out and fast food market has grown significantly in Australia in the last 20 years, with household expenditure levels trending upwards and little evidence that the demand for dining out and takeaway has suffered adverse effects from the economic downturn. Demand for meals out and fast food has been primarily driven by current social economic trends such as the increase in the number of women in the workforce, time constraints and the need for more on-the-go meals. 

According to the Australian Bureau of Statistics 2009-10 Household Expenditure Survey, Australians spent almost $63 on meals out of the home, on average per week, equating to 5.1% of their total weekly household expenditure and a significant 30.8% of their total weekly food expenditure. The proportion of total income that Australians spend on dining out and fast food has risen consistently from 3.5% in 1988-89 to 4.8% in 2003/04 and 5.1% at the time of the 2009/10 survey, reflecting consumers’ desire to ‘live the good life’, regardless of economic conditions.

Recent studies in the United Kingdom suggest that the economic downturn is responsible for a rise in the consumption of takeaway foods, and a decline in frequenting restaurants, with consumers ‘downgrading’ from more expensive restaurant meals. Interestingly, this has not been the case in Australia, with the Household Expenditure Survey reporting an increase in the proportion of expenditure spent on meals at restaurants, hotels and clubs, while the proportion spent on fast food and takeaway has declined. The 1998-09 HES reported that 43.2% of meals out were spent at restaurants, while 56.1% was spent on fast food and takeaway. By 2009-10, the proportion of restaurant meals had increased markedly, comprising 50.8%, while fast food and takeaway decreased to comprise 48.4%.

  

More recent data from the Australian Bureau of Statistics Retail Turnover data also illustrates the decline in the takeaway food market, with a negative growth in reported turnover for 2011, in comparison to 2010. The ‘specialised food’ sub-category achieved the healthiest growth in turnover at 5.5%, with supermarkets and grocery stores achieving 3.8% and cafes, restaurants & catering services recording an increase of 3.0%. The rise in revenue for specialised food, which includes fresh meat, fish, poultry, fruit & vegetables has been underpinned by an increase in disposable incomes and a shift in consumer tastes and preferences towards a healthier lifestyle. The rise in disposable incomes has also underpinned the shift in consumption of takeaway food to the rise in cafe and restaurant patronage, particularly in light of the perception that socialising and enjoyment are an important part of the Aussie lifestyle.

Taking a look at takeaway food and dining out trends around the world, Australia is currently comparable to the USA’s 2010 meals out and fast food expenditure of 5.2%. Japan demonstrates a lower proportion of income spent on eating out, with its 2008 Family Income and Expenditure Survey reporting a dining out expenditure of 3.7%, equating to 23.1% of total food expenditure. Singapore, on the other hand, reported a significantly larger 2007/08 expenditure on food serving services (restaurants, fast food, food courts and other catering services) of 13.5%, which can be attributed to an economy which has largely recovered from the recession and a population which strive convenience and enjoy a high disposable income.

Whatever the development trends may have us believe, I don't think we are quite ready to give up our kitchens yet, however, it would appear that demand for quality, convenience alternatives will continue to be on the rise to meet our demands for fresh, healthy but do-it-for me cooking!