Why listening to the so-called economic “experts” is a futile exercise

Here’s a great response to the recent news from Deloittes about the end of the mining boom in two years.

By Terry Ryder
Tuesday, 31 July 2012

Things have moved on since a Shakespearean character in King Henry VI advocated “the first thing we do, let’s kill all the lawyers”.

These days the prime imperative is to get rid of all the economists.

I can’t think of another profession so guilty of earning money on false pretences.

Newspapers fill up large chunks of daily space with the predictions of people whose track records are quite appalling.

The outlandishly inaccurate forecasts of the nation’s most talentless profession are made worse by the suspicion that many commentators don’t really believe what they’re saying. Their objective is to generate media sound bytes. Something sensationally negative usually does the trick. Truth is optional.

I still have the forecasts of economists about interest rates last year ringing in my ears. If they’d been right, Australia would have had multiple rate rises in 2011. The year ended without a single rise, but instead, two rate cuts.

Never in the history of human conduct has so much been wrongly predicted by so many, for the benefit of so few.

The weekly pattern of economic reportage is this: economists publish their tips about the upcoming release of data by the ABS; the bureau announces the latest figures on unemployment or economic growth or building approvals; and then economists fill up news pages with their exclamations of surprise, if not disbelief, at how different the official figures were from their predictions.

Economics is indeed the art of explaining tomorrow why the predictions they made yesterday didn’t come true today.

The short explanation is: they haven’t the faintest idea what’s going on.

The greatest mystery in Australian media is why journalists continue to give credibility to talking heads who constantly blunder.

The bottom line is that newspapers don’t give a damn, as long as there’s a pithy quote and a cheap headline in it.

So the chattering economist who got it horribly wrong last week can line up in front of cameras again this week to deliver another burst of misinformation. Accuracy is not only optional, it’s downright inconvenient.

One of the greatest offenders is Deloitte Access Economics, whose talking heads apparently believe there’s no such thing as bad publicity.

A major metropolitan newspaper this week described the firm as “Australia’s leading private-sector budget forecaster”. Despite my cynicism about economists, I had no idea the state of economic analysis in Australia was this bad.

If DAE is the best, we’re doomed.

The firm’s head media junkie Chris Richardson, the pin-up boy for economists who cherish getting it wrong in a spectacularly noisy fashion, will be remembered for his January 2009 media grab that “the budget is buggered”.

This was part of the firm’s promotional effort for its Quarterly Business Outlook, which predicted Australia would fall into recession in 2009. The economic boom, it said, would “unwind scarily fast”, corporate profits would halve and hundreds of thousands would lose their jobs.

“Batten down the hatches,” it declared. “This is not just a recession. This is the sharpest deceleration Australia’s economy has ever seen.”

Oh dear. You’d think anyone who had got it so wrong would be a bit gun-shy about microphones and cameras thereafter.

Hell no. This is about corporate profile, not credibility. And this week the firm delivered another prediction about the budget and the national economy.

Naturally, its bold declaration that the budget surplus has evaporated and the mining boom had only two more years to run was regurgitated without hesitation by an adoring media.

“The strong bit of Australia’s two-speed economy won’t stay strong for more than another two years or so,'” DAE confidently misinformed us.

If you want proof that the exercise is more about headlines than economics, the reference to a “two-speed economy” is all you need. No serious expert attempting genuine analysis would resort to this cheap creation of a shallow media.

As for the so-called boom in the resources sector running out in two years, I’m willing to predict it will this be with us when my grandchildren are my age.

Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.

Coal mine to double in size

LAKE Vermont coal mine near Dysart will double in size over the next six years, with contract mine firm Thiess given the $2.3 billion contract.

An announcement by its parent company Leighton Holdings on the ASX on Monday morning outlined how Thiess would push production from four million tonnes to eight million tonnes per year.

Thiess was already responsible for the Lake Vermont’s operation since 2007.

Lake Vermont owners Jellinbah Group said in the statement they expected Thiess to deliver “cost competitive” coal from the mine.

Thiess Australian Mining executive general manager Michael Wright said the leadership of Lake Vermont’s team of 350 won the company this contract.

“The contract is reward for their performance, their daily commitment to the safety of our people and to meeting our client’s objectives,” Mr Wright said.

“We are mobilising ultra-class mining fleets to meet the increased production requirements and we are truly excited by the opportunities this brings to the people of the Dysart area.”


ABS Stats Loads Your iPhone or iPad With Major Australian Statistics

iOS: If you’re a statistics geek, this is mobile manna. The official Australian Bureau of Statistics (ABS) iOS app includes customisable key economic indicators, the ability to search 2011 census data by postcode for information on general demographics, and a constantly updated population projection for Australia.

The app also includes links to key sections of the ABS web site and its social media accounts. For in-depth drilling, the site is still going to be your main resource (and on a tablet, statistics are pretty accessible), but this is a handy addition for basic data without hunting through the online version. One neat trick: you can access census data for your current location.

ABS Stats is a free download for iOS devices.

ABS Stats [iTunes App Store]


The end of the mining boom? Access Economics’ warning may be premature

The end is in sight for Australia’s mining and investment boom, according to Deloitte Access Economics‘ June 2012 quarter Business Outlook, but HSBC says there is a lot more still to come.

“A striking investment boom continues to do all the heavy lifting on our growth,” said Access director Chris Richardson.

“Yet the peak of the project pipeline is already in sight, meaning the key prop to the faster part of Australia’s two-speed economy is looking less certain the further out you look – though there’s still enough gas in the tank of huge resource projects to provide handy pipeline protection if Europe and China were to turn pear-shaped.”

Richardson warned in the meantime there was still “plenty of pain to go around”.

“Manufacturing growth only just has its head above water, and the utilities sector is also shrinking, in part due to the absence of any certainty on the future of carbon pricing,” he said.

Richardson said two-speed troubles were keeping inflation low, aided by related moderation in wage gains and the Australian dollars stellar strength.

“Even productivity is showing some signs of life and oil prices have dropped back, while carbon pricing is likely to be just a one-off boost to prices,” he said.

“But the productivity improvement needs to continue – and even if it does, a steadier Aussie dollar threatens less benign import prices, while wages may resume their rise as jobs recover and boomers retire.”

Given that much of Australia’s import spend is locked in for a couple of years due to huge resource construction projects and that non-resource exports such as manufacturing, tourism and education remain weak, Richardson warned the current account deficit may worsen from here.

He said that provided the outlook for Europe and China holds, there may only be one interest rate cut left in the cycle.

But despite the report’s predictions of an end to the boom, Richardson said the overall outlook for Australian growth is still looking better than most people realise.

He pointed to “surprisingly strong” consumer spending and said some sectors were holding up better than expected.

“This includes finance, which official statistics suggest is still growing rapidly and employing more people, despite announcements to the contrary, as well as recreational services, and transport,” he said.

“Even the public sector is growing well, with the huffing and puffing of the pollies yet to show up as a slowdown.

“At the same time, some sectors are still making a silk purse out of a sow’s ear, with the stupendous strength in engineering work keeping the wider construction sector afloat, and others still are just downright booming, with mining production and farm output growing at double digit rates.”

However, Access has been reliably forecasting the end of the mining boom since at least 2006, when Richardson told The New York Times “the only supercycles to date have otherwise been known as world wars”.

Paul Bloxham, chief economist at HSBC, told SmartCompany that while commodity prices look like they peaked last year, Australia can still look forward to growth from investment coming on line.

“The mining boom is going to have a number of stages: the first stage has been a big ramp up in income growth from rising commodity prices; the next stage is a ramp up in investment, which we are part way through; and the last stage is a pick-up in export volumes, which has only happened gradually and there is a lot more yet to come,” says Bloxham.

“Investment looks like its largest contribution to the economy will probably happen this year, but the export story will start to lift in terms of contributing to growth.

“It’s hard to call an end to the mining boom. It’s a long drawn-out process with a number of different phases to it.”


Miner cans Pilbara plans

Junior miner Fox Resources has been forced to shelve a Chinese funding agreement for  its Pilbara developments due to low nickel and copper prices.

In a statement Fox interim CEO Laurie Chew said the $30 million memorandum of understanding with Jiangli would be put on hold until the market was stronger.

“Despite the protracted but encouraging negotiations, the decision to suspend the MOU is a mutual one,” he said.

“Unfortunately it is a result of external forces which remain beyond our control, although both parties have agreed to revisit the MOU when commodity prices improve.”

The decision follows a prediction today by Deloittee Access Economics that the mining boom had only two more years remaining.


More mining job cuts in Bowen Basin, fears unions

The announcement of Rio Tinto’s job cuts at its Clermont coal mine may be the first in many for operations in the Bowen Basin, mining unions say.

It comes after Rio announced it would be cutting jobs at its relatively new Clermont coal mine last week.

A Rio spokesperson has stated that “a review is underway and although the details are to be worked out, it will unfortunately mean redundancies will be required.

“We do not take this decision lightly and are committed to keeping our employees informed and proving support to those affected.”

However since then the miner has clarified its statement, saying that its “coalface workforce”, as well production and maintenance crews, will not be touched, according to The Morning Bulletin.

With around 900 working at the mine, 400 fit into the ‘support staff’ category.

Rio has previously said it will be slashing its administrative costs by about 10% globally.

This has not satisfied the CFMEU, who say Rio may only be the first domino to fall in the region, stating that other mines are most likely to follow suit and cut jobs, the ABC reports.

“If Rio Tinto are doing theirs then obviously Xstrata and others who are also in the thermal game will be looking at what they may do next,” CFMEU district president Steve Smyth said.

“Rio, whether or not they’re doing it because … profitability’s gone out of the market or they’ve got some issues I really don’t know, but it certainly will make other thermal producers sit up and think and obviously in the Galilee Basin as well.”

Mining unions will now closely watch how other operations within the region will handle the thermal coal price drop.

“If you’ve got Rio Tinto, them as a multinational laying people off, and then you’ve got these huge mega mines that are going to start in the Galilee Basin, you have to question how viable they’re going to be and what else is going to happen to the thermal coal industry in Queensland,” Smyth said.


Two years left for mining boom: Deloitte

The mining boom will only last another two years and time is running out to get new mega-projects into production, according to Deloitte Access Economics.

In a report this morning Deloitte said the amount of mining projects slated for development had slowed down.

“The strong bit of Australia’s two-speed economy won’t stay strong for more than another two years or so,” it said.

The economic forecaster also said the current projects in development were the result of previous plans and beyond these developments there was little on the horizon.

“Mining companies are making it clear the current spike in investment is due to decisions taken a while back, whereas we are getting few new mining mega-projects across the line,” it said.

Deloitte said the slowing industry also meant the Government would have trouble bringing the budget back to surplus.

But trade minister Craig Emerson told ABC Television today the Government was still confident of achieving a surplus.

Last week resources minister Martin Ferguson said the era of high commodity prices was already behind us and to stay strong Australia needed to be more productive and develop new technology.


Thiess wins $2.3bn Lake Vermont coal mine contract

Thiess has won a $2.3 billion contract to extend operations at the Lake Vermont coal mine in Queensland.

A new six year agreement will expend the contract’s current operations and double production from four million tonnes to eight million tonnes per annum.

It expands the company’s current work on mining and maintenance at the coal mine.

Bruce Munro, Thiess’ managing director, said this large contract is an endorsement of the relationship between Thiess and mine owner Jellinbah Group, which began with Thiess’ work at the mine in 2007.

“Thiess is very proud to continue its involvement at the Lake Vermont mine where we’ve been working with the Jellinbah Group from the very beginning to plan, build and operate the mine,” Munro said.

Jellinbah CEO Greg Chalmers added that Thiess’s continuation of work at the mine will “ensure the ongoing delivery of cost competitive coal from the mine”.

The existing site team at Lake Vermont is gearing up for the new contract and is “mobilising ultra-class mining fleets to meet the increased production requirements and we are truly excited by the opportunities this brings to the people of the Dysart area,” Thiess’ Australian Mining executive general manager Michael Wright said.

Lake Vermont is around 20 kilometres north of Dysart and has a workforce of about 350.