The Australian economy

These are clear signs that Australia's economic woes are not just confined to Sydney and Melbourne

Shares fall again as gloom hovers over mines sector

Expectations that China will today release its weakest quarterly economic growth figures in three years have added to market pessimism on the mining sector.

the Age,

13 July, 2012

Yesterday, Australia's top mining stocks suffered another selloff as investment banks continued to trim forecasts for commodity prices and share prices, with Credit Suisse downgrading its target share price for both BHP Billiton and Rio Tinto.

The bank's target price for BHP was revised from $45 to $35 while Rio Tinto's was revised from $90 to $70, based on the expectation that weakening commodity prices will shrink earnings by 32 per cent and 20 per cent respectively.

The news made a bad day on the markets even worse for resource stocks, pulling the two major miners down by more than 2 per cent, and delivering hits of 6 per cent and 4 per cent to Fortescue Metals Group and Atlas Iron respectively.

BHP and Rio shares have fallen daily for more than a week, and the $30.40 that BHP was fetching last night is the stock's lowest since March 2009.

Just as Merrill Lynch and other big banks have done in recent days, Credit Suisse's thinking was driven by downward revisions for most commodity price forecasts, including those of most importance to the Australian economy: iron ore, thermal coal and coking coal.

''While commodity prices will remain well above the average of recent decades, it is likely that many have peaked for this cycle,'' said the Credit Suisse analyst note, led by Paul McTaggart.

But importantly for the local economy, the bank suggested that iron ore was one commodity that would yet enjoy higher prices.

Despite downgrading its own iron ore price forecasts by 9 per cent, 8 per cent and 5 per cent over the three years from this year, Credit Suisse still expects benchmark iron ore prices to reach $US150 a tonne by mid-2013, well above yesterday's price of $US136 a tonne.

Dispelling suggestions of a sustained crash in iron ore prices, the bank is predicting a benchmark iron ore price of $US128 a tonne in 2014.

Goldman Sachs analyst Richard Coppleson defended the sector last night, saying negative sentiment on Chinese demand for commodities was ''overdone''.

While China's June iron ore imports were lower than in May, he said that in the first half of this year China imported more iron ore than in the first or second halves of last year. ''While a recovery in the short term is unlikely, downside risk is also limited and we expect a normalisation of demand going into 2013,'' he wrote.

The market volatility came on a landmark day for Rio, which announced that chief financial officer Guy Elliott would step down next year after 32 years at the company. It is believed Mr Elliott will continue to serve on other boards, including at Royal Dutch Shell.

The company made several other internal changes yesterday. Energy chief Doug Ritchie will take on the new role of "group executive strategy", and will be replaced by current diamonds and minerals chief Harry Kenyon-Slaney.

Rio's president of international iron ore operations, Alan Davies, will be the new diamonds and minerals chief, at a time when the company is considering divesting its diamond business.

Australia is depicted in this country as the land of opportunity. This article paints a different picture

Workforce gives up and drops out

AUSTRALIANS are dropping out of the workforce at unprecedented rates. Since the end of 2010, Bureau of Statistics figures show, two-thirds of the growth in the adult population has been among people who are neither employed nor unemployed, just sitting on the sidelines.

The Age,

13 July, 2012

New jobs figures yesterday show that in the past 18 months, the adult population grew by 341,000. But on the bureau's preferred trend measure, only 104,000 jobs were created - and only 14,000 more people became unemployed.

Rather, 222,000 people joined the sidelines: neither in work nor looking for it. Most are male. Most live in New South Wales, Queensland or Victoria.

Some are older people moving into retirement. Some are students who in better times might have sought a part-time job. But most appear to be people of mainstream working age.

Yesterday's jobs figures delivered a correction after three months of solid jobs growth. In seasonally adjusted terms, the Bureau of Statistics estimates that Australia lost 27,000 jobs in June, wiping out the gains of May.

Most of the jobs lost were in NSW (down 14,600) and Queensland (10,400). But every state except Western Australia lost ground, and seasonally adjusted unemployment rose from 5.1 to 5.2 per cent.

Share prices and the Australian dollar slumped on the news. Financial markets now see an odds-on chance of another interest rate cut in August, with the Reserve Bank moving to stimulate growth.

The bureau's trend figures, which smooth out the zigs and zags in the data, show jobs are still growing, but slowly. In trend terms, jobs have grown by 12,500 a month since March - almost all in part-time work - with unemployment steady at 5.1 per cent.

The figures show a startling gap between WA and all other states. On the trend figures, unemployment in WA shrank to 3.7 per cent in June, the lowest rate since the start of 2009. But the next best state is NSW, where unemployment is 5 per cent.

Trend unemployment in June was steady at 5.5 per cent in Victoria, 5.4 per cent in Queensland and 7.3 per cent in Tasmania. The slump has been mostly in South Australia, where it climbed from 5.2 to 5.7 per cent in the past four months.

But unemployment in the eastern states would be well over 6 per cent if not for the 222,000 who have quit the workforce.

In NSW, 90 per cent of all growth in the adult population is among people outside the workforce: 76,000 out of 84,000.

In Victoria, roughly half the population growth has been among workforce dropouts. In Queensland and Tasmania, it has been more than 100 per cent.

The bureau also reports a stunning fall in hours worked, which slumped to their lowest level since January. The figures suggest many workplaces are pressing their workers to take leave or reduce hours, rather than reduce staff.