Costs temper talk of ‘super cycle’

Statisticians sometimes warn users of their figures to apply them with caution as numbers can belie what is really going on.

More often than not, though, interesting statistics reveal a quantitative world on which decisions can be based and plans set in motion.

This year, key economic indicators have moved in such a way as to contradict the intuitive direction they should be heading, in order to sustain the so-called resources ‘super cycle’.

After all the recent talk of the extended resources boom, which is expected to outlive the regular business cycle, the weight of cost increases now looks a worrying threat to subscribers to this prediction.

Whether the super cycle eventuates cannot be evaluated in these pages. Rather, what is intended is an insight on the performance of the local economy in its various sectors over the past year.

As the mining boom began to lengthen this year, so too did the cost of production, with massive increases in the price of fuel, steel and other inputs such as labour.

The oil price, for instance, has increased dramatically in the past year, partly explained by the effect of hurricanes in the US. Nevertheless, this higher price has flowed on to fuel, which has increased in price by more than 39 per cent in regional areas of WA on average in the past year.

Steel, a vital constituent in construction and other sectors, has risen in cost by up to 64 per cent in the past two years, according to experts.

Meanwhile, the state’s skills squeeze continues with skilled vacancies at an all-time high. And, while this may be good for the state from an unemployment perspective, it does not bode well for sustained growth across the economy.

As the resources sector in Western Australia is highly dependent on these inputs, project delays have become a prevailing problem.

Having said this, China, the country with an appetite for commodities that outpaces world production, is expected to remain the powerhouse of the world’s economy (in growth terms) for the foreseeable future, according to the economists.

So, while local costs may have an immediate impact on the viability of much proposed development in the state, it could be said the boom might yet have some legs.

But, although the resources sector in WA represents the largest element of the volatile investment-based sectors, it is by no means the largest component of the Australian Bureau of Statistics’ state final demand number.

That prize goes to consumption-based industries, where there has been strong growth in the past year, and which was the major driver in the three months to June.

WA’s housing and construction boom might have lagged behind other states, but it seems the effect here could have more steam than in the eastern states of New South Wales and Victoria.

It is not just heavy industry that is stumbling over cost blowouts. In the wider economy, too, the impact of higher fuel prices is making its way into consumer goods, with the WA capital feeling inflationary effects more than most.

Perth’s consumer price index grew by 3.8 per cent in the year to June, compared with the weighted average of all capital cities of 2.5 per cent.

The public sector has also had a strong fiscal year, with the State Government reaping a record surplus on higher revenues across the board. The Gallop Government took revenues that were $1.5 billion higher than the original budget estimate.

Higher than expected taxation and resource royalty revenues led the government to post a $1.24 billion surplus in the year to June.

Ignoring the topical impact of the resources boom for a moment, there are also other noteworthy changes emerging in WA’s economy. Over the longer term, one of these is the ageing of the state’s population, which boasted a baby boom in the 1950s that was higher than the national average, according to the ABS, suggesting WA is more exposed than the rest of Australia to increased demand for health services in the future.

These health implications on the State Government budget might be a way off from being realised, but the changing tastes of this group of the population represent a gold mine of opportunity, as marketing experts would attest.

The state’s tourism industry – likely to experience higher demand from the ageing population-effect – has been stronger in the past year, increasing its market share of international arrivals and benefiting from expanded capacity along key air routes.

But lifestyle issues still dominate the landscape of public debate, with ongoing concerns over liquor licensing laws continuing to be raised.

While the liquor debate persists, WA can revel in its position in the world as one of the most creative cities. According to author of The Rise of the Creative Class, Richard Florida, Perth harbours the right ingredients for a highly creative population, with Mr Florida rating it the 50th most creative city in the world.

The agricultural sector had a mixed year, with varied production results across the agribusiness spectrum of produce. Recent good rains, however, bode well for the coming season, according to farming groups.

In addition, the export value of all commodities has been offset to a degree by a stronger Australian dollar this year.

 The value of the Aussie dollar has averaged above 76 US cents, making WA exports more expensive to the world’s markets.