“People are not spending; they are putting their hands in their pockets and refusing to spend!
And I think it’s to do with confidence.
Bushfires are wreaking havoc along the East Coast, smoke blanketing Sydney city, its eerie and gloomy. And not making people feel good.
We’ve got the drought, that’s going nowhere and there is no sign of rain coming…again, not encouraging people to spend.
And not to mention a warning from the energy market operator, prepare for blackouts this summer.
Is this giving you confidence? Does this make you feel good? Didn’t think so.” (Listen Here)
Newsletter – December 6 2019
Crocodile Rock. Killing Me Softly With His Song. Dream On. You’re So Vain.
1973 is when these songs were all released. It also happens to be the last time Australia posted a consecutive account surplus.
Australia’s export sector continues to go from strength-to-strength with the Australian Bureau of Statistics releasing new data which shows Australia has posted a record $21.1 billion trade surplus in the September 2019 period. This follows on from a record $8 billion in June. (Listen Here)
In other words, we are exporting more than we are importing. And this is a good thing because it means more money is coming into the country, than leaving.
Despite the fact it has taken nearly 50 years for Australia to record a consecutive trade surplus, this is a clear sign the trade economy is going incredibly well.
This is reconfirmed by GDP Figures which show a similar story. Despite a year of turmoil, Australia has posted an annual growth of 1.7 per cent, up from a revised 1.6 per cent. (Listen Here)
GDP in the September quarter rose 0.4 per cent which was below economists’ expectations of 0.5 per cent, however the annual growth of 1.7 per cent for the year was slightly above what economists had expected.
Overall, this is good economic news.
Treasurer Josh Frydenberg says the figures showed the economy was picking up momentum and that while the government would like consumption to be higher, the income tax cuts were working.
“These numbers today show the remarkable resilience of the Australian economy.”
“While other major nations have all experienced negative economic growth this year the Australian economy continues to grow.
“There’s obviously more to do but at least we continue to grow.” (Listen Here)
Household spending is now just 1.2 per cent, down from 1.4 per cent. Now, we’ve had two three interest rate cuts and income tax cuts this year – clearly they are not having the desired stimulatory effect the government and the RBA was hoping for. (Listen Here)
But, just because people aren’t spending, doesn’t mean the additional available income isn’t handy.
Household gross disposable income increased 2.5 per cent in the September quarter – meaning Australian’s are using the tax cuts and the rate cuts to pay down debt instead of spending.
I have long warned about the high levels of household debt in Australia – that is the RBA were to raise interest rates, households could not afford the increased payments. High electricity bills, high private health insurance, lack of wage growth over a sustained period of time has led to households savings dwindling. (Listen Here)
The owner of the biggest independent grocery business in Australia, Drakes Supermarket owner Roger Drake says “We haven’t seen the kick that we all thought we would get.
“We’re hoping that we’re going to see an increase.
“They’ve been very conservative in what they’re spending on food, they’re going from the fillet steak to just ordinary chops and sausages.”(Listen Here)
So, on one way it is a good thing households are using the extra cash to pay down debt but the RBA is not looking at whether households have more cash, they are looking at spending when it comes to cutting interest rates or not.
And if people are not spending despite the stimulus…what is there left to do?
And despite a rocky week on the markets, thanks to US President Donald Trump’s new tariffs on steel and aluminium imports from Brazil and Argentina.
$45 billion has been wiped off the stock market in one day as a result of this announcement and increased fears of trade wars. Only last week it closed at a record high of 6864.0. But if there is one thing the ASX has done this year…its always bounced back. (Listen Here)
But again it asks the question – why are the Reserve Bank still cutting rates?
Record trade surplus, GDP growing, household disposable income growing, stock market reaching record highs, house prices are rising again…are these all signs of a flailing economy? (Listen Here)
Now, the Reserve Bank did leave interest rates on hold at 0.75 percent for the final meeting in 2019. But money markets are heavily tipping another rate cut in February next year.
RBA Governor Philip Lowe says “Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to monitor developments, including in the labour market,”
“The Board also agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target.”(Listen Here)
So the door is open to more rate cuts, and some economists are predicting up to two rate cuts next years bringing our official cash rate to 0.25 percent.
But bringing rate that low might not be the answer to get Australian’s spending again. Rather, doing the complete opposite.
If people hear rates are continuing to be cut, then something must be wrong in the economy. Why would they spend if things could go pear-shaped?!
I suppose the true test of consumer spending will be when retail numbers for December are released – if sales aren’t there in December…then there is no hope.
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