Aussie Consumer Sounds the Alarm
Summary: The increasingly poor state of the Australian economy and the Reserve Bank's failure to meet its objectives, combine to make further rate cuts inevitable. As we've previously outlined, this outcome is inescapable as further stimulus will need to be injected into the Australian economy for the RBA to even come close to meeting their full employment and inflation objectives.
The increasingly poor state of the Australian economy and the Reserve Bank's failure to meet its objectives, combine to make further rate cuts inevitable. As we've previously outlined, this outcome is inescapable as further stimulus will need to be injected into the Australian economy for the RBA to even come close to meeting their full employment and inflation objectives.
Australian Retail Sales (M/M) October: 0.0% (exp 0.3%; prev 0.2%)
Australian retail sales for the month of October recorded no growth in value over the month, and annual retail sales growth fell to just 2.1% y/y. This is yet another set of data highlighting the dynamic outlined by yesterday’s national accounts, the private sector and in particular the consumer is weak and demand is anaemic.
Households remain cautious, despite interest rates being cut to a record low and tax cuts, and consumers are choosing to save more and reduce discretionary spending.
The average level of household debt is just under 2x average household income, excessive household indebtedness renders the Australian economy particularly vulnerable economic troubles. Households and hence consumption expenditure become highly sensitive to changes in the outlook for the economy and this is passing through to the retail sector. Consumer sentiment surveys outline that the Australian consumer is mired by worries about the economy and with wages going nowhere overindebted consumers are choosing to save more in a bid to pay down debt.
Despite house prices having risen again in Sydney and Melbourne, at present any positive wealth effect is counteracted by high household debt levels and weak income growth. Of course the positive wealth effect from a recovery in house prices, and the stimulus measures implemented to date take time to trickle down to the consumer and inevitably work with a lag. So the coming months will bring us more clarity on the drag on consumption due to over indebtedness. But at present, concerns about the outlook for the economy, job security and stagnant wage growth are outweighing any positive wealth effect and consumers are saving more in a bid to reduce debt levels.
Without income growth this dynamic is likely to persist for a protracted period even as house prices recover, hence weighing on the outlook for retail and consumption in Australia.
As outlined in yesterday’s break down of the national accounts data, the Australian government’s limited appetite for implementing a complementary fiscal stimulus package leaves the RBA doing the heavy lifting with respect to the Australian economy. And with the Reserve Bank currently a long way off meeting their goals of full employment and inflation within target range further stimulus is both necessary and likely.
Consequently, we still expect the RBA will ease again in February and once more in 2020 taking the cash rate to 0.25%, the effective lower bound.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.