Australians appear, at least on the outside, to be a fairly lucky bunch. Having avoided the major impacts of the GFC, profiting from a rapidly expanding China which has been chewing up as much as the Aussie miners can shovel in to its mouth, and now with The Dragon’s appetite slowing, appears to be transitioning to a non-mining boom economy quite well. In addition to all of this house prices are high, unemployment is low as are interest rates.
But something is worrying Australian consumers and just this week half a dozen of some of Australia’s largest retailers have put out worrying warnings of lower profits, less turnover and slower sales.
TheAge blames three main points for the downturn: The May 2014 Federal Budget, the change in manufacturing with Holden and Ford pulling out of Australian Manufacturing and other large employers, like QANTAS, downsizing their workforces. From TheAge “Confidence had been tracking down before the Abbott government’s ”hard-hitting” budget, its release in May triggered a deep dive on the back of cuts to pensioners, health and family payments. ANZ’s consumer sentiment measure fell at the fastest rate since the financial crisis.
The government says it is trying to hoist the country back to surplus – which it argues will be better for the nation in the long run. And the ”tough” budget measures – including cuts to family benefits and pensions, and widely tipped higher university fees from a deregulated sector – have yet to pass through Parliament and if they do, the financial hit to many households would be quite ”mild”, economists say, until they start to kick in in two years’ time. Still, the real economy is hurting – and the retailers blame the budget.”
ANZ senior economist Justin Fabo goes further saying that even if issues like the budget and political instability (through the Senate) does run smoothly he doesn’t expect consumer confidence to bounce back any time soon to pre-election confidence levels. Fabo points to two other factors likely to weigh down sentiment namely, slowing house price growth and real wages growth.
“Real wages growth up until the terms of trade peaked was quite strong from a households’ perspective and firms didn’t mind that because the prices they were receiving were quite strong, so they were able to pass through reasonably strong wage increases to households.
”But now the terms of trade has come off and export prices have come off. That doesn’t only affect the mining sector, it affects business across the economy as well, so the prices that businesses receive for their output are not going up much, and they’re not going up much going forward, so they can’t afford wage increases anywhere near to what we had in the past.
”At the same time, consumer price inflation will probably be around 2 and 3 per cent, so we’re likely to have a scenario where real wage growth from a households’ perspective will be pretty modest for a long time.
”So that means people have got less money than they used to have to spend.”
Another factor which few are considering, or at the least acknowledging is that Australian consumers, unlike much of the rest of the global community, have watched what happens when economies spend until they drop. Australian’s watched the likes of the US, UK, Greece, Spain, Italy, all topple over in recent years and it’s entirely possible that Australians are just a bit shy when it comes to opening their wallets. They’re aware they need more savings, and that they need to cover themselves first and help retailers and the economy move along second (even though it’s a counter-productive view in some respects because they’re also the ones to be impacted by such a slow-down).
And of course we shouldn’t discount house prices which are extraordinarily high compared to wage earnings and servicing those loans takes up a high percentage of weekly take home earnings.