Why Australians aren’t spending

Robert Gottliebsen today posted an interesting article on Business Spectator providing an insight into why Australians are cutting back on retail spending:

Retailers have been looking closely at what is causing stress among Australians and among Australian consumers…

Those in lower income suburbs or in areas where there are many high mortgage/low deposit new houses, consumers are badly stressed by higher power, medical insurance, petrol and education costs on top of higher interest rates. Power charges are particularly stressful because homes have become totally geared to power consumption, particularly in hotter or cooler areas. These consumers have cut back their discretionary spending and retailers operating in those markets have suffered…

Then there is a second group of more affluent consumers who are being stressed by different forces. They cut back spending because the paper value of their sharemarket assets slumped and they were frightened that the value of their house, or house prices in general, would fall.

They are currently reacting to those stresses by saving like crazy and their savings have played a big role in boosting the banks’ deposit coffers.

Retailers like Myer and David Jones want the sharemarket to rise and want house prices to settle and begin to move up again so that these consumers will stop saving so much and restart spending…

That Australians are cutting back on spending and repaying debt is hardly surprising and is typical of an economy disleveraging after a housing bubble.

As explained previously in relation to New Zealand and the United Kingdom (but equally applicable to Australia), throughout the 2000s, when global credit conditions were benign, household debt levels and asset prices rose continually. These conditions made Australians feel richer (the ‘wealth effect’), spurring consumer confidence, spending and employment growth. This process can clearly be seen by the below charts.

First, consider the rapid rise in household net worth up until 2007. The bulk of this increase in wealth came from ballooning home values, which comprises the majority of Australian household net worth.

With house prices rising inexorably, Australians began using their homes as ATMs, withdrawing large amounts of their new found home equity between 2001 and 2008 (see below RBA chart). Much of this money was spent on consumption, thus further boosting incomes and employment.

However, the process of debt feeding asset prices feeding confidence, consumer spending and employment growth appears to have stalled now that house prices have flat-lined. Australians have, instead, begun reducing consumption and repaying debt, as evident by increased home equity injection (see above chart), higher household savings rates, and falling levels of debt-to-disposable income.

The golden era for retailing that was 2000 to 2008 is now over and the age of frugality has begun. And the headwinds facing retailers, the economy and asset prices will only grow stronger as the baby boomers retire and pare back their spending.

As I have shown previously, household spending peaks between the ages of 45 and 54, before falling sharply. A household in retirement spends less than half of what a 45 to 54 year-old household does (see below chart).

So with the population ageing rapidly and consumers already maxed-out on debt, the days of debt-fuelled consumption appear to be over. We best get used to the new normal.

Cheers Leith

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

    • Unfortunately some morons will ask for BIG AUSTRALIA to solve our issues (and sink our (and our kids’) quality of life (I am a concerned new immigrant )

      • Im all for a smaller Australia – deportations, starting with all these gang thugs that are taking over the city.

        Put in place a zero tolerance policy – you break any one of the serious laws / restrictions in place and you are shark bait!

      • Unfortunately you are right there DA. But trying to solve our ageing problem through mass immigration is crazy. These migrants too will grow old and we will be left with the same ageing problem (only larger) 30 years from now.

        • Try telling that to Saul Eslake:

          Populate or stagnate
          http://www.theage.com.au/business/populate-or-stagnate-20100309-pvw4.html

          On balance, the problems of a growing population are more manageable than those associated with a stagnant or declining one.

          Why is it an article of faith amongst economists, even good ones like Saul Eslake, that we must have population growth to maintain a healthy economy?

          Its not difficult to see this strategy is unsustainable in the long term and only kicks the can along the road. The Earth is finite after all.

          One of the great challenges of economics is to devise a system that improves living standards without population growth and without consuming ever more natural resources. But its a challenge that most of economics profession either ignores or considers a fringe issue that only nutters worry about. Julian Simon won the bet after all!

          • Robotics?

            No seriously, would the advent of advanced robotics solve the issue of growth without population? The productivity improvements would be astronomical and they could replace physical human labour. Capital stock would continue to improve and the remaining human workforce would be the “thinkers”.

          • Lorax wrote:
            “Why is it an article of faith amongst economists, even good ones like Saul Eslake, that we must have population growth to maintain a healthy economy?”

            As Professor Albert Bartlett observed:

            “The greatest shortcoming of the human race is our inability to understand the exponential function.”

            With regard to most economists I would add “and the inability to operate a pocket calculator.”

        • Ahh. The Great Population Pyramid Scheme run by our very own successive federal governments …. and it’s not simply migration issues such as a dodgy student visa system, that’s the biggest problem, no. It’s the baby bonuses and the middle income family welfare payments paid to our own citizens that probably do the most damage. After such schemes are handed around for a while people develop a sense of expected entitlement, and everyday prices adjust upwards to reflect that entitlement expectation.

          Not only a crisis over-reaction to supposedly solve the aging crisis, but also creating infrastructure/over-population problems for our future generations.

          You know they could have just left well enough alone.

          Once the retirees realised what shitty services they were receiving by untrained and poorly raised brats who were getting paid soaring wages for lack of better available persons to employ, the old fogies would just return to work. After all, if bratty youngsters who did things ‘I wouldn’t do in my day’ can get paid a king’s ransom for doing bugger all and with a sullen expression on their face – then why shouldn’t they, who know better, get those jobs instead?

          This in turn would lead to decreased rates of depression and other health issues created by apathy in the retiree lifestyle. Hey presto -> decreased demand on our health system.

          For my part I would’ve relished the opportunity to land those plum high-paying jobs once the majority of the population were retired.

          Should have left well enough alone…

          But anyway, welcome to Aus, DA! Hope you find things turn out better here than they were for you where you were before ^^. Unless you’re a Kiwi in which case it’s important for you to know that animals have rights in this country. Including sheep.

          😛

          • I agree that the Baby Bonus is doing long term damage to our country. It merely encourages those from the lowest socioeconomic areas (who have the least understanding about money and responsibility) to procreate. These people don’t contribute to society and bleed our welfare system dry.

            If I were PM (ha), I would introduce a baby tax deduction, designed to encourage those who work (and actually pay tax) to have children – thereby increasing the chances that these children will be raised with responsible, loving parents who (tend to) understand the value of a dollar.

      • Sounds like your happy to be in the club but now want to close membership to someone else

        • No, I just realize than have to build a GoldCoast (road, hospital, school, water, food, farm, energy) every 2 years is not achievable by any stretch of the imagination.And I am only talking about infrastructure but getting so many immigrants who will not marry outside of their group, does not give me a fuzzy feeling either.

  1. Thanks to blogs like these there is also a much greater awareness in the average punter about the broader economic complexities post gfc. Questions like:
    What is going to be the fallout from the US fed pouring buckets of money into the system?
    Is the commodity boom really stronger for longer or just another construct from the ace speculators in the finance houses (and will Australia get trashed when this hits the wall)?
    Can the euro cb build a bridge over that giant pile of ugly debt?

    Only the very brave or naive are going to plunge long into housing or equities or open the wallet wide until the smoke clears.

    • Post GFC, ha you mean reality crashing down around us.
      as a propective homebuyer Ill be waiting for the day the boomers finaly come to sell their over priced postage stamps, and the day the US inevitably goes bankrupt through sheer lack of political will. Though more likely are the stresses and strains are of the internal politics which will emerge in china which may or may not effect commodities, meaning the future of australia will be in doubt for some time.
      Much of europe will shrink and turn into a musilim state despite the french govt. and likely be as bad off as the US if not Afganastan as they have few natural resources to exploit.
      We have some significant advantages, for one our natural resources, and despite carbon tax (govt legislation easily repealed if the going gets really tough)we will still be able to turn the lights on even if the population does reach 60 million by 2050 as has been reported.

  2. Unfortunately politicians seem to be pretty good toying with the economy. I wonder what half baked scheme will spring up this time to save ‘us’.

    • Surely they cannot be that stupid to continue to kick the can down the road.

      Then again, Gooolia and Swan are great examples of idiocy.

      • “Then again, Gooolia and Swan are great examples of idiocy.”

        …. as is saying ‘Gooolia’ ….

        Try and bring the level of debate above pre-school, will you dearie?

        • Kate, I was once told by one of my masters lecturers that the average intellectual age of the ‘Ostraalian’ (Gillard, 2011) population is 14 years of age, just ahead of the US on 13…

          After hearing this, it’s no wonder why all political debate is so puerile. Anything short of a promise to deliver bigger plasma/LCD TVs and a new HSV (ok, maybe just an SS Commodore for those on struggle street) is met with open hostility.

          The first key to selling anything is that both buyer and seller have to agree that there is a ‘problem’, or a desired situation which differs from the current one. In this case, neither will our politicians acknowledge that a problem exists nor will the average Bogan. I’m not sure if it’s ignorance or detachment from reality but either way, what hope do we have of ever changing the status quo BEFORE we lose the ability to sustain our population/lifestyles as we know them? What will be the deferred cost to our children then?

          • Well, at least she doesn’t say ‘Ostrayan’, you have to give her than much credit.

            Aaron, sad to say, but I pretty much gave up on politicians a long time ago. The old ‘expect to be disappointed and be pleasantly surprised if you’re not’ stance. These days as long as there is an independent standing who is relatively intelligent and not a nazi, insane to any degree, or a religious nut, I’ll vote for them.

            As for changing the status quo – I think it’s a modern day form of natural selection. Politicians will keep putting up pander policies, or otherwise blatantly buy votes. Gradually over time our economy will worsen until it is clearly out of hand. Only then will the pollies take the action needed and because they’ll leave it so late the action taken will be drastic. Considering the growing impact of political corruption within the Public Service it’ll probably also misadvised. The only thing we can do is keep trying to talk sense, and ensure we have a raincoat on standby for use when the shitstorm does eventually hit.

        • Give your fellow citizens a little more credit guys. Take a look at a bunch of 14 year olds trying to organise something, then look outside at the first-world nation state that Australians have built. And then compare it to most of the rest of the world – we’re doing all right, bubble or no bubble.

          • Just because things could be far worse doesn’t mean that we should sit back and be content with what we’ve got. 🙂

            …though I appreciate your attempt to focus reflection on the glass half full.

  3. Excellent article..
    I am an IT person who had about 50 clients before the GFC (mostly Wholesale importers). I was charging $75 an hour and was in great demand.
    I now have about 5 clients and most of them looking at bankruptcy. If I ask for more than $30 an hour, they can’t afford the work.
    The only wholesalers who survived were those who could source direct from China. The Chinese goods are now good quality and a third the price of local or USA.
    My Clients customers won’t buy anything unless they are in desperate need AND unless the goods are at ‘Fire Sale’ prices! Customers can also buy ‘OnLine’ without GST direct from Asia.
    All of my colleagues in this industry are facing the same demise.

    • It’s not going to happen for another 20-30 years Anthony.

      Because of the demographic over-representation of the Boomers in our society, they will continue to hold an undue influence on political debate. Not only are the current political crop a part of the tail end of the Boomer generation, but the voice of self-interest will see them reject any political party who institutes policies which will force them to confront this reality.

      The other problem is that the consequences of declining economic activity and negative growth is that government tax receipts will be hit massively (and I mean massively!) as we have now come to rely heavily upon consumption taxation.

      This is going to mean that consolidated revenue is going to be impacted and the carve up of this will filter down to every level of government and in to every government sponsored service available to the entire population.

      The dependency ratios suggested in the intergenerational report are absolutely scary. Some of the wonderful things which may be in store for us in the future could include:
      – Massively higher workloads – Productivity to replace growth due to declining workforce participation and continued demand for profit growth by corporations.
      – Massively higher effective taxation rates – either direct or indirect in order to finance the political agenda set by the glut of Boomer voters in their golden years. The WIIFM agenda!
      – Subsequent decline in real household wealth as the working population is slowly bled dry by every level of government for every last dollar of what was once discretionary income, in order to redistribute to other parts of the economy. Business will be both perpetrator and victim at once in this situation.
      – Declining government services (hospitals, emergency services, military, roads, public transport, schools, universities etc) as both budget decreases and spiralling wage costs (lack of availability of suitable labour) conspire to transform many services in to a partial or full user-pays model.
      – Decaying infrastructure as 1950’s-1960’s era capital intensive infrastructure becomes unserviceable yet cannot afford to be replaced on the government dime, and the subsequent acquiescence to undertake even more PPP model investment, converting once public resources in to even more user-pays.
      – Rapidly declining birth-rate as working age couples opt for less (and possibly no children) as their economic circumstances and greater awareness and concern for environmental/resources constraints make this non-viable.

      I don’t want to be a Normy Negative over the whole thing but there are some serious challenges if we are to truly change our consumption driven economy towards something even closely approximating a sustainable economy/planet. It’s an interesting contemplation, especially if you’ve ever heard of Toynbee’s Challenge and Response Theory – perhaps we will, perhaps we won’t overcome the challenges this time around…

      • You appear to think that is a normative law, not a prescriptive law.

        If that happens, I’ll take my masters degree and two future tax payers away from this country, then all that will be left will be bogan boomers and assylum seekers.

        It is errant nonsense to suggest that age 65 all of a sudden becomes an age where retirement is irrevocable. Change this mind set and you change everything.

        When the aged pension was introduced (age 60), the average male lived to 59, the average female lived to 62, there were 27 workers for every pensioners, and the pension was 12% of average male earnings.

        On the payout side of the ledger, men live to 79, women to 82, the pension is 27% of average male earnings and there are now 5 workers for every old age pensioner. The only recalibration on the other side is the qualification age is now 65.

        The old age pension should not be viewed as a holiday income stream for 40 years service. Men were dying at 59 when it was introduced, however they are capable of work well beyond age 65 in contemporary times.

        We becry this because of the ‘dependency ratio’. Then simple, don’t let them become dependent.

        As I said, personally I won’t, I’ll emmigrate if I feel the burden is unfair.

        • Agreed, Rusty Penny.

          I think that many Boomers will have to accept that they will be working well past 65 (come to think of it, too…isn’t that actually pretty normal, from thousands of years of human history? why should we really expect it to be any different today?)

        • Rusty, a retirement age of 65 has nothing to do with law; it has everything to do with social norms – norms in behaviour and norms in terms of people’s expectations. Further, at no time did I suggest that retirement was irrevocable, at 65 or any other age.
          As a nation, we have a collective expectation that we will work hard and then, when we retire at 60-65, we can start to enjoy our lives again, as our grandparent’s generation did. We have an expectation that our quality of life will, to a greater or lesser extent, be better than that of the previous generation. We’ve grown up with these norms and whilst it’s neither realistic nor constructive to hold these expectations in the face of the difficulties facing our nation, it remains thus, and changing them is the crux of the problem.
          It is not an issue of enlightenment, nor education, nor ignorance on the part of the populace, rather it is a form of psychological contract between the people and the government – ‘I’ll exchange the best years of my life to become a productive tax payer, and you’ll leave me the hell alone when I retire.’
          This is not to say that everybody thinks this way; personally, I hope to never retire as I believe fundamentally in the ‘use it or lose it’ maxim; however a sufficient number of the Boomer generation believe it to be so.
          The scale of social change required to achieve this change in thinking is significant, and something which, if implemented some 20 years ago when that generation wasn’t already gearing up for retirement, could have been readily achieved through incremental policy development aimed at encouraging the desired behaviour (workforce participation past the traditional retirement age of 65) and discouraging the unwanted behaviours (early retirement and drawing down on socialised/subsidised government services such as pensions, health, transport etc etc.) Unfortunately, we didn’t do this very well, did we? We travelled along, as most generations do, disregarding the future for the sake of the present – politics in a nutshell!
          Now that we are faced with the imminent problem, harsh policy change seems to be the only thing which will bring about the change required in the timeframe available. The problem here however is that any political party ‘brave’ enough to tackle these issues will quickly find themselves on the receiving end of retribution from the largest demographically represented segment of our national electorate – once again, the politics of self-interest!
          Whilst retirement is a burden on the state (as distinct from its contribution to retirement aligned industry segments), reduces the economic efficiency of revenue which could otherwise be directed in to productive endeavours, and reduces the available workforce through which private industry can generate economic activity and profits, it remains, in our belief, a fundamental human right, and one we should not readily give away.
          You appear to be advocating either indifference to the length and quality of life of retirees, or even worse, advocacy for retirement of the wealthy only. Last I checked however, even the less financially endowed had a right to vote, so I can’t imagine policy of this nature getting up come election time.
          Imagining for a moment that they did, what sort of a retirement would this impose upon those unable to elevate themselves above the average? Regardless, what you seem to be implying is the need for the imposition of socially restrictive policies which will see some people forced to work until they drop. Perhaps it will come to that yet, perhaps not. Only time will tell, however nothing about it is ‘errant nonsense.’
          Please feel free to leave your passports on the way out…

          • “Rusty, a retirement age of 65 has nothing to do with law; it has everything to do with social norms – norms in behaviour and norms in terms of people’s expectation”

            Erhh yes it does. It’s a behavioural norm realised and enshrined through legislation. Thus a prescriptive law.

            “I’ll exchange the best years of my life to become a productive tax payer, and you’ll leave me the hell alone when I retire.”

            During those tax paying years, in return you receive education for your children, police to maintain order, a military to protect your piece of sovereignty, a health system, etc etc. Those tax dollars have been spent, not accrued for later use.

            Where does a life time of paid leisure time after 65 come into the equation. I can understand the altruistic purpose of it, but as I said, it was at the last 2 years of peoples existence when it was implemented, for 12% of the average pay. It’s an unrealistic in its current form. I believe a better form would be the oldest x% of people can have the old aged pension, and the birthdate for qualifiction would be recalibrated every 6 months.

            “Unfortunately, we didn’t do this very well, did we? We travelled along, as most generations do, disregarding the future for the sake of the present – politics in a nutshell!”

            OK, but those that stuffed up have to now pay the consequences, if that means they can;’t retire so be it. If age is a barrier for them to remain labourers or engineers, there are plenty of jobs at McDonalds that aren’t strenuous.

            “You appear to be advocating either indifference to the length and quality of life of retirees, or even worse, advocacy for retirement of the wealthy only.”

            No, I am referring back to the quality of live that existed when it was first implemented. If men were dying at 59, then one really wouldn’t expect them to have a great quality of life at 60. I would fathom to say today’s 65 year old male is in better shape than the average 58 year old male in 1902. This also impacts on the length of retirement. I am desiring the pension to be recalibrated to the relative quality of life and length of retirement that existed when it was first implemented.

            As far as wealth goes, I can win $20 million in lotto at age 35 and retire, wealth has always been an option for people to opt out of work, this is a strawman argument.

            “Regardless, what you seem to be implying is the need for the imposition of socially restrictive policies which will see some people forced to work until they drop”

            Men were dying at 59 when the pension age was 60, that was the case, and expected to be. It has now turned into a perpetuity of leisure time for ’45 years service’. Welfare has never meant to serve that function.

          • Rusty, regardless of what it was, or why it was, it is now a very strong social construct. The laws have been changed and relaxed by both the former Howard government, and the current Labor government yet the Boomer’s expectations of retirement remains principally static because normative values, whilst influenced by legislation, are independent from it to some extent – the retirement meme is almost a paradigm of traditional Australian life (Gens X & Y have a very different view on the topic of course, but the Boomers generally feel that they have ‘earned it.’ To change it, and I don’t disagree that it needs to change, will require a greater degree of intestinal fortitude than our current crop of weathervane politicians have between them.
            I’m not so much concerned about the nature of the changes (provided they are progressive rather than completely transformative for the sake of some fairness) as I am about how this is to be achieved. As I stated originally, this policy direction should have been set 20 years ago, so anything we do from here will be hard yards, in the face of popular opposition by a demographically over-represented and self-interested age group.
            For this very reason I believe that the governments of the day, over the coming 10 to 20 years, will largely sidestep this problem and we will still be left carrying the can regardless – perhaps the source of my uncharacteristic pessimism on the topic.
            Anyway, thank you very much for your views.

          • Aaron,

            I agree it has been a ‘social contract’ in the past, but I believe all social contracts are fluid in their make up. Contracts will exist as long as there are no other contracts compete for resources, and may be deemed of greater priority.

            Back to this perceived fluidity of opinion, I believe an argument can sway public opinion, much as we are seeing now with the housing aoffordibility debate.

            As a Gen X, my priority now is for the children of my generation. The Baby Boomers have gone to the well enough, their goodwill is dry and if I have a choice, then they will go without for the first time in their lives. A line has to be drawn in the sand, no more suckling from the public teat.

            To argue what they have benefitted from, they still inheritted the social network constructed by Chifley, Whitlam and to a lesser extent Menzies. They then dismantle it when it was their turn to pay.

            You can’t expect minors to pay, entrants to the workforce are constrained by the need to rapidly progress their career, and the window of fertility that women have.

            The most suitable to actually contribute are those that have had their children leave their household, empty nesters. My grandparents generation knew this, they set the highest marginal tax rates at 60%+. This impacted those when they reached their highest income earning levels. Not because they were devout socialists, but because they realised the public good that could be obtained.

            It’s not punitive, its not politics of envy, it’s just a chronological procession. As I said, prior to this stage of ones life, there are too many obligations to meet to make the ncessary contribution.

            What we saw the bogan boomers do, was obtain tax cuts, use this in addition to the income gain from our current terms of trade, leverage this with foreign debt, and then keep bidding up higher and higher prices on our existing housing stock.

            An outcome that will impair the quality of life for young Australians for much of our lives, espepcially if they have bought recently.

            To put forward an argument that baby boomers now have to work an extra five years, so that 5 more years of contributions are put into their superfunds, to support five less years of retirement, I do not believe is an unreasonable argument in the slightest.

  4. I reckon the only way forward for Australia is to become so street wise and outplay the major financial smart arses of the world, which are guys like the Swiss who have managed to only increase their population by 1.5 million over the last 40 years, have a waiting list of 10 million people wanting to emigrate there and are basiscally the worlds wealthiest nation without even having a seaport and being a landlocked mountainous cold and desolate place during winter. Australia has become a nation of lurk merchants.

  5. I think everyone has bought into the bull. Whoever said when you hit old you get free money from the best poverty promotional mentality government in the world. Most countries you look after yourself or your kids do.

    My question would be why would you expect anyone to look after your welfare in your old age? Isn’t that your responsibility?

    I’m sure I’m going to have rocks thrown at me for suggesting dissolving the pension, however we have been threatened with this for years.

    Here’s a radical thought: why not give people an incentive NOT to go on the pension and see what happens?

    OR … incentives to own your home. If you are a low income earner you receive financial assistance via a rental subsidy. If it’s your own home, you are a low income earner, you don’t. Tell me, why is this again?

    • “Here’s a radical thought: why not give people an incentive NOT to go on the pension and see what happens?”

      There already is an incentive, it’s called a wage.

  6. It would be great if we had statistics on the stress faced by the different income quintiles, as that should make redundant the argument about most of the debt being held by the most affluent.

    As an aside, I think the expenditure graph shoud use columns; this is better for comparison, whereas lines are better for time series.

    • Second that – give me distributions, instead of medians and averages, damn it!!!

      …and i’m pretty sure the data is out there; saw some not long ago (if i had the time, i would put together my own distributions!!)

  7. Deus Forex Machina

    UC…another cracking read. The recent RBA Bulletin looked at the HILDA survey from a couple of years ago and made your point that “The golden era for retailing that was 2000 to 2008 is now over and the age of frugality has begun. And the headwinds facing retailers, the economy and asset prices will only grow stronger as the baby boomers retire and pare back their spending.”

    It showed that in 2001 16% of households with a “head” over 50 had a mortgage but in 2009 it was 24%. Big deal I thought there probably all small. Nope, this cohort now holds 25% of the stock of outstanding debt and, crucially, they reckon they are going to pay it off in the next 10-12 years.

    The new savings rate is structural not transitory as the RBA seems to imply. Heaven help the retailers.

  8. Consumers aren’t spending?

    I’m not sure which world the entire media is living in, but yesterday it was reported that retail sales grew 0.5% in February, for annual growth of 3.6%.

    Yes it’s not runaway growth – but how is 3.6% growth – in real terms – a sign that consumers aren’t spending? Don’t confuse weakness at the department stores (ie; competitive pressures) as weakness everywhere. JBH doing well, ORL doing well – lots of retailers doing well. Some doing not so well.

    Overall consumer spending has also been very solid so if media commentators can stop beating up this non-story it would be great.

    • BK – AFR reports today that if you take out QLD retail growth, national growth is only 0,1% in Feb, for 1.8% nationally.

      QLD floods spiked large purchases like furniture, white goods etc.

      • OK well lets look at the inflation-adjusted figures.

        http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/8501.0Feb%202011?OpenDocument

        Looking at table 5, column O, retail sales for the 12 months ended 31 Dec 2010 rose 1.1%. Slow growth – but it is still growth and the perception one gets from reading your article is that consumer spending has fallen off a cliff. Not true.

        Looking at the National Accounts
        http://www.abs.gov.au/ausstats/[email protected]/Latestproducts/5206.0Main%20Features3Dec%202010?opendocument&tabname=Summary&prodno=5206.0&issue=Dec%202010&num=&view=

        Overall consumer spending in the national accounts suggests REAL household expenditure growth of 2.8%.

        Now I did say there isn’t runaway growth at present – and I am not expecting it ever to go back to 2000-2007 type levels of growth. But reading your article anyone would think we are in a depressionary spiral or something. Consumer spending is going OK and the facts support this assertion. Saying anything else is an outright lie.

        Dave – you are correct. But thing is every month you can always come up with a whole bunch of ifs, but the data is what it is – spending was depressed in Queensland in January, it bounces back in February.

        Time to move on to a real issue.

        • OK well lets look at the inflation-adjusted figures. All figures from the ABS website.

          For the 12 months ended 31 Dec 2010 rose 1.1%. Slow growth – but it is still growth and the perception one gets from reading your article is that consumer spending has fallen off a cliff. Not true.

          Looking at the National Accounts, overall consumer spending suggests REAL household expenditure growth of 2.8%.

          Now I did say there isn’t runaway growth at present – and I am not expecting it ever to go back to 2000-2007 type levels of growth. But reading your article anyone would think we are in a depressionary spiral or something. Consumer spending is going OK and the facts support this assertion. Saying anything else is an outright lie.

          Dave – you are correct. But thing is every month you can always come up with a whole bunch of ifs, but the data is what it is – spending was depressed in Queensland in January, it bounces back in February.

          Time to move on to a real issue.

        • Where does it say these are inflation adjusted. I’ve read all 42 explanatory notes, and it makes no mention of the figures being adjusted in real terms.

          I would say they imply these are nominal figures.

  9. UE

    No anger, just frustration. When the facts are staring you in the face, you – along with various other media commentators – keep talking about this issue as if it is real. It’s a falsehood, which the raw data proves.

    And you also keep going on about the coming house price crash which is just more nonsense.

    It is also frustrating because unsuspecting people read this nonsense and take it as fact. People need to be given the facts. The quality of economics and finance journalism in Australia is so pathetic I don’t know where to begin. I thought this site/blog offered some promise as to lift the standard. Unfortunately I’ve been proven wrong.

    • “And you also keep going on about the coming house price crash which is just more nonsense.”

      Well, I’m sure you could just buy a brand new unit in Surfers Paradise to prove us all wrong then, couldn’t you?

      This site puts forth some very strong arguments in relation to the over-priced nature of this housing market, and reasons why there is a great downside risk. I, for one, find the analysis here refreshing and a nice break from the mainstream propaganda.

      Keep up the good work UE!

  10. BK,

    The fundamental issue is that official data should also be also be taken with a healthy dose of scepticism. It’s clearly a case of the foxes being in charge of the chickens.

    For example, the methodology used to calculate official numbers change all the time so present data is rarely comparable to historical data. The reason? I’m sure you can work that out.

    Here’s an excellent example (US-related) but I can’t see why we (Aust) wouldn’t be doing something similar.

    Checkout: http://www.shadowstats.com

    Just look at the unemployment and inflation figures (on the home page) as they would be if the same methodology was used as before. The important thing to note is not that current methodology is better or not, but without consistency comparisons are impossible but more importantly, the newer methodologies always move in the direction that makes the figures better.

    Of course, the CPI numbers really rob people on inflation- indexed income.

    Simple 2 dimensional stats have no place in Extremistan. Either you’re positioned NOT to be screwed or you’ll be screwed. It’s a binary world.

  11. It’s bedlam out there – Consumer Spending Collapse!
    I’ve been a retail (discretionary) owner for almost 8 years. Sales are now running at one-third of the average they achieved in the first 5 years of trading and we are in the so-called mining boom state of WA (booming for the miners but no other bugger). The ABS retail statistics are of course ‘flawed. There is certainly no increase in discretionary retail spend – it’s all going into grocery with massive hikes in food pricing plus increasing quantities of food sold because of a reluctance by many to eat out on the same basis they used to.Ask the small business owners in the restaurant trade what has happened to their turnover. They have lost a lot of business to those Coles $10 recipes.
    The ABS is worse than useless in giving you a guide as to what is happening. It’s rather like the government talking up a perceived increase in employment numbers after 10,000 software engineering jobs go to India, but statistically this is not a problem because the Woolworths hired an additional 15,000 part-time checkout chicks.
    Consumers are not spending because Glenn Stevens has scared the crap out of the market in his haste to get the cash rate to what he perceives as its norm of 5%, regardless of the fact that the current norm for the developed world is less than half of that. Collateral damage caused by the friendly fire from the RBA along the way includes a massively over valued Aussie dollar that has crippled the tourism industry and is about to do the same with what is left of our manufacturing industry.And yes, the impending housing correction is compounding consumer misery, especially for those who only came into the property market in the last 3 years and look like facing a negative equity situation if the correction is big enough.
    It could be worse though – I suppose I could have a small tourism based business on the The Gold or Sunshine Coasts and have invested all my Self Managed Super Fund in local property!!!!!!!