Consumers give up on future

A day after the most hawkish RBA Minutes that anyone can remember, Westpac’s Consumer Confidence is only going the other way:

The fall for May was moderate but it’s now a major downtrend. Not to mention the expectations component, which is falling off a cliff.  Can the RBA really be thinking of hiking in this environment? The answer is clearly yes because as they said yesterday “monetary policy had to be set for the needs of the overall economy”.
The question is how can the 60% of the economy that is consumption not count as highly as the 6% that is mining? 

And if that’s not bad enough the outlook for family finances is headed rapidly for GFC levels: 

Finally, when we look at the answer to the family finances question versus the price of petrol we see why the debate today is about exempting petrol from the carbon tax:

It is not a good picture for the economy going forward, for retail sales or for employment. The RBA should hold fire.

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  1. The RBA CANT raise rates anytime soon. They keep talking about forward looking (12-18 months) but the fact is they raise or drop rates based on current events and events of the next 6 months. If they dont have any data that warrants an increase, they wont pull the trigger. They wont (At least hope wont) pull on an oasis of a mining boom coming in 1 or 2 years time, when by that time, the light coming through the tunnel will be a train coming the other way. There hasn’t been 1 piece of data in the last 3/4/5 months that says they need to. Just hope and dreams of the coming China express in 2012. Once the CPI figures come out, this will end the talk of any rate rise in the future and a CUT will be on the table. (If the banks pass it on, is a different story)

    • I think you’ll find the RBA can “see through” this data to the mining investment boom beyond. Besides, consumer confidence data is very volatile, very noisy, and utterly unreliable, especially if it doesn’t fit your view. Just ask Adam Carr.

  2. Data Sword – short, sweet and on the money!

    Major retailers are being inundated with discounted offers (in some cases bordering ridiculous) from desperate suppliers.

    There seems to be a sense of panic in the industry right now.

    I know my sales into the ‘majors’ in the past 3 months have taken a nosedive.

  3. Can it thus be assumed that the real potential fix that should have been forced through ages ago was to tax the miners harder, earlier on to bring back some equalibrium to things?

    I can remember when the government kept telling me how all Australians benefit from the mining boom, its just that I’m yet to actually see the evidence behind the statement.

    I tend to see more harm and little good for the masses.

    • You mean perhaps like the RSPT?

      Alas, even if the ALP had had the guts to hold on to their guns there, the MSM ensured that had they gone into the election with that as a policy, the sheeple in the electorate would have completely turfed them.

  4. Eek – please lose the rogue apostrophe in the title.

    That third graph is great btw – nice find.

  5. What if the resource inflated aussie $ was back in the 60-70c USD range sans-mining boom? That third graph would look even uglier.

    • Wrong.

      If there wasn’t a commodities boom, oil prices wouldn’t be spiking. The AUD would be much weaker, but so would oil prices.

      • Maybe so – but energy can generate its own prices outside the commodity world. But my point was more along the lines that any attempts to deflate the Dutch disease in Aus (ie MRRT etc) may still leave us with high oil prices.

      • Our export industry would be healthier as well causing a flow on effect to manufacturing across the country.

        Remember aj, China is trying to keep it’s currency low, as it tends to bring in buyers for its goods which helps exporting & manufacturing, generating a flow on effect to other areas of the economy.

        I think the term “value added” is relevant here, it involves more processing, more people contributing…. more employment & activity.

        Digging a hole and shipping the dirt to China is along opposite lines.

        And if you’re a mining shares holder, think about the crap dividends that BHP, RIO, and others pay considering the money they make…. where is or rather to whom is the bulk of the cash really going?

        • ‘Value add’ is a nice bit of buzz but the reality is much much tougher than the talk. It might just be worth considering how the economy would be coping with oil prices at 30-40% higher. The tangible economy in the US isn’t enjoying their new found oil costs much at all.

          • With the federal government taxing fuel at almost 50% there is room for them to do something if really pushed hard enough.

            As we all know the fuel companies already exploit consumers here. But then looking at the makeup of traffic here in Melbourne there is a high 4WD and larger six/eight cylinder powered vehicle content, so the masses need to add the word “efficient” to their commuting.

  6. I may be speaking from ignorance here, but my understanding of Australia’s debt is that:

    1) Most of it relates to domestic mortgages;
    2) The lenders (ie the big four) borrowed (and are borrowing) extensively offshore to lend on to the above.
    3) from the above, whatever interest rates banks pass on are dependent on offshore lenders required interest rates.
    4) Therefore, whatever the RBA does can only have a marginal effect on household finances and thus consumers.


    • That would be logical, except that the mortgage rate is pretty much tied to the RBA rate due to the oligopolistic nature of banking competition in Australia.

      • My comment was made bearing in mind the instant furore following the bank’s leapfrogging of the RBA’s paltry 25 basis point raise last November. Of course the banks were merely preserving their profit margins, which they can & will protect irrespective of the RBA. The public anger showed how close to the wind most young households are sailing with regard to repayments (not even considering any credit card debt here).
        It appears to me that it’s very hard to see the people left on the beach when your at the helm of the chairman’s yacht, purchased with a fat performance bonus. Who cares about tomorrow. A case of “Apres moi le deluge!” and it will be….

  7. I think the RBA will pull the trigger on interest rates next month. They have been holding a loaded gun to our heads all year, hence, the lowering of consumer confidence over the past months. This negative sentiment feeds upon itself with households saving at unusually high rates scared of another hike. Probably the best thing to do for confidence is pull the trigger and put the punter out of their misery.Release the pressure!!! Then a collective sign of relief will come over the masses who will then re- engage in the retail sector. The desire to reward oneself will emerge after a period of fiscal restraint. The new consumer is a leaner version of the noughties one and will want VALUE in their purchases. I won’t be buying stock in Myer & Harvey Norman anytime soon.

  8. They will be cutting rates I can read their souls….cut cut guys, but if yu raise rates 10% plus and give savers the upper hand Ill have faith in you.