A nice chart from The Australian’s Business Now blog shows the divergence between NAB business confidence and Westpac consumer sentiment is the fourth widest highest in 18 years:
As I’ve noted before, consumer sentiment leads so we can expect business confidence to deteriorate. However, it should be noted that there has never been such an enduring large divergence before, which suggests that there is more going on here than it appears. We can put this down to:
- high population growth in a weak economy being much more beneficial to business than consumers, and
- a deleveraging and low interest rate environment that is much more beneficial to big business than it is consumers owing to the return of capital to shareholders instead of investment in growth that drives broader income.
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So we may not see the two converge completely for some time.
