Sentiment indicators show a stark gap between businesses and consumers. While surveyed business conditions are around decade-highs and business confidence is well above average, consumer confidence is below average. Importantly, it’s not just a confidence effect – growth in household spending has been sluggish.
The main drivers appear to be weak growth in household income and slow wages growth. There is also some evidence of more caution among consumers in the post-Global Financial Crisis (GFC) period. For example, there is little evidence of a positive wealth effect from the recent house price boom and consumers have been injecting equity into their homes, rather than borrowing to consume as they did in the early 2000s credit boom. Rising household debt has not driven a lift in consumption.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
