Yesterday saw the release of business and consumer survey data and it continued a trend that has been in place now since the Coalition came to office in 2013. Business conditions and confidence have consistently lifted while consumer confidence has consistently sagged:
The resulting decoupling is the longest and deepest in modern history with households very obviously on the wrong end of it.
This is a pattern of growth that could, under different circumstances, be praised. The post-mining boom adjustment needs just such mix as consumers are deflated and productive capital unleashed so that the national real exchange rate adjustment can transpire, as well as productivity gains help deleverage balance sheets and tradable business flourish.
But here we run into the problem of macroeconomics without qualitative assessment. While the above pattern shows business rebooting as consumers retrench, the sectors that have been promoted to achieve this are the exact opposite of what is required. While some tradable sectors have rebounded, the vast majority of that business activity has resulted from a trashing of the consumer balance sheet, soaring land prices, energy and other inflating domestic business costs, preventing the currency from falling.
Three macro tools have been used to deliver this outcome. First, after 2011 monetary authorities were too slow to cut the cash rate and tighten macorprudential leaving the currency a play thing for the global carry trade and inflating asset prices.
Second, mass immigration has been used to support aggregate domestic demand while wages are killed by flooding the labour market with cheap imports.
Third, tax reform has heavily favoured business cuts and household hikes.
Needless to say, it is youth that is most severely impacted by all of these forces though it is clearly negatively impacting households overall.
MB is realistic about the need for you to wear your share of the post-mining boom adjustment that needs to repair Australian competitiveness but this is class war not nation building.
