A couple of standout lines from the RBA minutes are very dovish, including a clangor for Recessionberg:
- “Members noted that the outlook for the construction sector was particularly weak.”
- “The low- and middle-income tax offset (LMITO) was expected to boost household income, and thus support consumption growth, in coming quarters. However, the Bank’s liaison with retailers suggested that this had yet to lift spending noticeably. Members noted that even if the LMITO was used to pay off debts, this would still bring forward the point at which households could increase their spending.”
- “Housing turnover had remained low. Consequently, spending on home furnishings and other housing-related items was not expected to contribute to consumption growth in the near term. Indicators suggested that dwelling investment had declined further in the June quarter and indicators of earlier stages of residential building activity had remained weak; building approvals had declined further in June and other measures of early-stage activity and buyer interest had remained at low levels.”
- “Forward-looking indicators had continued to suggest that employment growth would moderate over the following six months. Information from liaison suggested employment intentions had remained weak in the residential construction sector but positive among services firms.”
- “… small businesses’ access to finance remained difficult, and had become more difficult over the preceding year as banks had tightened their lending practices. While new sources of non-traditional finance had been growing, including equity funding from family offices and private equity funds, they remained a small share of business funding.”
With an economy already operating at stall speed that suggests firmly that further rate action is looming.
Whether or not it is fair to call the Recessionberg tax cuts a failure depends upon your perspective. If you thought they’d boost spending then they are failing.
But if the real goal is to under-spend on tax cuts rather than offer broader fiscal stimulus, to force the RBA to slash interest rates and drive up house prices, then they’re working beautifully!
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.
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