Aussie retailers brace for consumption meltdown

Australia’s retailers are bracing for the toughest conditions in a decade amid soaring food, power, mortgage and rent costs, according to Barrenjoey consumer analyst Tom Kierath:

Kierath said it was hard to think of when conditions had been tougher for retailers over the past 15 years, with consumers now battling a “cocktail” of higher interest rates, food and fuel costs.

“It’s easy to see why consumer confidence is back to GFC levels. Increasingly, we think [Financial year] 23 will be as difficult as FY19, potentially worse in some categories,” he wrote in a note to clients.

Meanwhile, Macquarie’s equities team placed downgrades on JB Hi-Fi, Harvey Norman and Wesfarmers, predicting “significant pressure on discretionary spending” going forward…

It is not retailers that I am concerned about, but the broader Australian economy.

Household consumption accounts for more than half of the economy’s growth. Therefore, where household consumption goes, the economy usually follows:

Consumption versus growth

Household consumption drives growth.

Never before has the Reserve Bank of Australia (RBA) commenced a rate hiking cycle with consumer confidence in such a poor state, with the ANZ-Roy Morgan consumer confidence index tracking well below the trough of the Global Financial Crisis at early-1990s recessionary levels:

Australian consumer confidence

Consumer confidence already at recessionary levels.

With mortgage rates tipped to rise to around 6% (economists’ forecast) or 7% (futures market’s forecast) by mid next year, Australians are facing a 33% to 50% lift in monthly mortgage repayments from where they were in April before the RBA began its tightening cycle.

If rates rise that aggressively, household consumption will likely collapse on the back of a sharp fall in household disposable income (as money is diverted into mortgage repayments), alongside the negative wealth effect from falling housing values.

In short, if the RBA hikes too aggressively, it risks plunging the economy into a consumer-led recession.

Hopefully the RBA will stop hiking long before the bullish interest rate forecasts come to fruition.

Unconventional Economist

Comments

  1. Wow after so many years of watching the govmint protecting any downturn in the economy, they are so stuck, that we are actually actively watching them tear it down. So weird it feels like an alternative universe.

    • Ailart SuaMEMBER

      “Never before has the Reserve Bank of Australia (RBA) commenced a rate hiking cycle with consumer confidence in such a poor state”

      IMO, the RBA is simply doing as it’s told – ‘crashing the economy’. The peasants need to be brought down a few more clicks. The ‘plandemic’ was just the entre. We need to be on our knees, begging; willing to accept whatever draconian, authoritarian control is bestowed upon us. On a brighter note, I also caught covid several weeks ago. My wife caught it from her nephew and was very sick for three weeks, despite being injected 3 times with the AZ experimental substance. She has a senior role in a large insurance and investment firm and was disgracefully coerced into getting the jabs.

      Anyway, we made no attempt to isolate as I actually wanted to catch it. Well, it took almost a week before I had any symptoms, but they were so mild that I continued exercising: not a single day in bed! Most of my time was spent looking after my wife. BTW, I’m 72 years of age and unvaccinated.

      • Doesn’t explain why they didn’t crash it in 2008 or 2020 however — the difference now is that inflation is high so they can’t get away with 0% interest rates anymore.

        • Ailart SuaMEMBER

          “Doesn’t explain why they didn’t crash it in 2008 or 2020”

          In 2008 QE was the fix, but neoliberalism was moved into ICU, nevertheless. It was then put on ‘life-support’ after the 2019 REPO blow-up. I imagine, at that point, the establishment were becoming increasingly jittery; concerned about the possibilities of a global, citizen revolt. Then came the highly questionable pandemic, with its ‘vultures’ and pay-off’s to puppet-governments in the form of authoritarian control at a level never before experienced in western democracies. All because of a coronavirus that has a recovery rate of around 99.8%.

          2020 was too early to initiate the ‘end-game’ – they needed to batter the citizens further, print more money to a level whereby inflation was inevitable and debt could be used as an excuse to NOT bail out banks and corporations as they did back in 2008. That would put governments in a position where they could activate 2018 bail-in legislation. At that point governments and their ‘puppeteers’ would pretty much have us by the ‘short and curli’s’. The end of cash – just a digital, drip-feed of our own, locked-up money which they have total control over. Don’t step out of line or we’ll cut off your funds.

          Jesus, I hope I’m wrong…

          • kiwikarynMEMBER

            QE was the fix, it was specifically designed to prop up house prices which was the underlying cause of the mortgage debt meltdown from which everything flowed. But to think that propping up house prices is the answer to every economic ill wind that blows is ridiculous. QE was appropriate for the time and place it was originally used, but has been bastardised since it was no longer necessary from 2010 onwards.

      • Camden HavenMEMBER

        Do you not appear to give any consideration to the geopolitics influencing Fed policy in my opinion.
        I have a stock view that, if what we are witnessing seems illogical, then we don’t have all of the facts.

      • BoomToBustMEMBER

        r.e. personal – it seems to be an interesting Australian thing where people see you as the enemy for having a different opinion. I disagree with much of the CV-19 stuff, however I agree to disagree with friends, I get someone more on my side if the fence for opinion (BOM radar anomalies), which I say I wouldn’t be concerned, I get deleted from FB. Both sides are just as bad as each other lately.

    • Ronin8317MEMBER

      Just went through it myself : daughter picked it up from childcare about 2 weeks ago, and I tested positive 2 days later. Some headache, sore throat, general tiredness, then it all went away within a week. The biggest issue is my wife didn’t test positive until a week later, so her quarantine didn’t finish until last weekend. Your chance of survival with Omicron, even if not vaccinated/boosted, is only a bit more than the flu.

  2. Ailart SuaMEMBER

    “Never before has the Reserve Bank of Australia (RBA) commenced a rate hiking cycle with consumer confidence in such a poor state”

    There are strong parallels with what’s occurring now and the 1973-75 stagflation-present recession: embargo’s, inflation, rising commodity prices, and the Yom Kippur war, when Syria and Egypt attacked Israel, resulting in the US supplying arms to Israel – which, in turn, resulted in a furious OPEC raising oil prices by 400%.

    It could be argued, that those turbulent days in the 1970’s had a lot to do with the introduction of Thatcher and Reagan’s modern neoliberalism – when ‘the keys’ were handed over to big business and the trade unions obliterated. I wonder if what we’re experiencing now: that it’s similar to what occurred almost half a century ago – and that it heralded in a new economic model – is a precursor to another model of political and economic change. The next step up from neoliberalism so to speak – more power to the elites and tighter control over the peasants. Sadly, I have a strong suspicion it’s history repeating.

Leave a reply

You must be logged in to post a comment. Log in now