Everything is lining up for the biggest economic boom in a generation.
So, I’m picking up on something.
The talk in the economic commentary I follow (which is a lot) has shifted. We used to be talking about whether we would recover, or whether we could keep the recovery on track.
Now, it’s about how big the coming boom is going to be.
This is almost across the board. The only dissenting voices are the ones saying that things are too hot, and some asset markets are too bubbly, and they’re at the point of breaking.
But there isn’t anyone I’m reading who doesn’t think economic conditions are hot.
But pictures paint a thousand words, so here’s a ten-thousand word essay of why Australia might be on the cusp of the most incredible economic boom in a generation.
Let me lay it out.
1. The Recovery is V-shaped
It’s now pretty clear that the economy is bouncing back quickly, and the Covid downturn will be deep but brief:
2. Unemployment is Contained
Unemployment never got anywhere near what was feared, and is already trending downwards.
3. Jobs market is heating up
With unemployment contained, the jobs market is picking up. Job ads are now higher than they were pre-Covid…
… and the number of people on Jobseeker has already fallen by 7%.
4. Household Income is Up
With employment income holding up, and with the surge in government benefit payments through 2020, household incomes are up 14% year on year.
5. Expenses are Down
At the same time, with the interest rate cuts, expenses are down, and household disposable income is booming.
6. Households are Flush
With disposable income booming, households are saving at a strong pace, and have got a stash of cash at the bank:
7. Consumer Confidence is High
With all that money in the bank, and having held on to their jobs, consumer confidence is booming:
All that gives the Australian consumer plenty of capacity to support economic growth in the years ahead.
8. The RBA will Run the Printing Press Hot
Despite improving economic conditions, the RBA will continue to run the printing presses hot, maintaining their current $5bn a week pace right through the year. (They’ve already committed to September, and I expect it to be extended.)
They don’t really have a choice. Out money printing program is small compared to the rest of the world, and if we don’t print as well, the Aussie dollar will go to the moon.
8. Businesses are Flush…
Coming into this ‘recovery on steroids’, thanks to the RBA, business conditions are already solid. Businesses are reporting the best cashflow conditions in years:
9. … and Bullish
Business confidence is also already at some of the highest levels in recent memory:
So you put all that together, you have a fantastic outlook for profits and share prices, and a fantastic outlook for the economy in general.
10. Rebounding Trading Partners
You can probably add to that the impact a rebounding global economy could have on the Australian outlook as well.
Many countries, particularly the US, haven’t had the easiest run of things when it comes to Covid.
If the vaccine roll out goes well, and their recoveries gather pace, that just adds further upside to the Australian outlook.
It’s actually hard to see much downside risk from where we stand right now. The economic conditions are stacking up favourably, and the Australian economy is set to boom.
It’s not a question of if.
Now it’s a question of how big.