Under the hood, the Aussie economy is struggling.
We’re possibly already in recession.
Maybe not in absolute levels, but in per capita terms.
This is a distinction that doesn’t get as much air-time as it deserves.
GDP is the amount of stuff we produce. GDP per capita is the amount of stuff per person. In that sense, it’s a much better gauge of actual living standards.
And what are living standards doing?
They’re going backwards.
Last week, we learnt that March quarter GDP was softer than expected, growing at just 0.2%.
That’s not impressive.
But in per capita terms, GDP actually fell 0.2%. And that followed just 0.1% in the December quarter – a number not statistically different from f-all.
And CBA now reckon you can lock in another fall for the June quarter.
And so we have a per capita recession. Living standards are falling.
That’s not good.
And it gets worse when you look under the hood. Household consumption – one of the primary drivers of the economy is fading fast. It grew at just 0.2% in the March quarter.
But pull that apart and consumption of essentials was actually up strongly – up thumping 1.1%.
But all that was off-set by a huge fall in discretionary spending, down 1.0%
This is an inflation story.
Households are feeling the pinch. They’re cutting back on discretionary spending to try and make ends meet.
But at the same time, the cost of essentials – particularly energy – is soaring, pulling more of their household budgets away from discretionary to essentials.
Households are also saving less. After a big run up during the pandemic, saving rates are down. It was just 3.7% in the March quarter, down from 11.3% a year ago.
That’s a further sign that household budgets are under stress.
And with savings rates falling, the war chest of savings that households built up during Covid now seems completely run down. Net savings levels have returned to normal.
That savings buffer has probably made recent consumption and GDP numbers look better than they actually are.
Looking through it all, it’s clear that the Aussie consumer is struggling, household budgets are under massive stress, and the Aussie economy is teetering on recession, if it’s not there already.
So with all that going on, tell me why we’re hiking rates again?
In fact, tell me why we’re not cutting rates.
But nope, the RBA maintains a bias to higher rates. They’re latest memo suggests there’s at least one more in the barrel.
They seem determined to break something.
Better make sure it isn’t you.