There’s a weird disconnect in the Aussie economy right now
There’s something strange going on in the Aussie economy right now.
Basically, as far as Aussie businesses are concerned, it’s boom times right now. Things are awesome.
But if you ask Aussie households, things are totally in the toilet. The economy sucks.
But that’s weird.
Because they can’t both be right.
So last week the latest Roy Morgan Business confidence index reported its biggest January rebound on record, with the index rising 10.4 points on the back of improving expectations about the Australian economy and business profitability:
One CEO was quoted as saying, “Wheeee!”
And it’s not an outlier. NAB’s latest Business Survey also rebounded big in January:
Things are looking fantastic. Forward orders are holding up strongly:
While trading and profitability back to boom-time levels, although the employment outlook is easing:
So businesses are loving it.
But you know who’s not loving it?
Households.
They’re totally devastated.
The ANZ-Roy Morgan weekly consumer confidence index fell to its lowest level since April 2020 during the depth of the pandemic:
Think about that for a second. Right now we’re about where we were in April 2020, as the world stood on the edge of an epic plague!
How does that make sense?
The Westpac monthly consumer sentiment survey likewise tanked to near the historic lows seen last November:
Westpac’s survey is still in the toilet too.
How do we make sense of this?
Well, I think part of the story is that households are overreacting. The fundamentals of the Aussie economy are strong, but 9 rate hikes in a row has your average household freaking out.
They’re in a panic.
But that’s got to impact businesses at some point.
For example, JB Hi-Fi has already seens signs of consumers pulling back spending.
“Customers are being a bit more cautious than they were this time last year,” said JB Hi-Fi chief executive Terry Smart.
January, sales grew just 2.5 per cent at JB Hi Fi’s 199 Australian stores, and were flat at The Good Guys, which sells fridges, stoves and kitchen appliances.
That’s got to take it’s toll eventually.
I’d expect to see the outlook for consumer discretionary take a bit of a turn south in coming months.
I’m food and grocery inflation is currently running at 10%. So the price of essentials is lifting just as budgets are being slashed by relentless rate hikes.
That’s got to squeeze discretionary spending sooner or later.
Especially if the consumers feeling like the world is collapsing around them.
So the truth is probably somewhere in the middle.
Businesses might be facing a tougher outlook than they currently think.
But things certainly aren’t as bad as households imagine either.
JG.