Consumer confidence remains subdued

This week brought updates on the state of consumer and business confidence in the Australian economy. According to the monthly Westpac-Melbourne Institute Consumer Sentiment Index, confidence was little changed in September as households remained gloomy. That said, the detail of the report does indicate some changes in the main sources of their concerns, as consumers have become less worried about the prospect of further rate increases, but more fearful of the risk of unemployment. Meanwhile, the monthly NAB Business Survey reported that business conditions and business confidence both softened last month, with the latter returning to a negative reading in August, after spending June and July in positive territory. There is some more detail on these numbers below, along with a review of the rest of the week’s data releases and the usual linkage roundup.

With business and finance headlines over the past couple of weeks generating multiple references to the RBA, its relationship with the government and (apparently diminishing) prospects for implementing some recent RBA Review recommendations into reform of the central bank’s board structure, this week’s Dismal Science podcast takes a dive into the history and economics of Central Bank Independence.

Finally, another quick reminder about next month’s economics webinar. The topic is Australia and the New Economics of Industrial Policy, and the live session will be held on Thursday 17 October from 12 to 1pm. You can register here. As usual, the webinar will be free for AICD members.

Consumer confidence remains at low ebb this month

The Westpac-Melbourne Institute Consumer Sentiment Index fell 0.5 per cent to a reading of 84.6 in September 2024, down from 85 in August. According to Westpac, the ‘pessimism that has dominated for over two years now is still showing no signs of lifting’, although there are signs of a shift in focus. Cost-of-living pressures are becoming a little less intense and fears of further interest rate increases have eased, even as consumers have become more concerned about where the economy may be headed and the risk of unemployment. So, for example, the Westpac-Melbourne Institute Unemployment Expectations Index rose 3.7 per cent in September and is now up 11 per cent since April, indicating that more consumers now expect unemployment to increase over the year ahead. At the same time, the Westpac-Melbourne Institute Mortgage Rate Expectations Index fell 8.6 per cent this month to its lowest reading since April this year, with the share of households expecting mortgage rates to increase over the year ahead dropping to less than 50 per cent, compared to more than two-thirds of households in July.

The weekly ANZ-Roy Morgan Consumer Confidence Index fell 0.8 points to an index level of 82.3 in the week ending 8 September 2024. The index has been little changed since early August, with the index 2.1 points below the July 2024 six-month high of 84.4. That is also consistent with the absence of any major improvement in consumer sentiment. More positively, the survey’s measure of weekly inflation expectations was unchanged at 4.6 per cent last week – a 32-month low.

Business conditions, business confidence both fall in August

The NAB Monthly Business Survey for August 2024 reported that business conditions fell three points to a reading of +3 index points. The decline was driven by a six-point fall in the employment subindex, along with modest falls for trading conditions (down two points) and profitability (down one point). As a result, business conditions have retreated to back below their long-term average.

Business confidence was also down last month, falling by a substantial five points to a reading of -4 index points. The Forward orders subindex was unchanged at -4 index points, while the rate of capacity utilisation was up from 82.7 per cent in July to 82.9 per cent in August and remains well above average.

In terms of the survey’s measures of cost pressures in the economy, growth in labour costs slowed from 2.4 per cent in July to 1.7 per cent in August (quarterly equivalent rates) while growth in final products price also eased, slowing from 0.7 per cent to 0.6 per cent. But growth in purchase costs was up from 1.3 per cent to 1.6 per cent and retail price growth accelerated from one per cent to 1.2 per cent.

What else happened on the Australian data front this week?

The value of residential dwellings rose by $225.9 billion to $10,911.8 billion in the June quarter 2024. The ABS said the number of dwellings rose by 52,900 to 11.2 million, while their mean price rose by $15,600 to $973,300.

The ABS Monthly Business Turnover Indicator rose one per cent over the month in July 2024 (seasonally adjusted) to be up 4.6 per cent over the year. Turnover was higher in nine of the 13 industries that comprise the aggregate indicator, with the largest rises in Transport, postal and warehousing (up 4 per cent) and Professional, scientific and technical services (up 3.9 per cent), while the largest falls were in Retail trade and in Information, media and telecommunications (both down 1.6 per cent). In annual terms, turnover rose in 12 of 13 industry divisions, led by increases in Electricity, gas, water and waste services (up 16.8 per cent) and Professional, scientific and technical services (up 8.4 per cent). Mining was the only industry to report a fall in turnover relative to July 2023, with a 1.2 per cent decline.

In July 2024 there were 658,970 short-term visitor arrivals to Australia, up 5.4 per cent over the year. The ABS also reported that the same month brought 1,925,260 total arrivals, an increase of 10.4 per cent compared to July 2023.

The ABS said there were 52 industrial disputes in the June quarter 2024. These involved 23,800 employees and 21,900 lost working days. Over the 2023-24 financial year, there were 193 disputes involving a total of 120,000 lost working days. That was 20 fewer disputes than in 2022-23 but 52,900 more working days lost.

Last Friday, the ABS released the Labour Account for the June quarter 2024. According to the data, the number of total jobs increased 0.3 per over the quarter (seasonally adjusted) to 16.1 million, while filled jobs increased 0.4 per cent to 15.8 million. The number of vacancies fell 3.5 per cent to 350,900. As a result, the share of vacant jobs fell to 2.2 per cent. That marks the lowest vacancy rate in more than three years. The data also show the rate of multiple jobholding falling to 6.5 per cent, down from record highs of between 6.6 and 6.7 per cent over the previous six quarters and marking the lowest rate since the September quarter 2022.

Also from last Friday, the ABS published lending indicators for July 2024. New loan commitments for housing were up 3.9 per cent over the month (seasonally adjusted) and 26.5 per cent higher over the year, at $30.6 billion. Within that total, new lending to owner occupiers was up 2.9 per cent in monthly terms and 21.4 per cent in annual terms, while investor lending was up 5.4 per cent month-on-month and 35.4 per cent year-on-year. The Bureau noted that investor loans have now grown by more than a third over the past year and at $11.7 billion are approaching the record high of $11.8 billion reached in January 2022. The ABS said while some of the increase reflected higher prices, it was also driven by an increase in the number of loans being approved.

Other things to note . . .

• RBA Assistant Governor (Economic) Sarah Hunter gave a speech on Understanding the Journey to Full Employment. Hunter explained the RBA defines full employment as the maximum level of employment consistent with low and stable inflation, adding that while the concept is easy to define, it is difficult to measure or capture in a simple metric. Even so, by drawing on a mix of labour market data and model results, the RBA judges that the Australian labour market is currently operating above full employment, although it also reckons it has moved closer to balance since the end of last year. Looking ahead, the RBA thinks labour market dynamics will operate in a way that is broadly similar than in the past and that this will see a further, gradual rise in unemployment over the year ahead. But Hunter also cautioned there were upside and downside risks to this expectation.
• The September 2024 Quarterly Statement by the Council of Financial Regulators.
• Is wild weather putting the future of Australia’s insurance sector in doubt?
• In the AFR, two pieces from Danielle Wood. The first makes the case for carefully weighing up the costs and benefits of proposed industrial policies while the second considers how economists can win friends and influence people. According to the Productivity Commission Chair, ‘policy advice done well is a somewhat chaotic (but tasty) buffet of theory, history, deep sectoral understanding and empirical analysis, served with a generous side of humility’.
• Also in the AFR, Peter Downes defends the RBA’s inflation target.
• Related, in the WSJ, James Glynn warns that attacks on RBA independence carry a big risk.
• The NSW Productivity and Equality Commission report on Housing supply challenges and policy options for New South Wales.
• The latest BIS Bulletin examines credit and resource allocation in emerging market economies, where it says that an increase in credit flowing to construction and real estate at the expense of manufacturing has contributed to lower productivity growth rates.
• The WTO’s World Trade Report 2024 makes the case for the transformative power of international trade, citing results suggesting WTO (and before that GATT) membership has boosted trade between members by an average of 140 per cent, while economies that undergo ‘rigorous’ WTO accession negotiations grow 1.5 percentage points faster during their accession period.
• The Economist magazine has a briefing on the state of China’s economy.
• The FT has been running a three-part series on the new economic nationalism, with pieces on how national security has transformed economic policy, China’s new back doors into Western markets, and can globalisation survive the US-China rift?
• Also from the FT, Margaret Heffernan takes aim at the consensus on competition, outsourcing and subcontracting.
• How to think about the economics of organisational strategy.
• New research from the IMF, with one paper looking at the links between growth, food inflation and food insecurity, and another analysing the relationship between geopolitical alignment and the use of global currencies.
• From the LRB, John Lanchester reviews recent books to shed light on what contemporary finance does and is. His take is that the answer is mostly gambling.
• Analysis from the NY Fed looking at AI and the labour market.
• David Deming on the case for breaking up Big Econ. According to Deming, academic economics has a concentration problem – the recipients of major economics prizes, including the economics version of the Nobel, have collectively spent half their career at just eight (US) universities; Nobel prizes in economics are nearly five times more concentrated than in chemistry, physics and medicine; and economics is one of only 18 academic fields in which measures of concentration are increasing. Deming also argues that economics ‘has become insular and status obsessed’.
• The QE theory of everything argues that for ‘the past 15 years, every major development in our economy and the cultural superstructure that rests upon it’ from social media and Big tech through to the property boom, the gig economy, cryptocurrencies and fake news can be explained by US$30 trillion of quantitative easing.
• How long until everyone is taking Ozempic?
• Understanding the resilience of sailing ships on the Australia-Europe run in the face of competition from steam-powered vessels.