Consumer confidence falls, but….

Last week’s share market slump hit consumer confidence in Australia hard.

The Roy Morgan organisation  said confidence fell 7.5 points last week.

The hit struck all components of the index.

“Australians are less confident about the Australian economy over the longer term, the organisation’s executive chairman, Garry Morgan, said.

Share markets, throughout the world, were rattled last week over fears that unpopular austerity programs might force Greece out of the European Union.

However, US President Obama urged G8 nations at the weekend to opt for expansionary plans instead.

That led to partial share market recoveries, in both the US and Australia, when trading re-opened this week.

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Australian wages finally outstrip prices

Wages have been rising much faster than prices over the past year.

That is clearly documented in figures just released by the Australian Bureau of Statistics.

These showed that average weekly earnings rose by 4.4 per cent in the 12 months to the end of February, on seasonally adjusted figures.

That includes a rise of 1.1 per cent between November and February.

Price figures are not directly comparable, because they are taken over different periods.

But that is not too important.

The Bureau’s latest figures show Australian prices rising by 1.6 per cent in the year to the end of March.

So wages rose almost 3 times as fast as prices, over the past year or so.

That looks like a big development.

It is.

Especially for families used to wages chasing prices.

So what, really, is going on?

Who is winning?

Who is losing?

To answer those questions, we need to go back to Economics I.

That tells us prices are set by a mix of supply and demand.

Australia’s experience, over recent decades, has mostly  been one of rapidly growing population.

That, in itself, has produced high demand.

So Australians became used to seeing the price of homes, food, cars – and much else beside – rising constantly.

Since the crash of 2008, though, we have become much more cautious, in our spending.

That is largely due to perceptions of job insecurity, in the rumblings that followed the crash.

Europe’s debt issues have been particularly worrying.

So, mostly, we, are saving more and spending less.

Australia has sunk into a multi-speed economy.

Demand for our iron ore and coal is still high, although even in these areas, prices  have passed recent peaks.

The nation’s shopkeepers – and builders – have had some very tough times.

That has led to widespread price cutting.

Signs offering “20 to 50 per cent off” are everywhere in our stores.

Home building, particularly, has slumped.

Only multi-storey construction projects are showing any signs of life, in most Australian capitals.

Demand for workers, though, has remained relatively strong.

At 4.9 per cent, Australia’s current inflation rate is just a fraction of those seen in many other advanced western countries.

The mining boom has, effectively, put a floor under the nation’s job market, so far.

Widespread perceptions of job insecurity, though, are not entirely misplaced.

The Federal public service, for example, once seen as a lifetime employer, is now planning to cut more than 4,000 jobs.

The Federal government’s determination to get its budget back into surplus hastened that process.

So while most Australians like to see wages outpacing prices, many are not advantaged by the kind of economy, in which that can happen.

Times are still tough, for many.

That must be remembered.

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Confidence still “weak” despite good figures

Consumer confidence in Australia is still weak despite a big rate cut, higher family payments lower unemployment, moderate inflation  and higher wages.

Westpac’s Chief Economist, Bill Evans, described a bare 0.8 per cent rise in the Westpac Melbourne Institute index of consumer confidence as “a disappointing result” in these circumstances.

“It follows a surprise 0.5 per cent cut in the official cash rate by the Reserve Bank and extensive media coverage that the unemployment rate had fallen from 5.2 to 4.9 per cent, Mr Evans said.

However he admitted that “other factors appear to have offset these positives.”

But another survey, published by the Roy Morgan produced a more positive result.

It showed Consumer Confidence had jumped 5.4 points to  its highest level for three months

The organisation said the biggest boost to confidence, reflected in its survey, had come from more people who now expect better times ahead.

Mr Evans noted  that home loan rates had fallen by an average of just 0.37 per cent and there had been “increasingly disturbing” news from Europe.

The Bureau of Statistics reported that home lending dropped by 0.3 per cent in March from the February level.

It also reported that hourly wage rates, measured on the Bureau’s wage price index, rose 0.9 per cent in the March quarter and 3.6 per cent in the 12 months to the end of March.

Prices, measured on the Consumer Price Index, rose by just 0.1 per cent in the same quarter and 1.6 per cent over the year.

The Bureau also reported today that, on original figures, the value of Australia’s imports fell to $18.8 billion in April from $20.8 billion in March.

However, worries over Europe increased overnight, Australian time, when Greek political leaders again failed to reach agreement on a new government for the country.

Fresh elections are now likely in Greece, probably next month.

And Greece might well be forced off the Euro.

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Job security worries curb spending

Australians, worried about job security, have curbed their spending.

They have also become particularly apprehensive about signing up to buy a new home.

The Reserve Bank noted both trends, in the minutes of its Board meeting, held earlier this month.

Accompanying comments, that the bank made, strongly suggest that the 50 basis point rate cut it announced then might not be the last, even though Australia’s unemployment has now dropped to 4.9 per cent.

In the minutes, which have just been published  the bank said consumer spending had eased in the final three months of last year.

“…and recent indicators suggested that consumption growth was a little below trend in early 2012, with consumers evidently concerned about their personal finances and job security,” it added.

It noted, too, that home prices had fallen, relative to incomes.

However, the bank warned that that there is still little prospect of a recovery in the nation’s housing construction industry.

“Information from liaison suggested that households were unwilling to commit to contracts for new dwellings because of concerns about job security and declining dwelling prices,” it said.

“Information from liaison suggested that households were unwilling to commit to contracts for new dwellings because of concerns about job security and declining dwelling prices,” the bank added.

It said Australia’s domestic economy had been growing modestly in early 2012.

However  “…the pace of activity had continued to vary significantly across industries.

“ The mining sector remained exceptionally strong, with work progressing on the very large pipeline of committed projects and capital imports rising strongly.

“Mining production had, nevertheless, been disrupted by adverse weather, industrial action and a shortage of explosives.

“Conditions faced by many firms not exposed to the mining sector remained weak, with the high level of the exchange rate continuing to weigh on import-competing and exporting firms.

“Conditions remained particularly difficult in parts of the building, construction and manufacturing industries, as well as for many retailers. Survey measures also pointed to a softening in conditions in the business services sector, consistent with weakness in property markets and the non-mining sectors more generally,” the bank said.

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Unemployment surprise – rate drops to 4.9%

The ABS announced this morning that Australia’s seasonally-adjusted unemployment rate dropped by 0.2% to 4.9%. Expectations had been for a slight increase in unemployment. The Australian dollar rose on the news.

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The budget’s hidden strategy

The key point in assessing last  night’s Federal budget is to remember that it has dual aims.

The first is to lure traditional Labor voters back into the fold, before the next election.

The second is to gently push a flagging domestic economy towards recovery.

Wayne Swan has approached both of his targets quite cleverly.

The Treasurer talks of spreading the benefits of the mining boom to low and middle income earners, in what he calls his “battlers’ budget.”

The government is planning to do this, primarily, by shifting $5 billion into new family payments, higher pensions new disability and dental schemes, and a variety of other measures.

Attempting this, while producing a $1.5 billion surplus, is a bold ambition.

There are costs, of course.

Deferrals on big ticket defence purchases.

Heavy cuts in Public Service employment and

Cancellation of a promised 1 per cent cut, in the company tax rate.

The electoral appeal of increased pensions and new payments for parents with school aged children, among other goodies, is obvious.

Labor, of course, has a great deal of ground to make up in the polls, if it is to have any chance, at all, of winning the next elections, due in 2013.

The economic impact of a $5 billion transfer to people on low incomes, though, might be less obvious.

That’s all about what economists call the propensity to spend.

The poor, naturally, tend to spend more freely than the rich, when a little extra money comes along.

Australia’s shopkeepers will be delighted with that.

Yet – as independent economists admit – this surplus budget –overall – carries little risk of inflation.

Some stimulus, then, to a sagging domestic economy, without much damage.

A clever strategy,  which might well work.

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“Battlers budget:” the highlights

The Federal  Treasurer Wayne Swan says the $1.5 billion surplus – at the heart of his fifth budget,  would be the “foundation” of the government’s plan to spread the benefits of the mining boom.

Delivering his budget speech in Federal parliament, Mr Swan said:’This is a budget about discipline and restraint, but also about priorities.

“”I am proud to announce a$3.6 billion spread the wealth package,”  he added.

Mr Swan confirmed that the 1 per cent tax cut, planned for business, would be directed to low and middle income families instead.

He blamed the opposition for that reversal.

“We wanted to do more,” he said.

But the opposition had prevented that.

The highlights Mr Swan announced, in what he called his “Battlers Budget” included:-

* A new Benefits of the boom package.  Mr Swan said this would include major tax reforms and increases to pensions and family payments.

* The first stage of  new national disability insurance scheme.

* A national dental scheme, to help those on low incomes.

* More strong investment in infrastructure.

* Overdue reforms, that would give older Australians more choice in aged care and

* New tax incentives for small business.

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Retail sales rise – on heavy discounting

Australians are starting to spend more as the nation’s supermarkets, cafes and clothing stores cut their prices, to win new business.

These developments led to a 0.9 per cent rise in the nation’s retail sales in March.

The Australian Bureau of Statistics also reported that h0me building approvals rose by 7.4 per cent in March.

Approvals, though, remained 15 per cent below the level seen in the same month last year.

And the nation’s shopkeepers are still troubled.

They say they are being forced into aggressive discounting, to boost their sales.

Other indicators, just published, also illustrate the widening gap between Australia’s still booming mining industries and other sectors of the economy.

The Australian Industry group, for example, reports that the nation’s construction industry slump continued into April.

It said this was evident in poor demand and subdued workloads, particularly in the apartment building sub-sector.

The National Australia Bank’s latest monthly business survey, too,  found that only the retail and mining sectors had escaped  further downturns in April.

Victorian shopkeepers reported a 1.3.per cent rise in retail sales in March, the biggest rise seen in  any State that month.

Sales in the ACT, though,  rose by 1.5 per cent.

Shopkeepers in NSW saw their sales rise by  1.2 per cent.

Those in Western Australia also reported  a 1.2 per cent rise,  while Tasmanian retailers enjoyed a 0.5 per cent rise and sales  in South Australia rose 0.6 per cent.

There was also a 0.2 per cent rise in Queensland and a rise of 0.4 per cent in the Northern Territory.

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