There has been an abrupt shift in consumer psychology which has implications for government policy, the Reserve Bank, and business decision makers. Economic pessimism has increased and the level of belief in climate change has lifted.
These changes seem to be at odds with the federal government’s “sticking to our policy” mantra. The heightened expectation of a rise in unemployment is inconsistent with the Reserve Bank’s hope for a decline in the unemployment rate to 4.5%. Other shifts in consumer psychology are more positive and provide an opportunity to boost consumer spending growth.
The level of belief in imminent climate change in late 2019 is the second-highest recorded and is slightly higher than in 2007, when John Howard lost his seat in parliament and his government lost office.
The federal government and many businesses need to take more decisive action on climate change to satisfy voter (and customer) expectations.
For several years, prominent Australian economist Ross Garnaut has warned of “the great Australian complacency” which has significantly slowed Australia’s economic growth rate. That description clearly also applies to the issue of climate change.
As the new decade dawns, more Australians are experiencing the costs of these policy complacencies.
Our tracking survey update was in field in November and early December 2019.
A summary report is available at foreseechange.com.au.
Symptoms of a collapse in consumer spending include four successive quarters of declining per capita retail sales volume, to the September 2019 quarter. Declining new vehicle sales to private buyers for nearly two years to October provides confirmation of the breadth of the slump.
The recent cuts in interest rates, boosted personal income tax returns, and lower income tax rates have had no measurable impact on consumer spending so far.
Causes of this damaging slump are easily identified: low income growth and a fall in residential property prices. There are, however, several causes of low income growth and these are identified in this report.
My report identifies the characteristics of those consumers who are most willing to spend. These have been deserted by recent monetary and fiscal policy and should be the targets of immediate stimulus. The forms this remedy should take are described and an implementation strategy is outlined.
My report uses proprietary consumer tracking data which measures consumer willingness to spend by demographic.
Industries exposed to consumer spending have an interest in understanding how to stimulate spending and recommending our strategy proposals to the Treasurer and the Governor of the Reserve Bank before they make any more mistakes. Industries which would benefit include retailers and their suppliers, service industries, media companies, and media agencies.
My report is available at www.foreseechange.com.au
Population growth is an important driver of economic growth, lifting both demand and productive capacity. Growth is currently 1.6% per year and may be falling. The peak growth rate was 2.2% in 2008.
Peak births? Births may have peaked in 2018, at 314,900. The 1971 peak of 274,400 was not exceeded until 2007 despite significant population growth. Fertility peaked in 1961 at 3.55 and the arrival of the oral contraception pill quickly caused a rapid decline. Fertility has averaged 1.85 since 1985.
Peak deaths? The increase in the number of deaths has slowed recently and deaths may be at a peak.
Peak life expectancy? Not yet: life expectancy is still increasing at all ages.
Peak natural increase? Natural increase (births minus deaths) appears to have peaked at 165,200 in 2012.
Peak net migration? The peak was 315,700 in 2008. The trend is currently rising, but not fast enough to break the record for several years.
Our report projects Australia’s births, deaths, net migration, and population for 2020 and 2021. It also discusses the uncertainties surrounding births and net migration.
Predictions of the outcome of the 2019 federal election were inaccurate. Both polls of voting intentions and betting markets failed to predict a Coalition victory.
I have explored whether the Wisdom of the Masses, the general public’s expectations about the future on several issues, can explain the election outcomes between 2007 and 2019. Elections are intrinsically about the future.
My findings are positive and this provides a new basis for predicting Australian federal election outcomes.
Expectations about three issues have explained the outcomes of the past five elections: belief in imminent climate change; fear of terrorism; and economic pessimism. Expectations about each of these three issues have varied considerably over this period. The findings provide insights relevant to the focus of election strategies of political parties.
My report is available at foreseechange.com.au.
Government and business planners need accurate economic forecasts to make optimal decisions. Investors too need accurate economic forecasts as part of evaluating future company profits.
There are times when economic forecasts are quite accurate: this is usually when there is little variation from recent trends. There are also times when accuracy is very poor.
It would be valuable to be able to predict when economic forecasts can be relied upon and when they are likely to be inaccurate. This is important for risk management and appears to be possible, at least in Australia. There are circumstances when official forecasts are likely to be most inaccurate.
I have identified the conditions under which GDP forecasting inaccuracy is greatest. My report is available at foreseechange.com.au.
Most will not be spent initially, only 25% to 30%. This is based on modelling past data and tracking surveys, conducted since 2003 by foreseechange, of how consumers allocate discretionary funds.
More will be used for debt repayment. When consumers repay debt, some may become more willing to spend subsequently. But very low income growth in Australia will limit the ability to spend.
Even more will be used for saving. Much of this is precautionary or for other long-term saving, such as retirement. Quite a lot will be saved by young adults towards the purchase of residential property.
One of the main purposes for saving is for a holiday, mostly overseas. Tax cuts put towards saving for a holiday will eventually be spent, but much of it will be spent overseas.
The overall impact on consumer spending may be just noticeable and may hold the economy up a little for the next 6 to 12 months. Beyond then, we will be back to weak consumer spending growth and a weak economy unless we have policies to significantly boost productivity.
The glass may appear to be more than half-full for a short time, but the content will soon be consumed.
Details are available at foreseechange.com.au.
They were horribly wrong on the 2019 Australian federal election outcome. Now I have come across an article from my files concerning Sportsbet’s odds on Australian interest rates in 2018. This was not a good guide!
In the Australian Financial Review of 22 September 2017, Philip Baker noted that Sportsbet had two interest rate increases in 2018 as the $2.80 favourite, while just one increase was priced at $2.88. No change was paying $3.60. In fact, interest rates did not change in 2018 and the Reserve Bank cut interest rates in June 2019.
It is thought that betting markets are accurate because people with inside knowledge gamble and win from the great unwashed who also gamble. But insiders are not always right!
More in my book “Forecasting: the essential skills”
Australia has joined other countries with polls and betting markets proving very inaccurate in forecasting the 2019 federal election outcome.
My article suggests that studying polling trends would have been accurate.
How Labor lost
In my August 2018 post, I noted a suite of indicators that Australia’s economy was slowing significantly. It is only in May 2019 that official forecasts have been revised downwards to reflect he long-evident facts.
The Reserve Bank of Australia have announced their downwards revision on the eve of Australia’s federal election on 18 May 2019.
Those who read my August 2018 post will have had plenty of time to prepare for this slowdown.
My latest report on Australia’s economic outlook is sobering, but essential, reading.
In November 2018, our wisdom of the masses tracking survey indicated an increase in the likelihood of a severe economic slowdown. At that time the Reserve Bank of Australia was predicting 3.5% growth in 2019 and the federal government was nearly as optimistic. The Reserve Bank lowered their forecast to 3% only in February 2019.
As of 6 March 2019, we know that the economy slowed significantly in the December 2018 quarter to be only 2.3% higher than a year earlier. There is little comfort across a range of indicators that there will be any improvement in the March 2019 quarter.
On a quarter-to-quarter seasonally adjusted basis, Australia is now in a per capita economic recession for the first time since 2006.
Consumers are at the beating heart of the economy – both on the demand and supply sides. If we want to know what is going on, we should track their views. In aggregate, they will be more accurate than the experts!
See my wisdom of the masses expectations for 2019 for more information.