As always it’s important not to read too much into one piece of data, and generally I’ve been optimistic about the Australian economy and even more so about the Queensland economy over 2022-23, but the latest consumer confidence figures are very concerning (see chart above). ANZ’s Richard Yetsenga has pointed out that the ANZ-Roy Morgan consumer confidence measure is now at a level you’d expect to see in a recession, (e.g. the 2020 COVID recession which is the only recession the ANZ-Roy Morgan time series includes), although he’s not actually forecasting a recession at this stage.
Are consumers reacting too much to current events and forgetting about the underlying momentum in the economy? Could we actually end up in a downturn much sooner than expected, given we’re still only in the second year of recovery from the COVID-recession? As always, time will tell and I hesitate to give macroeconomic forecasts.
What’s driving the consumer confidence fall? Obviously the following factors are relevant:
- 0.75 percentage points of interest rate increases since early May; and
- accelerating inflation (currently 5.1% yearly with predictions it will increase to 7% by year’s end) which is getting ahead of nominal wage increases for many workers.
The big drop in consumer confidence lends credence to previous survey data suggesting a large number of Australian households have taken on too much mortgage debt and will struggle as interest rates increase.
Another possible contributing factor – although this could never be proven – was the negative talk about the economy from our new federal Treasurer Jim Chalmers, who I had hoped would be reasonably sensible, as I told Anthony Fensom who wrote my immediate post-election comments up in his Diplomat article Australia’s New Government Faces an Economic Trial-by-Fire. But Chalmers has had a shaky start and received some stern words from my former Treasury colleague, now AFR economics editor John Kehoe, who wrote earlier this month, in his column Why Chalmers is walking a fine line on the economy, “The new treasurer needs to be careful not to talk down the economy too much, and to be wary of further igniting inflation expectations.” Too right. As then US President Jimmy Carter discovered after his 1979 malaise speech, the public doesn’t react well to its leaders telling them how terrible things are, especially if those leaders don’t yet appear to have a good plan to do something about it.
Additionally, this week has seen concerns over the risk of global stagflation cause falls in stock prices. This will start to adversely impact consumer confidence here to some extent. Offsetting that slightly may be the announced wage increase from the Fair Work Commission. I just hope that the FWC going along with the Government’s suggested wage increase isn’t the start of a wage-price spiral. On this issue check out my latest podcast episode Stagflation: be alert, not alarmed from 28:47.
Regarding the east coast electricity crisis, I don’t think that would yet be reflected in the consumer confidence figures, but surely it will have some sort of an impact. It’s another aspect of our current (and hopefully only temporary) malaise.
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